UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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x☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the fiscal year ended | December 31, 20172022 |
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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)
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| Ohio | | 34-0183970 |
(State or other jurisdiction of
incorporation or organization)
| | (I.R.S. Employer Identification No.) |
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5995 Mayfair Road,
50 Executive Parkway, P.O. Box 3077, North Canton, Ohio 2520 | 44720-8077Hudson | Ohio | | 44236-1605 |
(Address of principal executive offices) | | (Zip Code) |
Registrants telephone number, including area code (330)490-4000
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol | Name of each exchange on which registered |
| Common Shares $1.25 Par Value | DBD | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
NoneYes ☒ No ☐
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o☐ No x☒
Indicate by check mark if the registrant is a well-known issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.
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Large accelerated filerx Filer | ☐ | Accelerated fileroFiler | ☒ | Non-accelerated fileroFiler | ☐ |
Smaller reporting companyo | ☐ | Emerging growth companyo | (do not check if a smaller reporting 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. o☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o☐ No x☒
Approximate aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2017,2022, based upon the closing price on the New York Stock Exchange on June 30, 2017,2022 was $2,106,512,828.$179,428,945.
Number of common shares outstanding as of February 23, 2018March 13, 2023 was 75,940,277.79,610,478.
DOCUMENTS INCORPORATED BY REFERENCE
Listed hereunder are the documents, portions of which are incorporated by reference, and the parts of this Form 10-K into which such portions are incorporated:
Diebold Nixdorf, Incorporated Proxy Statement for 20182023 Annual Meeting of Shareholders to be held on or about April 25, 2018,28, 2023, portions of which are incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
PART I
ITEM 1: BUSINESS
(dollars in millions)
GENERAL
Diebold Nixdorf, Incorporated (collectively with its subsidiaries, the Company) provides Connected Commerce solutions which enable millions of transactions each day. The Company’s approximately 23,000 employees designautomates, digitizes and deliver convenient, “always on”transforms the way people bank and highly secure solutions that bridgeshop. As a partner to the physical and the digital worlds of transactions. Customersmajority of the Company include nearly all of the world’sworld's top 100 financial institutions and a majority of the top 25 global retailers.
In 2016,retailers, the Company changed its name from Diebold to Diebold Nixdorf, following the transformational acquisitionCompany's integrated solutions connect digital and physical channels conveniently, securely and efficiently for millions of Wincor Nixdorf Aktiengesellschaft (now known as Diebold Nixdorf AG) (the Acquisition). As a result of this acquisition, theconsumers each day. The Company has significantly increased itsa presence around the world and now conducts business in more than 130 countries. The Company was founded in 1859 and is incorporated under the laws of the state of Ohio.100 countries with approximately 21,000 employees worldwide.
Strategy
The Company’s Connected Commerce strategyCompany seeks to continually enhance the consumer experience at bankingbank and retail locations while simultaneously streamlining cost structures and business processes through the smart integration of hardware, software and services. This business requires ongoing investment in the development of intelligent information technology (IT) solutions and in the further development of our industry-leading services organization. The Company will continuously refinepartners with other leading technology companies and regularly refines its research and development (R&D) spend into support of a better transaction experience for consumersconsumers.
Operational priorities
The Company is establishing foundational priorities to support its business in 2023 and additionally acceleratebeyond, working toward one objective - to deliver on its operating model unit economic goals as one team and one company. The Company will focus on three simple priorities:
•Deliver its products to customers and maintain operational excellence;
•Stabilize and grow its recurring revenue, leveraging its core expertise; and
•Reinvigorate its culture - embracing the developmentCompany's heritage and integration of innovative technology including cloud computing technology, touch points, sensors and connectivity to the Internet of Things, as well as open and agile software.taking pride in its accomplishments.
Integration and Transformation Program
Commensurate with its strategy,Primarily, the Company is executingcommitted to building and delivering its core solutions to our customers with a multi-year integrationstrong focus on unit conversion economics, upon which its business model is largely based. The Company believes this is the most simple and transformation program, called DN2020, which aligns employee activities with the Company's goaleffective way to evaluate performance from an operational standpoint.
By focusing on delivery and revenue recognition of realizing $240 of operating profit savings by the year 2020. Additional objectives of the program are to deliver greater innovation for customers, career enrichment opportunities for employees, and enhanced value for shareholders. DN2020 consists of six inter-related elements:
Advancing the Company's Connected Commerce Strategy -product units, the Company will continuebe well-positioned to develop innovative technologyexecute on its business model and partnermove toward stability and growth, especially as it continues to see consistent demand for its Banking and Retail solutions in the market. Stabilizing its business around core expertise to drive growth is expected to expand the Company’s services and software revenue opportunities, creating longer-term value and revenue sources.
The Company is also focused on reinvigorating its culture. Our people make Diebold Nixdorf great, and we are taking a fresh perspective with external companiesseveral initiatives planned to deliver highly secure customer-centric solutions. This includes the applicationaccomplish this goal.
Services and Product Solutions
The Company offers a broad portfolio of cloud computing technology, mobile technology, sensors and the Internet of Things, as well as open and agile software delivered “as-a-service."
Pursuing Finance Excellence - the Company will continuously improve its financial reporting, analysis and controls by emulating best practices from similar business entities. The Company's initiatives aresolutions designed to improve forecasting accuracy, optimize working capital managementautomate, digitize and pursue prudent capital allocation strategies which enhance shareholder value. At present,transform the Company's capital allocation priorities are to reduce its leverageway people bank and accelerate the realization of its cost reductions and synergies.
Executing the Company's Integration Plan - the Company’s detailed integration plan is designed to harmonize legacy business practices and build upon the best practices from each legacy company. The integration plan will leverage the Company's global scale, reduce overlap and improve the profitability of the Company.
Pursuing Operational Excellence - to strengthen its market leading position, the Company will implement best practices to improve operational efficiency and increase customer satisfaction. Robust reporting and tracking tools will be used to achieve best-in-class service and manufacturing levels.
Establish an Innovative Culture, which Attracts Industry-Leading Talent - the Company aims to become an employer of choice in the Connected Commerce space. We are building a culture characterized by innovation, customer collaboration, accountability and strong ethical behavior. The Company encourages experiential learning and will invest in training resources for the purposes of developing a vibrant workforce and expanding its leadership in Connected Commerce. Performance-based rewards and recognition policies are aligned with Company objectives and market opportunities.
Pursuing Sales Excellence - a capable and progressive sales organization is vital to the future growth of the Company. The Company will invest in the sales organization to ensure it has the skills, resources, and processes needed to support customers in their digital transformation journey. At the country level, we will optimize sales staffing and invest in partner programs commensurate with overall market demand.shop. As a result, the Company’s operating structure is focused on its two customer segments — Banking and Retail. Leveraging a broad portfolio of these investments,solutions, the Company expectsoffers customers the flexibility to increase its pipelinepurchase combinations of opportunitiesservices, software and increase its win rate over time.products that drive the most value to their business.
Banking
The Company provides integrated solutions for financial objectiveinstitutions of DN2020 isall sizes designed to realize approximately $240 of cost savings through 2020, including improvements realized throughhelp drive operational efficiencies, differentiate the Acquisition. Cost savings include:consumer experience, grow revenue and manage risk.
Realizing volume discounts on direct materialsBanking Services
Harmonizing
Services represents the solutions set of platforms and components
Increasing utilization rateslargest operational component of the service technicians
Rationalizing facilities in the regions
Streamlining corporateCompany and generalincludes product-related services, implementation services and administrative functions
Harmonizing back office solutions.
In order to achieve these savings, the Company has and will continue to invest significant dollars to restructure the workforce, integrate and optimize systems, streamline legal entities and consolidate real estate holdings. By executing these activities, the Company expects to deliver greater innovation for customers, career enrichment opportunities for employees, and enhanced value for shareholders.
CONNECTED COMMERCE SOLUTIONS
Services line of business (LOB)
With approximately 15,000 highly-trained service employees and a global delivery network, Diebold Nixdorf is the global leader in servicing distributed digital and physical assets for banking and retail customers. These services enable customers to meet the growing demand for transaction availability at automated teller machines (ATMs), point of sale (POS), self-checkout systems (SCO) and other distributed assets in a cost-effective manner. The Company’s global customer care center offers around-the-clock availability and is proficient in supporting customers in more than 25 languages. Recent investments in additional service technicians, training and support systems is optimizing the Company's service delivery. The global service supply chain optimizes the process for obtaining replacement parts, making repairs, and implementing new features and functionalities. The Company also possesses deep experience in installing, maintaining and upgrading customer touchpoints manufactured by other vendors, also known as multi-vendor support.
managed services. Product-related services provided by the Company include rapid resolution of incidents are managed through remote service capabilities or an on-site visit. First and second lineThe portfolio includes contracted maintenance, preventive maintenance, “on-demand” maintenance and on-demandtotal implementation services. Implementation services leveragehelp our customers effectively respond to changing customer demands and includes scalable solutions based on globally standardized processes and tools, a standardized incident management process to increase uptimesingle point of distributed assets.
contact and reliable local expertise. Managed services and outsourcing consists of managing the end-to-end business processes and technology integration, and day-to-day operation of the self-service channel, bank branch and retail store networks. Managed services is the integrator of ourintegration. Our integrated business solutions by bringing together services, software and systems into a long-term, outcome-based solution. Offerings include store lifecycle management, self-service fleet management, branch lifecyclelife-cycle management and ATM as-a-service and managed mobility services. The Company also provides a full arraycapabilities.
Under DN2020, the Services LOB has a dual mandate of delivering revenue growth while improving efficiency. Sources of top-line growth include 1) increasing the Company's service attach rate on any unserved ATMs, POS and SCO systems in use, 2) up-selling current customers on managed services and 3) increasing billed work revenue by leveraging best practices across different countries and regions. The Services LOB expects to improve operating efficiency by implementing standard service tools, optimizing business processes, increasing the market acceptance of remote connection and resolution, and streamlining global delivery centers and stocking facilities.
Software LOB
The Company provides front-end applications for consumer connection points and back-end platforms that manage channel transactions, operations and integration. These hardware-agnosticCompany's DN Vynamic software applications facilitate millions of transactions via ATMs, 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 banking and retail transactions across channels. This multi-vendor software portfolio is designed to meet the evolving demands of a customer's self-service network including:
Connection points
Transaction management
Operations and security
Customer engagement
Analytics and digital
In October 2017, the Company introduced Vynamic, the first end-to-end Connected Commerce software portfolio in the banking marketplace designed to simplify and retail marketplace.enhance the consumer experience. This offering establishesplatform is cloud-native, provides new capabilities and supports advanced transactions via open application program interface (API). In addition, the evolutionary path for the Company's currentCompany’s software offerings including Vista, Commander, Xpression, PCE, Procash and TP.net. The Vynamic suite's open API architecture is built to eliminatesuite simplifies operations by eliminating the traditional focus on internal silos and enable tomorrow'senabling inter-connected partnerships between financial institutions retailers and payment providers. Through its open approach, DN Vynamic brings together legacy systems, enabling new levels of connectivity, integration, and interoperability. The Company’s software suite provides a shared analytic and transaction engine. The DN Vynamic platform can generate new insights to enhance operations; prioritizing consumer preferences rather than technology.
In 2020, the Company launched the AllConnectSM Data Engine (ACDE), which enables a more data-driven and predictive approach to services. As of December 31, 2022, more than 175,000 devices were connected to ACDE. As the number of connected devices increases, the Company expects to benefit from more efficient and cost-effective operations.
Banking Products
The banking portfolio leveragesof products consists of cash recyclers and dispensers, intelligent deposit terminals, teller automation and kiosk technologies. As financial institutions seek to expand their self-service transaction set and reduce operating costs by shrinking their physical branch footprint, the Company offers the DN Series™ family of self-service solutions.
DN Series is the culmination of several years of investment in consumer research, design and engineering resources. Key benefits and features of DN Series include:
•superior availability and performance;
•next-generation cash recycling technology;
•full integration with the DN Vynamic™ software suite;
•a modular and upgradeable design which enables customers to respond more quickly to changing customer demands;
•higher note capacity and processing power;
•improved security safeguards to protect customers against emerging physical, data analyticsand cyber threats;
•physical footprint as much as 40% less vs. competing ATMs in certain models;
•made of recycled and recyclable materials and is 25% lighter than most traditional ATMs, reducing CO2 emissions both in the manufacturing and transportation of components and terminals;
•uses LED technology and highly efficient electrical systems, resulting in up to enable businesses50% power savings versus traditional ATMs; and
•increased branding options for financial institutions.
Retail
The Company’s comprehensive portfolio of retail solutions, software and services improves the checkout process for retailers while enhancing shopping experiences for consumers.
Retail Services
Diebold Nixdorf AllConnect Services® for retailers include maintenance and availability services to make intuitive, predictivecontinuously optimize the performance and adaptive data–driven decisionstotal cost of ownership of retail touchpoints, such as checkout, self-service and can be delivered as-a-service using cloud computing. Built to enable seamless consumer experiences across mobile devices, ATMs, POS terminals, branches, stores, kiosksas well as critical store infrastructure. The solutions portfolio includes: implementation services to expand, modernize or upgrade store concepts; maintenance services for on-site incident resolution and online channels,restoration of multivendor solutions; support services for on-demand service desk support; operations services for remote monitoring of stationary and mobile endpoint hardware; as well as application services for remote monitoring of multivendor software and planned software deployments and data moves. As a single point of contact, service personnel plan and supervise store openings, renewals and transformation projects, with attention to local details and customers’ global IT infrastructure.
The DN Vynamic extends beyond omnichannel to enable banks andsoftware suite for retailers to create seamless, secure, highly personal connections across numerous digital and physical channels.
In the retail business, the Company provides a comprehensive, modular and open solution suite which is capable of enablingranging from the most advanced omnichannel retail use cases. Also sold under the Vynamic portfolio, retail software improvesin-store check-out to solutions across multiple channels that improve end-to-end store processes and providesfacilitate continuous connected consumer engagements in support of a digital ecosystem. This includes click & collect, reserve & collect, in-store ordering and return to storereturn-to-store processes across the retailers' physical and digital sales channels. DataOperational data from a number of sources, such as enterprise resource planning (ERP), POS, store systems and customer relationship management systems (CRM), may be integrated across all customer connection points to create seamless and differentiated consumer experiences. Recent innovations include:
Vynamic Engage: A new cloud-based, software-as-a-service solution that enables a 360-degree view of customer behavior at every touchpoint. Customers may use the software to offer targeted promotions and conduct real-time campaigns across all channels.
Vynamic Mobile Shopper: Offering mobile self-scanning capabilities via both retail-hardened devices and consumer smartphones.
Vynamic Mobile Retail: A mobile scan & go application built on the Kony platform and enriched with personalization features from Vynamic Engage.
An important enabler of the Company’s software business is the more than 1,900 professional service employees who provide systems integration, customization, consulting and project management. The Company's advisory services team collaborates with its customers to help define optimal user experience, improve business processes, refine existing staffing models and deploy technology to meet branch automation objectives.
Systems LOB
Through collaboration with customers, engineering excellence and an efficient supply chain,In 2021, the Company delivers industry-leadingannounced it entered the electric vehicle (EV) charging station services business, a market with a customer touchpointsprofile potentially comparable to banks, retailersthe existing retail business. Our global services capability, including our technicians, our skills in global spare parts logistics management, and other customers. These systems enable highly secure physical and digital transactions around the world. The Company integrates component technologies according to customer specifications in order to optimize the total costmulti-lingual help desks have initially resonated with market participants who own public charging stations.
Retail Products
The systemsretail product portfolio for banking customers consistsincludes self-checkout (SCO) products and ordering kiosks facilitate a seamless and efficient transaction experience. The BEETLE®/iSCAN EASY eXpress™, hybrid products, can alternate from attended operation to SCO with the press of cash recyclersa button. The K-two Kiosk automates routine tasks and dispensers, intelligent deposit terminals, tellerin-store transactions, offers order-taking abilities, particularly at quick service restaurants (QSRs) and fast casual restaurants and presents functionality that furthers store automation and kiosk technologies,digitalization. The retail product portfolio also includes modular and integrated, “all-in-one” point of sale (POS) and self-service terminals that meet changing consumer shopping journeys, as well as physical security solutions. Recent innovation concepts include the miniaturized Extreme ATM, Essenceretailers’ and Fusion. Extreme ATM is the smallest ATM ever developed at less than 10” wide, which allows customers to stage transactions on mobile phones and complete transactions using Bluetooth® devices or near-field communication. Essence is a highly-secure and miniaturized ATM that features a sleek, antimicrobial glass touchscreen display and enhanced user interface modeled after today’s smartphones and tablet computers. Fusion is a modular and dynamic self-service touchpoint consisting of three interchangeable user interfaces that can connect with three different cash handling platforms.
For retail customers, the checkout portfolio includes modular, integrated and mobile POS systems that meet evolvingstore staff’s automation and omni-channel requirements of consumers.requirements. Supplementing the POS system is a broad range of peripherals, including printers, scales and mobile scanners, as well as the cash management portfolio, which offers a wide range of banknote and coin processing systems. The portfolio, the Company also provides self-checkout terminals and ordering kiosks which facilitate an efficient and user-friendly purchasing experience. The Company’s hybrid product line, the BEETLE iSCAN EASY eXpress, can alternate from attended operation to self-checkout with the pressAdditionally, our retail software solutions are inclusive of a button as traffic conditions warrant. The K-Two Kiosk automates routine tasks and in-store transactions, offers order-taking abilities at quick service restaurants (QSR) and fast casual restaurants, provides customer service, supplies product information, sells tickets and presents functionality that furthers store digitalization.
Under the DN2020 program, the Systems LOB objectives include introducing new innovations which are aligned with changing consumer demands and delivering greater operating efficiencies. With respect to innovation, the Company will continue to spend significant R&D dollars on the latest technology, which includes:
Advanced security solutions including anti-skimming card readers, biometric authentication and a modular, scalable architecture suited for various threat environments and risk appetites;
Facilitating real-time monitoring activities through the use of advanced sensors;
Remote and assisted self-service solutions including in-store/branch tablet notifications and two-way video capabilities;
Mobile connectivity to support contactless transactions; and
Miniaturization technologies needed for branch/store transformation.
With respect to operating efficiencies, the Company's activities include:
Leveraging the purchasing power of the Company through its procurement partnership program;
Streamlining the product portfolio - including terminals, core technologies and components;
Developing a partner ecosystem to complement the Company's core technologies; and
Consolidating manufacturing capacity to optimize fixed costs
Leveraging the broad portfolio of solutions, the Company offers customers the flexibility to select the combination of services,cloud native software and systems that drives the most value to their business. For example, the Company offers end-to-end branch and store automation solutions that consist of the complete value chain of consult, design, build and operate. Branch and store automation helps financial institutions grow revenue, reduce costs, and increase convenience and security for their customers by migrating routine transactions, typically done inside the branch or store, to lower-cost automated channels. The Company’s advisory services team collaborates with its clients to define the ideal customer experience, modify processes, refine existing staffing models and deploy technologies that meet business objectives.
Segment financial information can be found in note 22 to the consolidated financial statements,platform which is contained in Item 8 of this annual report on Form 10-K.hardware agnostic and multi-vendor capable.
COMPETITION
The Company competes with global, regional and local competitors to provide Connected Commercetechnology solutions tofor financial institutions and retailers. Changing customer demands require the Company's customers to transform their business processes by investing in innovative technology. The Company differentiates its offerings by providing a wide range of innovative solutions.
dynamic solutions that leverage innovations in advanced security, biometric authentication, mobile connectivity, contactless transactions, cloud computing and Internet of Things (IOT). Based upon outside independent industry surveys from Retail Banking Research (RBR), the Company believes that it is a leading service provider and manufacturer of self-service solutions across the globe. The Company maintains a global service infrastructure that allows it to meet delivery deadlines. Many of the Company’s customers are beginning to adopt branch automation solutions which improve the customer experience and enhance efficiency. The complexity of new hardware, software and service solutions is resulting in longer sales and deployment cycles for large projects. As the trend towards branch and store automation continues, the traditional lines of “behind the counter” and “in front of the counter” solutions are eroding, which creates additional opportunity for the Company while increasing the number of competitors. The Company differentiates its offerings by leveraging innovations in advanced security, biometric authentication, mobile connectivity to support contactless transactions, advanced sensors, cloud computing and the Internet of Things to facilitate real-time monitoring activities, and miniaturization technologies. With regard to Microsoft’s plan to end support for Windows 7 in 2020, Diebold Nixdorf became the first ATM provider to ship Windows 10 ready products.
Competitors in the self-service banking market include NCR, Nautilus Hyosung, GRG Banking Equipment, Glory Global Solutions, Oki Data and Triton Systems, as well as a number of localizedlocal manufacturing and service providers such as Fujitsu and Hitachi-Omron in Asia Pacific (AP); Hantle/GenMega in North America (NA); KEBA in Europe, Middle East and Africa (EMEA); and Perto in Latin America (LA).
In a number of markets,certain countries, the Company sells to but alsoand/or competes with independent ATM deployers, such as Cardtronics, Payment Alliance International and Euronet.Euronet, that primarily operate in the non-bank retail market.
In Brazil, the Company provides election systems, lottery terminals and product support to the Brazil government. Competition in this market segment is based upon technology pre-qualification demonstrations.
In the retail market, the Company is a market leader in helpinghelps retailers to transform their stores to a consumer-centric approach by providing electronic POS, (ePOS), automated checkoutSCO solutions, cash management, a software suite and services for the majority of retailers headquartered in Europe.services. The Company competes with some of the key players highlighted above plus other technology firms such as Toshiba and Fujitsu, and specialized software players such aas GK Software, Oracle, Aptos and PCMS. Many retailers also work with proprietary software solutions.
For its services offerings, the Company perceives competition to be fragmented, especially in the product relatedproduct-related services segment. While other manufacturers provide basic levels of product support, the competition also includes local and regional third-party providers. With respect to higher value managed services, the Company competes with large IT service providers such as IBM, Atos, Fiserv and DXC Technology.
In the self-service software market, the Company, in addition to the key hardware players highlighted above, competes with several smaller, niche software companies like KAL, orand with the internal software development teams of banks and retailers.
OPERATIONS
TheThe Company’s operating results and the amount and timing of revenue are affected by numerous factors, including supply chain, production schedules, customer priorities, sales volume and sales mix. During the past several years, the Company has honed its offerings to become a total solutions provider with a focus on Connected Commerce.provider. As a result of the emphasis on services and software, the nature of the Company's workforce is changing and requires new skill sets are requiredin areas such as:
Advanced•advanced security and compliance measures,measures;
Advanced sensors,•advanced sensors;
Modern•IOT;
•modern field services operations,operations;
Cloud computing,•cloud computing;
Analytics,•analytics; and
As-a-service software•as-a-service expertise.
The principal raw materials used by the Company in its manufacturing operations are steel, plastics, electronic parts and components and spare parts, which are purchased from various major suppliers. These materials and components are generally available in ample quantities.
The Company carries working capital mainly related to trade receivables and inventories. Inventories generally are only manufactured or purchased as orders are received from customers. The Company’s normal and customary payment terms generallytypically range from 30 to 90 days from date of invoice. The Company generally does not offer extended payment terms. The Company
also provides financing arrangements to customers that are largely classified and accounted for as sales-type leases.
HUMAN CAPITAL MANAGEMENT
We are a world leader in automating, digitizing, and transforming the way people bank and shop. However, we would not be in that position without our employees, one of our most valuable assets. Diebold Nixdorf is improving the employee experience by leveraging best practices and investing in the tools necessary to develop and reward talent across the Company.
Employee Profile
As of December 31, 2017,2022, we employed approximately 21,000 associates globally in more than 100 countries.
Culture
We govern our actions by our shared values: Accountability, Collaboration, Decisiveness, a Sense of Urgency and a Willingness to Change. Additionally, we have a CARE Council, which stands for Considerate, Aware, Responsible and Empathetic – four behaviors we expect all employees to model on a daily basis. Together, our values and CARE Council help employees feel appreciated, involved, connected and supported, and that they have equal opportunity to succeed. We continue to drive our cultural evolution through our diversity and inclusion programs, employee resource groups, robust internal communications and performance management process.
Diversity and Inclusion
The Company is committed to establishing a culture of diversity and inclusion where everyone is accepted, valued, supported and encouraged to thrive. We value the Company’s net investmentdifferent perspectives and solutions our communities bring to the Company, and we believe these perspectives have a positive impact on how we innovate and grow. Our expectation is that our diversity and inclusion program will guide improvements in finance lease receivables was $26.3.our culture - specifically, recruiting, training, policies and reporting, leader expectations, and benefits. In 2022, we continued to promote employee resource groups, including Women in the Workplace, DN Pride and Multi-Cultural. We are continuing to enhance our diversity and inclusion initiatives, in conjunction with our CARE Council, to recruit, retain and promote a diverse workforce. These efforts will not only promote innovation and growth but will also strengthen our relationships with customers spanning more than 100 countries with diverse cultural, gender, racial and other profiles.
Employee Engagement
We have invested in our internal communications resources to better engage our employees. We have an internal intranet, called The Exchange, to keep employees informed about key changes to our business, new product launches and progress on strategic initiatives.
Talent
To maintain a competitive workforce, the Company is evolving and enhancing how we train, identify and promote key talent. Additionally, the Company has continually improved and standardized our employee review process – encouraging regular performance reviews and feedback that will set clear expectations, motivate employees and reinforce the connection between pay and performance.In 2021, we expanded our global talent review program for talent development and succession planning to go deeper into our organization below senior leadership roles. Recently, retention bonuses were provided to retain certain employees within leadership positions.
Health, Safety and Wellness
Throughout our history, we have maintained our commitment to providing a safe workplace that protects against and limits personal injury and environmental harm. We follow international standards and regulations for product safety and security. Our Design-For-Quality approach covers R&D Quality, Manufacturing Quality and Supplier Quality. During the course of product development, these functions regularly participate in solution requirements and specification reviews. In the later phases of development, we define and perform various tests to ensure Product Safety and Security. We evaluate risks using both government-required procedures and best practices to ensure we understand residual risk and appropriately protect our employees. Frequent training ensures that specialists are informed promptly about legal and internal requirements.
Additionally, since the global outbreak of COVID-19, we have continued to evaluate and enhance our health, safety, and wellness protocols. Our designation as an essential service provider in numerous locations around the world required us to respond and address health and safety issues in real time. We have addressed these challenges with the following measures:
•implementing our comprehensive Pandemic Response Plan to ensure the continuity of our operations while protecting the health and safety of our people;
•instituting new safety and cautionary procedures for front-line employees to ensure their safety;
•providing sanitizing materials and guidance for working in common work areas;
•requiring employees to comply with quarantining requirements;
•sanitizing our production facilities and issuing stringent guidance on prohibiting unnecessary visitors and contractors from entering our manufacturing facilities; and
•establishing/adhering to stringent hygiene protocols, including handwashing, no admittance by anyone exhibiting cold or flu-like symptoms, temperature checks and social distancing to the fullest extent possible.
Compensation
Our compensation program is designed to attract and retain employees and to maintain a strong pay for performance culture. We regularly assess the current business environment and labor market to ensure our compensation programs reflect current best practices. We benchmark and set pay ranges based on market data for our jobs. We believe that these practices will help to motivate and engage our broader base of employees resulting in sustained increases in shareholder value and reflects our compensation philosophy in aligning long-term pay and performance.
PRODUCT BACKLOG
The Company's product backlog was $1,026.7approximately $1,400 and $1,060.0$1,100 as of December 31, 20172022 and 2016,2021, respectively. The backlog generally includes orders estimated or projected to be shipped or installed within 18 months. Although the Company believes the orders included in the backlog are firm and are sometimes paid in advance, some orders may be canceled by customers without penalty, and the Company may elect to permit cancellation of orders without penalty where management believes it is in the Company's best interests to do so. Historically, the Company has not experienced significant cancellations within its product backlog. Additionally, over 50 percent of the Company's revenues are derived from its service business, for which backlog information is not measured. Therefore, the Company does not believe that its product backlog, as of any particular date, is necessarily indicative of revenues for any future period.
RESEARCH, DEVELOPMENT AND ENGINEERING
In order to meet growing customer demand for innovative Connected Commerce solutions, the Company continues to invest in technology solutions that enable customers to reduce costs, increase convenience and improve efficiency. Expenditures for research, development and engineering initiatives were $155.5, $110.2 and $86.9 in 2017, 2016 and 2015, respectively. The Company recently announced a number of new innovative solutions, such as the new Extreme ATM™ concept, biometric-enabled solutions, the responsive banking concept, Essence, Fusion, Vynamic and Cash Cube.
PATENTS, TRADEMARKS, LICENSES
The Company owns patents, trademarks and licenses relating to certain products across the globe. While the Company regards these as items of importance, it does not deem its business as a whole, or any industry segment, to be materially dependent upon any one item or group of items. The Company intends to protect and defend its intellectual property, including pursuit of infringing third parties for damages and other appropriate remedies.
ENVIRONMENTALGOVERNMENT REGULATION
ComplianceAs a company with federal, stateglobal operations, we are subject to complex foreign and localU.S. laws and regulations, including trade regulations, tariffs, import and export regulations, anti-bribery and corruption laws, antitrust or competition laws, data privacy laws, such as the EU General Data Protection Regulation (the GDPR), and environmental protectionregulations, among others. We have policies and procedures in place to promote compliance with these laws during 2017 had noand regulations. Notwithstanding their complexity, our compliance with these laws and regulations, including environmental regulations, generally, does not, and is not expected to, have a material effect uponon our capital expenditures, earnings or competitive position. Government regulations are subject to change, and accordingly we are unable to assess the Company’s business, financial conditionpossible effect of compliance with future requirements or results of operations.
EMPLOYEES
At December 31, 2017, the Company employed approximately 23,000 associates globally. As a result of the 2016 acquisition of Diebold Nixdorf AG, the Company has significantly increased its presence around the world and now conductswhether our compliance with such regulations will materially impact our business in more than 130 countries.the future.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Refer to Part III, Item 10 of this annual report on Form 10-K for information on the Company's executive officers, which is incorporated herein by reference.
AVAILABLE INFORMATION
The Company uses its Investor Relations web site, http://investors.dieboldnixdorf.com, as a channel for routine distribution of important information, including stock information, news releases, investor presentations and financial information. The Company posts filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (SEC), including its annual, quarterly, and current reports on Forms 10-K, 10-Q, and 8-K; its proxy statements; registration statements; and any amendments to those reports or statements. All such postings and filings are available on the Company’s Investor Relations web site free of charge. In addition, this web site allows investors and other interested persons to sign up to automatically receive e-mail alerts when the Company posts news releases and financial information on its web site. Investors and other interested persons can also follow the Company on Twitter at http://twitter.com/dieboldnixdorf. The SEC also maintains a web site, www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The content on any web site referred to in this annual report on Form 10-K is not incorporated by reference into this annual report unless expressly noted.
ITEM 1A: RISK FACTORS
(dollars and euros in millions)millions, except for per share values)
The following including the risk factors relating to the integration of our acquisition of Diebold Nixdorf AG, are certain risk factors that could affect ourthe Company’s business, financial condition, operating results and cash flows. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this annual report on Form 10-K because they could cause actual results to differ materially from those expressed in any forward-looking statement. The risk factors highlighted below are not the only ones we face.the Company faces. Although the risks are organized by headings, and each risk is discussed separately, many are interrelated. Readers should not interpret the disclosure of any risk factor to imply that the risk has not already materialized. If any of these events actually occur, ourthe Company's business, financial condition, operating results or cash flows could be negatively affected.
We cautionThe Company cautions the reader to keep these risk factors in mind and refrain from attributing undue certainty to any forward-looking statements, which speak only as of the date of this annual report on Form 10-K.
The Company may fail to realize the anticipated strategicStrategic and financial benefits sought from the Acquisition.Operational Risks.
The Company may not realize allbe able to generate sufficient cash from operations or have access to other sources of liquidity to sustain its operating needs or to meet its obligations as they become due over the anticipated benefits of the Acquisition. The success of the Acquisition depends upon, among other things,next twelve-month period, raising substantial doubt as to the Company’s ability to combine its business with Diebold Nixdorf AG’s business incontinue as a manner that facilitates growth in the value-added services sector and realizes anticipated cost savings. going concern. The Company believes thatmay not be able to generate sufficient cash from operations or have access to other sources of liquidity to sustain its operating needs or to meet its obligations as they become due over the Acquisitionwill provide an opportunity for revenue growth in managed services, professional services, installation and maintenance services.
However,next twelve-month period, raising substantial doubt as to the Company’s ability to continue as a going concern. As discussed below under “—Risks Related to Our Indebtedness,” the Company must successfully combinehas substantial indebtedness and requires sufficient cash flows and capital resources to fund its debt service obligations and other liquidity needs. Although the AcquisitionRefinancing Transactions completed in December 2022 were intended to provide the Company with the necessary liquidity to meet, along with cash from operations, its near-term and long-term liquidity needs, the available borrowing capacity under the ABL Facility has been substantially limited due to a mannerlower than expected borrowing base. In addition, slower-than-expected conversion of inventory into revenue has further suppressed liquidity. As a result, without modifications to the ABL Facility and access to additional capital, the Company currently projects that permits these anticipated benefitsit will have insufficient liquidity to satisfy its obligations as they become due over the next twelve-month period. The Company has been in discussions with certain of its lenders regarding various liquidity solutions, including a short-term “first-in-last-out” facility to be realized.provided under its ABL Facility, which a lender has provided a "highly confident letter" for, subject to customary conditions. The Company expects the first-in-last-out facility to provide $55.0 of additional liquidity and to close by March 20, 2023, however, there can be no assurance that such a facility will be entered into by such date or at all. In addition, the Company must achieveis in discussions with its lenders about other strategic initiatives and liquidity solutions for its business. There can be no assurance that the Company’s efforts to improve its operating performance and financial position will be successful, that it will be able to modify the terms of the ABL Facility on commercially reasonable terms or at all, or that it will be able to obtain additional financing on commercially reasonable terms or at all. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and “—Risks Related to Our Indebtedness.”
Impacts of the COVID-19 pandemic continue to create uncertainty and could continue to have a material adverse impact on our business. The COVID-19 pandemic has adversely affected our operations and financial results and may continue to do so. Although, our business has demonstrated a certain degree of resiliency in the COVID-19 pandemic given our work as an essential service provider to banks and essential retailers. Nonetheless, the Company’s financial performance continues to be impacted by longer lead times – both inbound and outbound – as well as delayed-billable inflationary pressures associated with pandemic-related headwinds. These impacts and other known or unexpected risks or developments related to the pandemic could continue to have a material and adverse impact on our business, financial position and results of operations. If conditions worsen, resulting in additional or unexpected challenges, the impacts of the COVID-19 pandemic could materially and negatively impact one or more of the following aspects of our business: our global supply chain, including our ability to maintain adequate component supply; transportation and shipping; our manufacturing facilities; our service technicians in the field; our employees working remotely or in our offices; and the businesses of our customers. Additionally, future public health crises, such as the COVID-19 pandemic, could cause additional and material delays in installations, certifications or other time-sensitive aspects of our business. As we cannot predict the duration or scope of the COVID-19 pandemic or any future public health crises, the continuing negative impact to our financial position, results of operations and cash flows cannot be reasonably estimated, but could be material.
While the Company achieved significant savings from its DN Now initiatives that concluded in 2021, as well as from the incremental $150 million plus cost savings plan which commenced in 2022, these savings may not be sustainable, which may adversely affect its operating results and cash flow. The Company’s initiatives consisted of a number of work streams designed to improve operational efficiency and sustainably increase profits and cash flows. Although the Company has achieved a substantial amount of annual cost savings through 2022, it may be unable to sustain the annual cost savings from the work streams that it has previously implemented. and its results of operations and cash flows may be adversely affected.
New service and product developments may be unsuccessful. The Company is constantly looking to develop new services and products that complement or leverage its core competencies and expand its business potential. For example, the Company launched its DN Series banking solutions portfolio in 2019, its DN Series EASY family of retail checkout solutions in 2020, and EV charging stations services in 2021. The Company makes significant investments in service and product technologies and
anticipates expending significant resources for new cloud software, digitally enabled services and product development over the next several years. There can be no assurance that the Company’s service and product development efforts will be successful, that the roll out of any new services and products will be timely, that the customer certification process for any new products will be completed on the anticipated timeline, that it will be able to successfully market these services and products, or that margins generated from sales of these services and products will recover costs of development efforts.
The Company may not be successful executing on its digitally enabled hardware, services and software strategy. As part of its broader business strategy, the Company is delivering digitally enabled hardware, services and software to its customers to address their evolving demand for greater flexibility and optionality to meet the demands of the market, drive improvement to performance levels and provide a more scalable cost structure. The Company’s digital strategy extends to its own internal capabilities, as well, to ensure the Company becomes more efficient and delivers better capabilities to its employees. Across its internal finance, information technology, human resources and sales departments, the Company is deploying digital tools to enhance its operating efficiency through the use of cloud-based applications, self-service portals and automation. Executing on a digitally enabled strategy presents risks and challenges to both the Company and its customers, and there can be no assurances that the Company will be successful in its endeavors.
The Company may not be able to generate sufficient cash flows to fund its operations and make adequate capital investments. The Company’s cash flows from operations depend primarily on sales and service margins. To develop new service and product technologies, support future growth, achieve operating efficiencies and cost savings without adversely affecting current revenuesmaintain service and product quality, the Company must make significant capital investments in manufacturing technology, facilities and capital equipment, R&D, and service and product technology. In addition to cash provided from operations, the Company has from time to time utilized external sources of financing. Depending upon general market conditions or other factors, the Company may not be able to generate sufficient cash flows to fund its operations and make adequate capital investments, either in whole or in part. In addition, any tightening of the credit markets may limit the Company's ability to obtain alternative sources of cash to fund its operations.
Data Privacy and Cybersecurity Risks.
Cybersecurity incidents or vulnerabilities could disrupt the Company's internal operations or services provided to customers, which could adversely affect revenue, increase costs, and harm its reputation, customer relationships, and stock price. To reduce these risks, the Company has programs and measures in place designed to detect and help safeguard against cybersecurity attacks. Although we have implemented cybersecurity measures designed to detect and limit the risk of unauthorized access to our systems and acquisition of, loss, modification of, use, access to, or disclosure of our data, threat actors are using evolving, sophisticated, and ever-changing techniques to obtain unauthorized access to systems and data. The types and motivations of threat actors that may attempt to access our systems also are evolving and expanding, and include sophisticated nation-state sponsored and organized cyber-criminals, who are targeting the financial services industry. As a result, the risk of cyberattack is increasing. An attack, disruption, intrusion, denial of service, theft or other data or cybersecurity incident (such as phishing attack, virus, ransomware, or other malware installation), or an inadvertent act by an employee or contractor, could result in unauthorized access to, acquisition of, loss, disclosure, or modification of, our systems, products, and data (or our third-party service provider’s systems, products, and data), which may result in operational disruption, loss of business, claims (including by customers, financial institutions, cardholders, and consumers), costs and reputational harm that could negatively affect our operating results. The Company could incur significant expenses in investigating and addressing cybersecurity incidents, including the expenses of deploying additional personnel, enhancing or implementing additional protection measures, training employees or hiring consultants, and such incidents could divert the attention of our management and key personnel from our business operations. Further, remedial measures may later prove inadequate to prevent or reduce the impact of new or emerging threats. The Company may face regulatory investigations or litigation relating to cybersecurity incidents, which may be costly to defend and which, if successful, may require the Company to pay damages and fines, incur expenses to comply with consent orders or injunctions, and/or change its business practices. The Company also is subject to risks associated with cyberattacks involving our supply chain. We may also detect, or may receive notice from third parties (including governmental agencies and those in our supply chain) of potential vulnerabilities in our information technology systems, our products, or third-party products used in conjunction with our products. Even if these potential vulnerabilities do not affect our products, services, data, or systems, their existence or claimed existence could adversely affect customer confidence and our reputation in the marketplace, causing us to lose existing or potential customers. To the extent such vulnerabilities require remediation, such remedial measures could require significant resources, may not be implemented before such vulnerabilities are exploited, and may not prevent or reduce the risk. As the cybersecurity landscape evolves, we may also find it necessary to make significant further investments to protect data and infrastructure. We maintain cybersecurity insurance intended to cover some of these risks, but this insurance may not be sufficient to cover all of our losses from future growth. Further, providing managed services, professional services, installationcybersecurity incidents the Company may experience.
We have experienced cybersecurity incidents in the past, but none of these incidents, individually or in the aggregate, has had a material adverse effect on our business, reputation, operations or products. The Company has in place various information technology protections designed to detect and maintenance servicesreduce cybersecurity incidents, although there can be highlyno assurance that our protections will be successful. The Company also regularly evaluates its protections against cybersecurity incidents, including through self-assessments and third-party assessments, and takes steps to enhance those protections in response to specific threats and as part of the Company’s information security program. There can be no assurance, however, that the Company will
be able to prevent, reduce the risk of, or remediate all future cybersecurity incidents or that the cost associated with responding to any such incident or impact of such incident will not be significant or material.
Portions of the Company's IT infrastructure also may experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time. The Company may not be successful in implementing new systems, and transitioning data and other aspects of the process could be expensive, time consuming, disruptive and resource-intensive. Such disruptions could adversely impact the ability to fulfill orders, service customers and interrupt other processes and, in addition, could adversely impact the Company’s ability to maintain effective internal control over financial reporting. Delayed sales, lower margins, lost customers or diminished investor confidence resulting from these disruptions could adversely affect the Company's financial results, stock price and reputation.
The Company’s actual or perceived failure to comply with increasing and increasingly stringent laws, regulations and contractual obligations relating to privacy, data protection and information security could harm its reputation, subject the Company to significant fines and liability or loss of business, and decrease demand for the Company’s services. The Company and its customers are subject to privacy, data protection, and information security laws and regulations (“Data Protection Laws”) in the United States and in jurisdictions around the globe that restrict the collection, use, disclosure, transfer and processing of personal data, including financial data. For example, the Company and its customers are subject, without limitation, to the European Union General Data Protection Regulation (“GDPR”), the U.K. General Data Protection Regulation, the California Consumer Privacy Act (“CCPA”), and the Brazilian Lei Geral de Proteção de Dados. Costs to comply with these Data Protection Laws are significant. Failure to comply with these laws could result in material legal exposure and business impact, including the loss of customers and decreased demand for our products and services. The GDPR, for example, imposes onerous accountability obligations on companies, with penalties for non-compliance of up to the greater of €20 and four percent of annual global revenue. The GDPR, and other Data Protection Laws, also grant corrective powers to supervisory authorities, including the ability to impose a limit on processing personal data or ability to order companies to cease operations.
The Data Protection Laws are part of an evolving global data protection landscape in which the number, complexity, requirements, and consequences of non-compliance with these laws are increasing. This landscape includes legislative proposals recently adopted or currently pending in the United States, at both the federal and state levels (including by banking agencies), as well as in other jurisdictions, implementing new or additional requirements for data protection that could increase compliance costs, the cost and complexity of delivering our services, and significantly affect our business. Additionally, the interpretation and application of new data protection laws and regulations in many cases is uncertain, and our legal and regulatory obligations in such jurisdictions are subject to frequent and unexpected changes, including the potential for various regulatory or other governmental bodies to enact new or additional laws or regulations, to issue rulings that invalidate prior laws or regulations, or to increase penalties significantly. Complying with these evolving and varying standards, and implementing the required operational changes as a result of such standards, could require significant expense and effort and may require us to change our business practices or the functionality of our products and services in a manner adverse to our customers and our business. In addition, violations of these laws can result in governmental investigations, significant fines, penalties, claims by regulators or other third parties, imposition of limits on the processing of data, and damage to our brand and business.
Like other global companies, to conduct its operations, the Company transfers data across international borders. Transferring personal data across international borders is complex and can involvesubject to legal and regulatory requirements. In many cases, the design,laws and regulations governing such transfers apply not only to transfers between unrelated third parties but also to transfers between the Company and its subsidiaries. There is also active litigation and enforcement with respect to data transfers in a number of jurisdictions around the world, each of which could have an adverse impact on our ability to process and transfer personal data as part of our business operations. Some countries have also enacted or are enacting data localization laws that prohibit or significantly restrict the transfer of data out of the country. Developments related to cross-border transfers, including the Court of Justice July 2020 ruling in the “Schrems II” case as well as related guidance from the European Data Protection Board, have resulted in some changes to the way we provide our services in the European Union and conduct our business, and could expose us to potential sanctions and fines for non-compliance. If we cannot transfer data from some jurisdictions or implement valid mechanisms for cross-border data transfers, we may face increased exposure to regulatory actions, substantial fines, injunctions against processing or transferring personal data from Europe or elsewhere, and require us to increase our personal data or other data processing capabilities in the Europe Union and/or elsewhere at significant expense.
In addition to our legal obligations, our contractual obligations relating to privacy, data protection and information security have become increasingly prevalent and stringent due to changes in laws and regulations, including the development implementation and operation of new solutionsrelated to cross-border transfers, as well as the heightened regulatory requirements in the financial services industry. Certain Data Protection Laws, such as the GDPR and the transitioningCCPA, require our customers to impose specific contractual restrictions on their service providers. If we are unable to comply with our contractual obligations, this could impact our reputation and result in liabilities and loss of clients from their existing systemsbusiness.
Risks Related to Our Indebtedness.
The Company's current and processesfuture operations, particularly the Company's ability to respond to changes or pursue its business strategies, are restricted by the documentation governing its indebtedness. The agreements that govern the terms of the Company’s indebtedness, including the ABL Facility, the Superpriority Facility, the New Term Loans, the New 2025 Notes and the 2L Notes (each as defined under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Refinancing Transactions”) contain a new environment.number of restrictive covenants that impose significant operating and financial restrictions on the Company and may limit its ability to engage in acts that may be in its long-term best interest, including limitations or restrictions on its ability to:
•incur, assume or guarantee additional indebtedness;
•declare or pay dividends or make other distributions or repurchase or redeem capital stock;
•prepay, redeem or repurchase certain debt;
•issue certain preferred stock or similar equity securities;
•make loans, advances and other investments;
•sell or otherwise dispose of assets, including capital stock of subsidiaries;
•incur liens;
•enter into transactions with affiliates;
•alter the businesses the Company conducts;
•enter into agreements restricting the Company’s subsidiaries’ ability to pay dividends; and
•consolidate, merge or sell all or substantially all of the Company’s assets.
In addition, the restrictive covenants under the ABL Facility require the Company to comply with a financial maintenance covenant under certain circumstances, The Company’s ability to satisfy this financial maintenance covenant can be affected by events beyond its control, and therefore, there can be no assurance that the Company will be able to comply. If the Company is notunable to meet such financial maintenance covenant, the Company would be required to seek an amendment or waiver from its lenders. There can be no assurance that the Company’s lenders would consent to any such amendment or waiver on commercially reasonable terms or at all. For a discussion of the Company’s indebtedness and the related agreements and instruments, see Item 6 – Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.
A breach of the covenants or restrictions under the agreements that govern the Company's indebtedness could result in an event of default under the applicable indebtedness. Such a default may allow the applicable creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the ABL Facility would permit the lenders thereunder to terminate all commitments to extend further credit thereunder. Furthermore, if the Company is unable to repay the amounts due and payable under any of its indebtedness, those lenders or investors will be able to effectively provide value-added services and successfully achieveproceed against the growth and cost savings objectives,collateral granted to them to secure that indebtedness. If the anticipated benefitsholders of any of the Acquisition may not be realized fully, or at all, or may take longer to realize than expected.
The Company may experience operational challenges, negative synergies and lossCompany’s debt accelerate the repayment of customers.
Integratingits indebtedness, the operations and personnel of the Acquisition involves complex operational, technological and personnel-related challenges. This process can be time-consuming and expensive, and it may disrupt the businesses of the Company. The Company may not realize all of the anticipated benefits of the Acquisition. Difficulties in the integration of the business, which may result in significant costs and delays, include:
managing a significantly larger company;
integrating and unifying the offerings and services availablehave sufficient assets to customers and coordinating distribution and marketing efforts;
coordinating corporate and administrative infrastructures and harmonizing insurance coverages;
unanticipated issues in coordinating accounting, IT, communications, administration and other systems;
difficulty addressing possible differences in corporate cultures and management philosophies;
challenges associated with continuing to maintain the Acquisition's financial reporting in accordance with both accounting principles generally accepted in the U.S. (U.S GAAP) and International Financial Reporting Standards (IFRS) and the ongoing costs of compliance with the Sarbanes-Oxley Act of 2002, as amended, and the rules promulgated thereunder by the SEC;
legal and regulatory compliance;
creating and implementing uniform standards, controls, procedures and policies;
litigation relating to the transactions contemplated by a reorganization, including shareholder litigation;
diversion of management’s attention from other operations;
maintaining existing agreements and relationships with customers, distributors, providers and vendors and avoiding delays in entering into new agreements with prospective customers, distributors, providers and vendors;
realizing the benefits from the Company’s restructuring programs;
unforeseen and unexpected liabilities related to the Acquisition, including the riskrepay that certain of the Company's executive officers may be subject to additional fiduciary duties and liability;
identifying and eliminating redundant and underperforming functions and assets; and
a deterioration of credit ratings.
The Company may lose customers or its share of customers’ business as entities that were customers of both Diebold, Incorporated and Diebold Nixdorf AG seek to diversify their suppliers of services and products. Following the Acquisition, customers may no longer distinguish between Diebold Nixdorf, Incorporated and Diebold Nixdorf AG and their respective services and products. Banking customers in particular may turn to competitors of the Company for products and services that they received from the Company prior to the Acquisition. As a result, the Company may lose customers and anticipated revenues may decrease following the Acquisition. In addition, third parties with whom the Company currently has relationships may terminate or otherwise reduce the scope of their relationship. Any such loss of business could limit the Company’s ability to achieve the anticipated benefits of the Acquisition.
The Company is exposed to additional litigation risk and uncertainty with respect to the remaining minority shareholders of Diebold Nixdorf AG.
indebtedness. As a result of the Acquisition,these restrictions, the Company continuesmay be:
•limited in how it conducts its business;
•unable to be exposedraise additional debt or equity financing to litigation riskoperate during general economic or business downturns; and uncertainty associated with
•unable to compete effectively or to take advantage of new business opportunities.
Accordingly, these restrictions may affect the remaining minority shareholders of Diebold Nixdorf AG. The Company’s willingness and/orCompany's ability to acquire all issued and outstanding shares of Diebold Nixdorf AG, and the timing of any such potential acquisition, is uncertain.operate in accordance with its strategy. In addition, the adequacyCompany’s financial results, its substantial indebtedness and its credit ratings could adversely affect the availability and terms of both formsits financing.
The Company will be required to raise equity capital to pay any outstanding principal amount of compensation payments8.50% Senior Notes due 2024 (the 2024 Senior Notes) in excess of $20 (such 2024 Senior Notes in excess of $20, the Excess Stub Notes) at maturity if there is insufficient participation in the Public Exchange Offer (as defined under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview - Public 2024 Exchange Offer"). Such equity financing may not be available on favorable or acceptable terms or at all, and failure to minority shareholders agreedraise such equity capital as required will constitute an event of default under the Superpriority Facility, the New Term Loans and the New 2025 Notes. Substantial doubt will continue to exist regarding the Company's ability to continue as a going concern.
As of the date of this annual report on Form 10-K, $72.1 aggregate principal amount of 2024 Senior Notes are outstanding. Therefore, under the terms of the Dominationagreements governing the Superpriority Facility, the New Term Loans and Profitthe New 2025 Notes, if less than $52.1 aggregate principal amount of 2024 Senior Notes are not validly tendered and Loss Transfer Agreement between Diebold Holding Germany Inc. & Co. KGaA (Diebold KGaA),accepted in the Public Exchange Offer, the Company will be required to issue equity to repurchase, redeem, prepay or pay in full the Excess Stub Notes (and any other accrued and unpaid fees or expenses that remain unpaid at the time of repurchase, redemption, prepayment or payment in full) prior to their maturity date. The Company may be unable to obtain such equity capital on terms that are favorable or acceptable to the Company or at all. Failure to raise sufficient equity capital as required will constitute an event of default under the Superpriority Facility, the New Term Loans and the New 2025 Notes, which would permit the creditors thereunder to accelerate the related debt and may result in the acceleration of any other debt to which a wholly-owned subsidiarycross-acceleration or cross-default provision applies. Even if no Excess Stub Notes exist after the completion of the Public 2024
Exchange Offer because $52.1 or more of the 2024 Senior Notes are validly tendered and accepted in the Exchange Offer, the Company may not have the liquidity to repay the remaining 2024 Senior Notes at maturity, which would also constitute an event of default under the Superpriority Facility, the New term Loans and the New 2025 Notes, as well as certain of the Company's other indebtedness, which would permit the creditors thereunder to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. Furthermore, if the obligors under such debt are unable to repay the amounts due and payable thereunder, those lenders and noteholders could proceed against the collateral granted them to secure that indebtedness. In the event the Company’s lenders or noteholders accelerate the repayment of its indebtedness, the Company and Diebold Nixdorf AG (the DPLTA) has been challenged by certain minority shareholdersits subsidiaries may not have sufficient assets to repay that indebtedness.
Accordingly, if the Company fails to obtain the equity capital on favorable terms, it may be unable to meet its liquidity needs, which could have a material adverse effect on the Company’s competitive position, business prospects, financial condition, results of Diebold Nixdorf AG, who have initiated court-led appraisal proceedings under German law. The Company cannot rule out that the competent court in such appraisal proceeding may adjudicateoperations, cash flow and ability to continue as a higher exit compensation or recurring payment obligation (in each case, including interest thereon) than agreed upon in the DPLTA, the financial impact and timing of which is uncertain.going concern.
The Company’s failure to meet its debt service obligations could have a material adverse effect on the Company’s business, financial condition and results of operations.
The Company’s high level of indebtedness following the Acquisition could adversely affect the Company’s operations and liquidity. The Company’s level of indebtedness could, among other things:
•make it more difficult for the Company to pay or refinance its debts as they become due during adverse economic and industry conditions because the Company may not have sufficient cash flows to make its scheduled debt payments;
•cause the Company to use a larger portion of its cash flow to fund interest and principal payments, reducing the availability of cash to fund working capital, capital expenditures, research and developmentR&D and other business activities;
•limit the Company’s ability to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions;
•cause the Company to be more vulnerable to general adverse economic and industry conditions;
•cause the Company’s suppliers to limit trade credit, require pre-payments or other collateral;
•cause the Company to be disadvantaged compared to competitors with less leverage;
•result in a downgrade in the credit rating of the Company or indebtedness of the Company or its subsidiaries, which could increase the cost of borrowings; and
•limit the Company’s ability to borrow additional monies in the future to fund working capital, capital expenditures, research and developmentR&D and other business activities.
In addition, the agreements governing the Company's indebtedness contain restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest. The Company's failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all its debt.
The Company may also incur additional long-term debt and working capital lines of credit to meet future financing needs, which would increase our total indebtedness. Although the terms of its existing and future credit agreements and of the indentures governing its debt contain restrictions on the incurrence of additional debt, including secured debt, these restrictions are subject to a number of important exceptions and debt incurred in compliance with these restrictions could be substantial. If the Company and its restricted subsidiaries incur significant additional debt, the related risks that the Company faces could intensify.
The Company may not be able to generate sufficient cash to service all of ouror may not be able to refinance its indebtedness and may be forced to take other actions to satisfy ourits obligations under ourits indebtedness, which may not be successful.
The Company's ability to make scheduled payments or refinance its debt obligations depends on ourits financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond ourits control. The Company may be unable to maintain a level of cash flows from operating activities sufficient to permit the payment of principal, premium, if any, and interest, on its indebtedness.
If the Company's cash flows and capital resources are insufficient to fund its debt service obligations, the Company could face substantial liquidity problemsissues and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance its indebtedness.The Company’s liquidity needs fluctuate during the course of the year and, as a result, these liquidity issues may be more acute during certain times. The liquidity issues that the Company faces could force the Company to reduce or delay investments and capital expenditures or to strategically divest material assets or operations, extend payments to vendors, seek additional debt or equity capital or restructure or refinance its indebtedness. The Company has in the past and may in the future take such actions, and these actions could materially impact the Company’s business. The Company may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow the Company to meet its scheduled debt servicepayment obligations. In addition, the terms of the Company's existing or future debt arrangements may restrict it from effecting any of these alternatives.
Upcoming debt maturities could create significant financial and operational challenges for the Company. Following the consummation of the Refinancing Transactions (as defined in “Management's Discussion and Analysis of Financial Condition and Results of Operation—Overview—Refinancing Transactions”), a significant portion of the Company’s indebtedness matures in 2025. In addition, the ABL Facility will mature on July 20, 2026, subject to a springing maturity to a date that is 91 days prior to the maturity date of any indebtedness for borrowed money, with certain exceptions, in an aggregate principal amount of more than $25 incurred by the Company or any of its subsidiaries. The Company's inability to generate sufficient cash flows to satisfy its debt obligations, orCompany’s ability to refinance its indebtedness ahead of upcoming maturities on commercially reasonable terms or at all would materiallydepends on numerous factors, including the general condition of global financial markets and adversely affect itsthe Company’s recent operating performance and liquidity, which are each subject to prevailing economic and competitive conditions and to certain financial, positionbusiness, legislative, regulatory and results of operations.
The termsother factors beyond the Company’s control. Any disruption to the capital markets or change in the financial condition of the credit agreement governing our senior credit facilityCompany, could make it more difficult and the high-yield notes (the Indenture) restrict ourexpensive to refinance on commercially reasonable terms or at all.
Despite current and anticipated indebtedness levels, the Company may still be able to incur substantially more debt. This could further exacerbate the risks described above. The Company may also incur additional long-term debt and working capital lines of credit to meet future operations, particularly ourfinancing needs, which would increase its total indebtedness. Although documents governing the Company’s indebtedness contain restrictions on the Company’s ability to respondincur additional debt, including secured debt, these restrictions are subject to changes or to take certain actions.
The Indenture and the credit agreement governing our senior credit facility contain a number of restrictive covenantsimportant exceptions and the Company is permitted to incur debt in compliance with
these restrictions. If the Company and its subsidiaries incur significant additional debt, the related risks that impose significant operatingthe Company faces could intensify.
The Company’s variable-rate indebtedness exposes the Company to interest rate risk, which could cause its debt service obligations to increase significantly. Certain of the Company’s indebtedness, including borrowings under the ABL Facility and financial restrictionsthe Superpriority Facility, as well as the New Term Loans, is subject to variable rates of interest and expose the Company to interest rate risk. If interest rates increased, the Company’s debt service obligations on usthe variable-rate indebtedness would increase and the Company’s net income would decrease, even though the amount borrowed under the facilities remained the same. As of December 31, 2022, the Company had approximately $1,240.5 aggregate principal amount of outstanding variable-rate debt. An unfavorable movement in interest rates, primarily the Secured Overnight Financing Rate (SOFR), could result in higher interest expense and cash payments for the Company. Although the Company may limit ourenter into interest rate swaps, involving the exchange of floating for fixed-rate interest payments, to reduce interest rate volatility, the Company cannot provide assurance that it will enter into such arrangements or that they will successfully mitigate such interest rate volatility.
The Company’s debt levels and liquidity as well as challenges in the commercial and credit environment may materially adversely affect the Company’s ability to engageissue debt on acceptable terms and the Company’s future access to capital. The Company’s ability to issue debt or enter into other financing arrangements on acceptable terms or at all could be materially adversely affected by the Company’s debt levels and liquidity or if there is a material decline in acts thatthe demand for its products or in the solvency of its customers or suppliers or other significantly unfavorable changes in economic conditions occur. In addition, volatility in the world financial markets could increase borrowing costs or affect the Company’s ability to access the capital markets, which could have a material adverse effect on its competitive position, business prospects, financial condition, results of operations and cash flows.
The Company may need additional financing in the future to meet the Company’s capital needs, and such financing may not be available on favorable or acceptable terms or at all. The Company may need to seek additional financing for general corporate purposes, including to meet liquidity needs. The Company may be in our long-term best interest, including restrictionsunable to obtain any desired additional financing on our ability to:
incur additional indebtednessterms that are favorable or acceptable to the Company or at all. Depending on market conditions, adequate funds may not be available to the Company on acceptable terms or at all and guarantee indebtedness;
pay dividends or make other distributions or repurchase or redeem capital stock;
prepay, redeem or repurchase certain debt;
issue certain preferred stock or similar equity securities;
make loans and investments;
sell assets;
incur liens;
enter into transactions with affiliates;
alter the businesses we conduct;
enter into agreements restricting our subsidiaries’ ability to pay dividends; and
consolidate, merge or sell all or substantially all of our assets.
In addition, the restrictive covenants in the credit agreement governing our senior credit facility require us to maintain specified financial ratios and satisfy other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and weCompany may be unable to meet them.its liquidity needs, which could have a material adverse effect on its competitive position, business prospects, financial condition, results of operations and cash flows.
A breachUnless we have access to additional capital, we currently project that we will not generate sufficient cash from operations or have access to other sources of liquidity to sustain our operating needs or to meet our obligations as they become due over the next twelve months. As discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Refinancing Transactions”, on December 29, 2022, the Company completed the Refinancing Transactions (as defined under such section), which were a series of transactions with certain key financial stakeholders to refinance certain debt with near-term maturities and provide the Company with new capital. As planned, at the closing of the covenants or restrictionsRefinancing Transactions, the Company drew down the entire available capacity of the ABL Facility and made payments to suppliers and vendors. As of December 31, 2022, therefore, the Company had no additional availability under the Indenture orABL Facility and $344 of cash, cash equivalents, restricted cash and short-term investments. As designed, the ABL Facility availability resets each month. Initially, the Company believed that the Refinancing Transactions, along with cash from operations, would be sufficient to meet the Company’s near-term and long-term liquidity needs for at least the next 12 months. Over the course of the first quarter of 2023, based on the Company’s revenue cycle and the composition of the borrowing base under the credit agreement governing our senior credit facility could resultABL Facility, the availability under the ABL Facility as of March 2023 has been substantially limited. In addition, slower-than-expected conversion of inventory into revenue has further suppressed liquidity. Accordingly, without modifications to the ABL Facility and access to additional capital, the Company currently projects that it will not generate sufficient cash from operations or have access to other sources of liquidity to sustain its operating needs or to meet its obligations as they become due over the twelve-month period subsequent to the filing of this annual report on Form 10-K.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 11 of the consolidated financial statements, the Company is required to raise equity capital to repay any amount exceeding $20 of the remaining principal balance of the 2024 Senior Notes. Failure to raise sufficient equity capital as required will constitute an event of default whereby under the applicable indebtedness. Such a default may allowSuperpriority Facility, the New Term Loans and the 2025 Senior Notes (each as defined under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Refinancing Transactions”), which would permit the creditors thereunder to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an eventapplies, which the Company would not have sufficient liquidity to repay. Because of this uncertainty, and because of the uncertainty regarding the Company’s ability to sustain its operating needs or to meet its obligations as they become due over the twelve-month period, the accompanying consolidated financial statements contain a “going concern” uncertainty paragraph. The inclusion of the “going concern” uncertainty paragraph would have constituted a default under the credit agreementagreements governing our senior credit facility would permitthe ABL Facility, the Superpriority Facility and the New Term Loans; however, the requisite lenders under each of these facilities have waived such default.
The Company is currently working to improve its operating performance and its cash, liquidity and financial position. In addition, the Company is in discussions with the lenders under our senior creditthe ABL Facility regarding modifications to the borrowing base under the ABL Facility to provide the Company with access to additional borrowings. The Company is also engaged in discussions with certain of its lenders regarding additional short-term liquidity, including potentially providing additional liquidity in the form of a "first-in-first-out" facility to terminate all commitmentsbe provided under the ABL Facility, which a lender has provided a "highly confident letter" for, subject to extend further credit undercustomary conditions. The Company expects the first-in-last-out facility to provide $55 of additional liquidity and to close by March 20, 2023, however, there can be no assurance that facility. Furthermore, if we were unablesuch a facility will be entered into
by such date or at all. In addition, the Company is in discussions with its lenders about other strategic initiatives and liquidity solutions for its business. However, there can be no assurance that the Company’s efforts to repayimprove its operating performance and financial position will be successful, that it will be able to modify the amounts due and payable under our senior credit facility, those lenders could proceed againstterms of the collateral granted themABL Facility, or that it will be able to secure that indebtedness. In the event our lendersobtain additional financing on commercially reasonable terms or noteholders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.at all. As a result, the Company’s liquidity and ability to timely pay its obligations when due could be adversely affected. Accordingly, and because the success of these restrictions, we may be:
limited in how we conduct our business;
unablethe Public Exchange Offer and the ability to raise additional debt ornecessary equity financingcapital is not fully within the Company’s control under the provisions of Accounting Standards Codification 205-40, substantial doubt will continue to operate during general economic or business downturns; and
unable to compete effectively or to take advantage of new business opportunities.
These restrictions may affect ourexist regarding the Company’s ability to grow in accordance with our strategy. In addition, our financial results, our substantial indebtednesscontinue as a going concern.
Workforce Operations Risks.
An inability to attract, retain and our credit ratings could adversely affect the availability and terms of our financing.
In addition to the Acquisition, the Company may be unable to successfully and effectively manage acquisitions, divestitures and other significant transactions, whichmotivate key employees could harm our operating results, businesscurrent and prospects.
As part of our business strategy, including and in addition to the Acquisition, we frequently engage in discussions with third parties regarding possible investments, acquisitions, strategic alliances, joint ventures, divestitures and outsourcing arrangements, and we enter into agreements relating to such transactions in order to further our business objectives. future operations.In order to pursue this strategy successfully, webe successful, the Company must identify suitable candidates, successfully complete transactions, some of which may be largeattract, retain and complex, and manage post-closing issues such as the integration of acquired companies or employees and the divestiture of combined businesses, operations and employees. Integration, divestituremotivate executives and other risks of these transactions can be more pronouncedkey employees, including those in larger and more complicated transactions, or if multiple transactions are pursued simultaneously. If we fail to identify and successfully complete transactions that further our strategic objectives, we may be required to expend resources to develop products and technology internally. This may put us at a competitive disadvantage and we may be adversely affected by negative market perceptions, any of which may have a material adverse effect on our revenue, gross margin and profitability.
Integration and divestiture issues are complex, time-consuming and expensive and, without proper planning and implementation, could significantly disrupt our business. The challenges involved in integrating and divesting include:
combining service and product offerings and entering into new markets in which we are not experienced;
convincing customers and distributors that any such transaction will not diminish client service standards or business focus, preventing customers and distributors from deferring purchasing decisions or switching to other suppliers or service providers (which could result in additional obligations to address customer uncertainty), and coordinating service,managerial, professional, administrative, technical, sales, marketing and distribution efforts;
consolidatingIT support positions. It also must keep employees focused on its strategies and rationalizing corporate IT infrastructure, which may include multiple systems from various acquisitions and integrating software code;
minimizing the diversion of management attention from ongoing business concerns;
persuading employees that business cultures are compatible, maintaining employee moralegoals. Hiring and retaining qualified executives, engineers and qualified sales representatives are critical to its future, and competition for experienced employees in these areas can be intense. In addition, we have seen a decline in the qualified labor applicant pool since the start of the COVID-19 pandemic and increased competition for qualified labor. The failure to hire or loss of key employees integrating employees into our company, correctly estimating employee benefit costs and implementing restructuring programs;could have a significant impact on the Company’s operations.
coordinating and combining administrative, service, manufacturing, research and development and other operations, subsidiaries, facilities and relationships with third parties in accordance with local laws and other obligations while maintaining adequate standards, controls and procedures;
achieving savings from supply chain and administration integration; andRisks Related to Reliance on Performance of Third Parties.
efficiently divesting combined business operations which may cause increased costs as divested businesses are de-integrated from embedded systems and operations.
We evaluate and enter into these types of transactions on an ongoing basis. We may not fully realize all of the anticipated benefits of any transaction and the time frame for achieving benefits of a transaction may depend partially upon the actions of employees, suppliers or other third parties. In addition, the pricing and other terms of our contracts for these transactions require us to make estimates and assumptions at the time we enter into these contracts, and, during the course of our due diligence, we may not identify all of the factors necessary to estimate costs accurately. Any increased or unexpected costs, unanticipated delays or failure to achieve contractual obligations could make these agreements less profitable or unprofitable.
Managing these types of transactions requires varying levels of management resources, which may divert our attention from other business operations. These transactions could result in significant costs and expenses and charges to earnings, including those related to severance pay, early retirement costs, employee benefit costs, asset impairment charges, charges from the elimination of duplicative facilities and contracts, in-process research and development charges, inventory adjustments, assumed litigation, regulatory compliance and other liabilities, legal, accounting and financial advisory fees and required payments to executive officers and key employees under retention plans. Moreover, we could incur additional depreciation and amortization expense over the useful lives of certain assets acquired in connection with these transactions, and, to the extent that the value of goodwill or intangible assets with indefinite lives acquired in connection with a transaction becomes impaired, we may be required to incur additional material charges relating to the impairment of those assets. In order to complete an acquisition, we may issue common shares, potentially creating dilution for existing shareholders, or borrow funds, which could affect our financial condition, results of operations and potentially our credit ratings. Any prior or future downgrades in our credit rating associated with a transaction could adversely affect our ability to borrow and our borrowing cost, and result in more restrictive borrowing terms. In addition, our effective tax rate on an ongoing basis is uncertain, and such transactions could impact our effective tax rate. We also may experience risks relating to the challenges and costs of closing a transaction and the risk that an announced transaction may not close. As a result, any completed, pending or future transactions may contribute to financial results that differ materially from the investment community’s expectations.
Demand for and supply of our services and products may be adversely affected by numerous factors, some of which we cannot predict or control. This could adversely affect our operating results.
Numerous factors may affect the demand for and supply of our services and products, including:
changes in the market acceptance of our services and products;
customer and competitor consolidation;
changes in customer preferences;
declines in general economic conditions;
disruptive technologies;
changes in environmental regulations that would limit our ability to service and sell products in specific markets;
macro-economic factors affecting retail stores and banks, credit unions and other financial institutions may lead to cost-cutting efforts by customers, including branch closures, which could cause us to lose current or potential customers or achieve less revenue per customer; and
availability of purchased products.
If any of these factors occur, the demand for and supply of our services and products could suffer, and which could adversely affect our results of operations.
The Company’s ability to deliver products that satisfy customer requirements is dependent on the performance of its subcontractors and suppliers, as well as on the availability of raw materials and other components.
We rely The Company relies on other companies, including subcontractors and suppliers, to provide and produce raw materials, integrated components and sub-assemblies and production commodities included in, or used in the production of, ourits products. If one or more of ourthe Company's subcontractors or suppliers experiences delivery delays or other performance problems, weit may be unable to meet commitments to ourits customers or incur additional costs. In some instances, we dependthe Company depends upon a single source of supply. Any service disruption from one of these suppliers, either due to circumstances beyond the supplier’s control, such as geo-political developments or public health concerns (including viral outbreaks, such as COVID-19), or as a result of performance problems or financial difficulties, could have a material adverse effect on ourthe Company's ability to meet commitments to ourits customers or increase ourits operating costs.
Increased energy, raw material and labor costs could reduce our income.
Energy prices, particularly petroleum prices, are cost drivers for our business. In recent years, At present, the price of petroleum has been highly volatile, particularly due to the unstable political conditions in the Middle East and increasing international demand from emerging markets. Price increases in fuel and electricity costs, such as those increases that may occur from climate change legislation or other environmental mandates, may continue to increase our cost of operations. Any increase in the costs of energy would also increase our transportation costs.
The primary raw materials in our services, software and systems solutions are steel, plastics, and electronic parts and components. The majority of our raw materials are purchased from various local, regional and global suppliers pursuant to supply contracts. However, the price of these materials can fluctuate under these contracts in tandem with the pricing of raw materials.
We cannot assure that our labor costs going forward will remain competitive or will not increase. In the future, our labor agreements may be amended, or become amendable, and new agreements could have terms with higher labor costs. In addition, our labor costs may increase in connection with our growth. We may also become subject to collective bargaining agreements in the future in the event that non-unionized workers may unionize.
Although we attempt to pass on higher energy, raw material and labor costs to our customers, it is often not possible given the competitive markets in which we operate.
Our business may be affected by general economic conditions, cyclicality and uncertainty and could be adversely affected during economic downturns.
Demand for our services and products is affected by general economic conditions and the business conditionsoverall impact of the industriesCOVID-19 pandemic is difficult to predict, but it may have a material adverse impact on the Company’s overall business, financial condition and results of operations, in which we sell our servicesparticular if COVID-19 infection rates resurge in other countries and products. The business of most of our customers, particularly our financial institution and retail customers, is, to varying degrees, cyclical and has historically experienced periodic downturns. Under difficult economic conditions, customers may seek to reduce discretionary spending by forgoing purchases of our services and products. This risk is magnified for capital goods purchases suchregions, including as ATMs, retail systems and physical security products. In addition, downturns in our customers’ industries, even during periods of strong general economic conditions, could adversely affect the demand for our services and products, and our sales and operating results.
In particular, continuing economic difficulties in the global markets have led to an economic recession in many of the markets in which we operate. As a result of these difficulties and other factors, including new or increased regulatory burdens, financial institutions and retail customers have failed and may continue to fail, resulting in a loss of current or potential customers, or deferred or canceled orders, including orders previously placed. Any customer deferrals or cancellations could materially affect our sales and operating results.variants.
We may be unable to achieve, or may be delayed in achieving, our cost-cutting initiatives, and this may adversely affect our operating results and cash flow.
We have launched a number of cost-cutting initiatives, including DN2020 initiatives, to improve operating efficiencies and reduce operating costs. Although we have achievedThe Company manufactures a substantial amount of annual cost savings associated with these cost-cutting initiatives, we may be unable to sustain the cost savings that we have achieved.its products in Paderborn, Germany, and Manaus, Brazil. In addition, if wecertain of our products are unable to achieve, or have any unexpected delaysmanufactured in achieving, additional cost savings,China. Any damage suffered by these critical locations and manufacturing plants could negatively impact our business and results of operations and cash flows may be adversely affected. Even if we meet our goals as a result of these initiatives, we may not receiveoperations. While the expected financial benefits of these initiatives.
We face competitionCompany maintains insurance policies that could adversely affect our sales and financial condition.
All phases of our business are highly competitive. Some of our services and products are in direct competition with similar or alternative services or products provided by our competitors. We encounter competition in price, delivery, service, performance, product innovation, product recognition and quality.
Becauseprovide coverage up to certain limits for some of the potential risks and liabilities associated with its business, it does not maintain insurance policies for consolidationall risks and liabilities.
The Company relies on third parties to provide security systems and systems integration. Sophisticated hardware and operating system software and applications that the Company procures from third parties may contain defects in any market, our competitors may become larger, whichdesign or manufacture, including “bugs” and other problems that could make them more efficientunexpectedly interfere with the operation of the system. The costs to eliminate or alleviate security problems, viruses and permit thembugs could be significant, and the efforts to be more price-competitive. Increased sizeaddress these problems could also permit them to operate in wider geographic areas and enhance their abilities in other areas such as research and development and customer service. As a result, this could also reduce our profitability.
We expect that our competitors will continue to develop and introduce new and enhanced services and products. This could cause a decline in market acceptance of our services and products. In addition, our competitors could cause a reduction in the prices for some of our services and products as a result of intensified price competition. Also, we may be unable to effectively anticipate and react to new entrants in the marketplace competing with our services and products.
Competitive pressures can also result in the lossinterruptions, delays or cessation of major customers. An inability to compete successfullyservice that could have an adverse effect on our operating results, financial condition and cash flows in any given period.impede sales, manufacturing, distribution or other critical functions.
Tax Liability Risks.
Additional tax expense or additional tax exposures could affect ourthe Company's future profitability.
We areThe Company is subject to income taxes in both the United States (U.S.)U.S. and various non-U.S. jurisdictions, and ourits domestic and international tax liabilities are dependent upon the distribution of income among these different jurisdictions. If we decidethe Company decides to repatriate cash, and cash equivalents and short-term investments residing in international tax jurisdictions, there could be further negative impact on foreign and domestic taxes. OurThe Company's tax expense includes estimates of additional tax that may be incurred for tax exposures and reflects various estimates and assumptions, including assessments of future earnings of the Company that could affect the valuation of ourits net deferred tax assets. OurThe Company's future results could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in the overall profitability of the Company, changes in tax legislation, changes in the valuation of deferred tax assets and liabilities, the results of audits and examinations of previously filed tax returns and continuing assessments of ourits income tax exposures.exposures and changes in tax legislation. For example, President Biden has proposed the reversal or modification of some portions of the Tax Cuts and Jobs Act of 2017, which, if enacted, could result in a higher U.S. corporate income tax rate than is currently in effect.
Additionally, ourthe Company's future results could be adversely affected by the results of indirect tax audits and examinations, and continuing assessments of ourits indirect tax exposures. A loss contingency is reasonably possible if it has a more than remote but less than probable chance of occurring. Although management believes the Company has valid defenses with respect to its indirect tax positions, it is reasonably possible that a loss could occur in excess of the estimated accrual. The Company estimated the aggregate risk at December 31, 2017 to be up to $144.7 for its material indirect tax matters. The aggregate risk related to indirect taxes is adjusted as the applicable statutes of limitations expire. It is reasonably possible that we the Company
could be required to pay taxes, penalties and interest related to this matter or other open years, which could be material to ourits financial condition and results of operations.
On December 22, 2017, U.S. tax reform legislation informally known asRisks Related to Acquisitions, Divestitures and Alliances.
The Company may not be successful executing potential acquisitions, investments or partnerships, or divestitures. As the Tax CutsCompany’s financial performance improves, it may evaluate and Jobs Act (the Tax Act) was signed into law. The Tax Act makes substantial changes to U.S. tax law, including a reductionconsider acquisitions, investments or partnerships in companies, products, services and technologies, which could support the corporate tax rate, a limitation on deductibilityCompany’s strategy and growth. Acquisitions, investments and partnerships inherently involve risks, which may include: the risk of interest expense, a limitation onintegrating business operations, cultures, retaining key personnel and maintaining appropriate systems and controls; the use of net operating losses to offset future taxable income,potential for unknown liabilities; the allowance of immediate expensing of capital expenditures, deemed repatriation of foreign earnings and significant changespossibility that acquisitions, investments or partnerships may not yield the targeted financial or strategic benefits to the taxationCompany. Furthermore, the Company has, from time-to-time, been divesting certain non-core and/or non-accretive businesses to, among other things, simplify its business and reduce its debt. However, there can be no assurance that it will be successful in selling all or further such any assets. It may incur substantial expenses associated with identifying and evaluating potential sales. The process of foreign earnings going forward. We expect the Tax Act to have significant effects on us, some of whichexploring any sales may be adverse. We expect impacts on ourtime consuming and disruptive to its business operations, and if it is unable to effectively manage the process, its business, financial statementscondition and results of operations could be adversely affected. It also cannot assure that any potential sale, if consummated, will prove to tax expense, deferred tax assets and liabilities and accrued taxes during the prescribed measurement period. The extent of the impact remains uncertain at this time and is subjectbe beneficial to any other regulatory or administrative developments, including any regulations or other guidance promulgated by the U.S. Internal Revenue Service (IRS). The Tax Act contains numerous, complex provisions impacting U.S. multinational companies, and we continue to review and assess the legislative language and its shareholders. Any potential impact on us.
In international markets, we compete with local service providers that may have competitive advantages.
Insale would be dependent upon a number of international marketsfactors that may be beyond the Company’s control, including, among other factors, market conditions, industry trends, the interest of third parties in each region where we operate, for instancethe assets and the availability of financing to potential buyers on reasonable terms.
In addition, while it evaluates asset sales, the Company is exposed to risks and uncertainties, including potential difficulties in Brazilretaining and China, we face substantial competitionattracting key employees, distraction of its management from local service providersother important business activities, and potential difficulties in establishing and maintaining relationships with customers, suppliers, lenders, sureties and other third parties, all of which could harm its business.
The Company may be unable to successfully and effectively manage acquisitions, divestitures, alliances, and other significant transactions, which could harm its operating results, business and prospects. As the Company improves its financial performance and promotes its business strategy, it will continue to engage in discussions and potentially enter into agreements with third parties regarding possible investments, acquisitions, strategic alliances, joint ventures, partnerships, divestitures and outsourcing arrangements. Such transactions present significant risks and challenges and there can be no assurances that offer competingthe Company will manage such transactions successfully or that strategic opportunities will be available to the Company on acceptable terms or at all. Acquisitions and partnerships inherently involve risks.
The Company may specifically evaluate and consider investments or partnerships in companies, products, services and products. Sometechnologies. Related risks include the Company failing to achieve strategic objectives, anticipated benefits or timing of a transaction or contractual obligations. Such transactions may require the Company to manage post-closing transitions services or integration issues with business operations, support systems, workplace cultures and the retention of personnel. There is also the potential for unknown liabilities and the possibility that the acquisitions or partnerships may not yield financial strategic benefits to the Company. Risks of these companiestransactions can be more pronounced in larger and more complicated transactions, or if multiple transactions are pursued simultaneously.
Risks Related to Our Pension Plan Obligations.
Low investment performance by the Company's pension plan assets may haveresult in an increase to its net pension liability and expense, which may require it to fund a dominantportion of its pension obligations and divert funds from other potential uses. The Company sponsors several defined benefit pension plans that cover certain eligible employees across the globe. The Company's pension expense and required contributions to its pension plans funded with assets are directly affected by the value of plan assets, the projected rate of return on plan assets, the actual rate of return on plan assets and the actuarial assumptions it uses to measure the defined benefit pension plan obligations.
A significant market sharedownturn could occur in their territoriesfuture periods resulting in a decline in the funded status of the Company's pension plans and maycausing actual asset returns to be owned by local stakeholders. This could give them a competitive advantage. Local providersbelow the assumed rate of competing servicesreturn used to determine pension expense. If return on plan assets in future periods perform below expectations, future pension expense will increase.
Risks Related to Shareholder Appraisal Proceedings.
The Company is exposed to additional litigation risk and products may also have a substantial advantage in attracting customers in their countries due to more established branding in that country, greater knowledgeuncertainty with respect to the tastes and preferencesformer minority shareholders of customers residing in that country and/or their focus on a single market. Diebold Nixdorf AG.As a U.S. based multi-national corporation, we must ensure our compliance with both U.S. and foreign regulatory requirements.
Because our operations are conducted worldwide, they are affected by risks of doing business abroad.
We generate a significant percentage of revenue from operations conducted outside the U.S. Revenue from international operations amounted to approximately 77.5 percent in 2017, 69.2 percent in 2016 and 58.1 percent in 2015 of total revenue during these respective years. We expect more of our future revenue to be generated outside the U.S. with the integration of the Acquisition.
Accordingly, international operations are subject to the risks of doing business abroad, including, among other things, the following:
fluctuations in currency exchange rates, particularly in EMEA (primarily the euro (EUR) and Great Britain pound sterling (GBP)), China (renminbi) and Brazil (real);
transportation delays and interruptions;
political and economic instability and disruptions, including the impact on trade agreements;
the failure of foreign governments to abide by international agreements and treaties;
restrictions on the transfer of funds;
the imposition of duties, tariffs and other taxes;
import and export controls;
changes in governmental policies and regulatory environments;
ensuring our compliance with U.S. laws and regulations and applicable laws and regulations in other jurisdictions, including the Foreign Corrupt Practices Act (FCPA), the U.K. Bribery Act, and applicable laws and regulations in other jurisdictions;
increasingly complex laws and regulations concerning privacy and data security, including the European Union’s General Data Protection Regulation;
labor unrest and current and changing regulatory environments;
the uncertainty of product acceptance by different cultures;
the risks of divergent business expectations or cultural incompatibility inherent in establishing strategic alliances with foreign partners;
difficulties in staffing and managing multi-national operations;
limitations on the ability to enforce legal rights and remedies;
reduced protection for intellectual property rights in some countries; and
potentially adverse tax consequences, including repatriation of profits.
Any of these events could have an adverse effect on our international operations by reducing the demand for our services and products or decreasing the prices at which we can sell our services and products, thereby adversely affecting our financial condition or operating results. We may not be able to continue to operate in compliance with applicable customs, currency exchange control regulations, transfer pricing regulations or any other laws or regulations to which we may be subject. In addition, these laws or regulations may be modified in the future, and we may not be able to operate in compliance with those modifications.
Additionally, there are ongoing concerns regarding the short- and long-term stability of the euro and its ability to serve as a single currency for a variety of individual countries. These concerns could lead individual countries to revert, or threaten to revert, to their former local currencies, which could lead to the dissolution of the euro. Should this occur, the assets we hold in a country that re-introduces its local currency could be significantly devalued. Furthermore, the dissolution of the euro could cause significant volatility and disruption to the global economy, which could impact our financial results. Finally, if it were necessary for us to conduct our business in additional currencies, we would be subjected to additional earnings volatility as amounts in these currencies are translated into U.S. dollar (USD).
We may be exposed to liabilities under the FCPA, which could harm our reputation and have a material adverse effect on our business.
We are subject to compliance with various laws and regulations, including the FCPA and similar worldwide anti-bribery laws, which generally prohibit companies and their intermediaries from engaging in bribery or making other improper payments to foreign officials for the purpose of obtaining or retaining business or gaining an unfair business advantage. The FCPA also requires proper record keeping and characterization of such payments in our reports filed with the SEC.
Our employees and agents are required to comply with these laws. We operate in many parts of the world that have experienced governmental and commercial corruption to some degree, and strict compliance with anti-bribery laws may conflict with local customs and practices. Foreign companies, including some that may compete with us, may not be subject to the FCPA and may follow local customs and practices. Accordingly, such companies may be more likely to engage in activities prohibited by the FCPA, which could have a significant adverse impact on our ability to compete for business in such countries.
Despite our commitment to legal compliance and corporate ethics, we cannot ensure that our policies and procedures will always protect us from intentional, reckless or negligent acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in financial penalties, debarment from government contracts and other consequences that may have a material adverse effect on our reputation, business, financial condition or results of operations. Future changes in anti-bribery or economic sanctions laws and enforcement could also result in increased compliance requirements and related expenses that may also have a material adverse effect on our business, financial condition or results of operations.
In addition, our business opportunities in select geographies have been or may be adversely affected by the settlement of the FCPA matter that we settled with the U.S. government in late 2013. Some countries in which we do business may also initiate their own reviews and impose penalties, including prohibition of our participating in or curtailment of business operations in those jurisdictions. We could also face third-party claims in connection with this matter or as a result of the outcome2016 acquisition of Diebold Nixdorf AG (the Acquisition), the Company continues to be exposed to two separate appraisal proceedings (Spruchverfahren). Both proceedings are pending at the same Chamber for Commercial Matters (Kammer für Handelssachen) at the District Court (Landgericht) of Dortmund (Germany). The first appraisal proceeding relates to the Domination and Profit Loss Transfer Agreement (DPLTA) entered into by Diebold Holding Germany Inc. & Co. KGaA (now doing business as Diebold Nixdorf Holding Germany GmbH), a wholly-owned subsidiary of Diebold Nixdorf, Incorporated, and Diebold Nixdorf AG, which became effective on February 17, 2017. The DPLTA appraisal proceeding was filed by minority shareholders of Diebold Nixdorf AG challenging the adequacy of both the cash exit compensation of €55.02 per Diebold Nixdorf AG share (of which 6.9 million shares were then outstanding) and the annual recurring compensation of €2.82 per Diebold Nixdorf AG share offered in connection with the DPLTA.
The second appraisal proceeding relates to the cash merger squeeze-out of minority shareholders of Diebold Nixdorf AG in 2019. The squeeze-out appraisal proceeding was filed by former minority shareholders of Diebold Nixdorf AG challenging the adequacy of the current or any future government reviews. Our disclosure, internal review and any current or future governmental reviewcash exit compensation of this matter could, individually or€54.80 per Diebold Nixdorf AG share (of which 1.4 million shares were then outstanding) in connection with the merger squeeze-out.
In the second quarter of 2022, the District Court of Dortmund dismissed all claims to increase the cash compensation in the aggregate, have a material adverse effect on our reputation and our ability to obtain new business or retain existing business from our current clients and potential clients, to attract and retain employees and to access the capital markets.
We may expand operations into international markets in which we may have limited experience or rely on business partners.
We continually look to expand our services and products into international markets. We have currently developed, through strategic alliances, investments, subsidiaries and branch offices, service and product offerings in more than 130 countries outsideDPLTA appraisal proceedings. This first instance decision, however, is not final as some of the U.S. As we expand into new international markets, weplaintiffs filed appeals. The Company believes that the compensation offered in connection with the DPLTA and the merger squeeze-out was in both cases fair and that the decision of the District Court of Dortmund in the DPLTA appraisal proceedings validates its position. German courts often adjudicate increases of the cash compensation to plaintiffs in varying amounts in connection with German appraisal proceedings. Therefore, the Company cannot rule out that a court may increase the cash compensation in these appraisal proceedings. The Company, however, is convinced that its defense in both appraisal proceedings is supported by strong sets of facts and the Company will have only limited experiencecontinue to vigorously defend itself in marketing and operating services and products in such markets. In other instances, we may rely on the efforts and abilities of foreign business partners in such markets. Certain international markets may be slower than domestic markets in adopting our services and products, and our operations in international markets may not develop at a rate that supports our level of investment. Further, violations of laws by our foreign business partners, or allegations of such violations, could disrupt our business and result in financial penalties and other consequences that may have a material adverse effect on our business, financial condition or results of operations.these matters.
Non-Cash Impairment Loss Risks.
We have
The Company has a significant amount of long-term assets, including goodwill and other intangible assets, and any future impairment charges could adversely impact ourits results of operations.
We review The Company reviews long-lived assets, including property, plant and equipment and identifiable amortizing intangible assets, for impairment whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable. If the fair value is less than the carrying amount of the asset, a loss is recognized for the difference. Factors which may cause an impairment of long-lived assets include significant changes in the manner of use of these assets, negative industry or market trends, a significant under-performance relative to historical or projected future operating results, or a likely sale or disposal of the asset before the end of its estimated useful life.
As of December 31, 2017, we2022, the Company had $1,117.1$702.3 of goodwill. We assess all existing goodwill at least annually for impairment on a reporting unit basis. Beginning with the first quarter of 2017, the Company’s reportable operating segments are the following lines of business: Software, Systems, and Services. The techniques used in ourits qualitative and quantitative assessment and goodwill impairment tests incorporate a number of estimates and assumptions that are subject to change. Although we believethe Company believes these estimates and assumptions are reasonable and reflect market conditions forecast at the assessment date, any changes to these assumptions and estimates due to market conditions or otherwise may lead to an outcome where impairment charges would be required in future periods.
SystemEconomic Risks and Market Contingencies.
The proliferation of payment options other than cash, including credit cards, debit cards, store-valued cards and mobile payment options could result in a reduced need for cash in the marketplace and a resulting decline in the usage of ATMs.The U.S., Europe and other developed markets have seen a shift in consumer payment trends since the late 1990's, with more customers now opting for electronic forms of payment, such as credit cards and debit cards, for their in-store purchases over traditional paper-based forms of payment, such as cash and checks. The recent COVID-19 pandemic has accelerated consumer transition towards non-cash payment alternatives driving an increase in digital, mobile and contactless payment methods. Additionally, some merchants offer free cash back at the POS for customers that utilize debit cards for their purchases, thus providing an additional incentive for consumers to use these cards. The continued growth in electronic payment methods could result in a reduced need for cash in the marketplace and ultimately, a decline in the usage of ATMs. New payment technology and adoption of mobile payment technology, digital currencies such as Bitcoin, or other new payment method preferences by consumers could further reduce the general population's need or demand for cash and negatively impact sales of ATMs and selected products, services and software.
The Company's business may be affected by general economic conditions, cyclicality and uncertainty and could be adversely affected during economic downturns. Demand for the Company's services and products is affected by general economic conditions and the business conditions of the industries in which it sells its services and products. The business of most of the Company's customers, particularly its financial institution and retail customers, is, to varying degrees, cyclical and has historically experienced periodic downturns. Under difficult economic conditions, customers may seek to reduce discretionary spending by forgoing purchases of the Company's services and products. This risk is magnified for capital goods purchases such as ATMs, retail systems and physical security risks, systems integration and cybersecurity issues could disrupt our internal operations or services provided to customers, and any such disruptionproducts. In addition, downturns in the Company's customers’ industries, even during
periods of strong general economic conditions, could adversely affect revenue, increase costs, and harm our reputation and stock price.
Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate our own confidential information or those of our customers, corrupt data, create system disruptions or cause shutdowns. A network security breach could be particularly harmful if it remains undetectedthe demand for an extended period of time. Groups of hackers may also act in a coordinated manner to launch distributed denial of service attacks, or other coordinated attacks, that may cause service outages or other interruptions. We could incur significant expenses in addressing problems created by network security breaches, such as the expenses of deploying additional personnel, enhancing or implementing new protection measures, training employees or hiring consultants. Further, such corrective measures may later prove inadequate. Moreover, actual or perceived security vulnerabilities in ourCompany's services and products, and its sales and operating results.
In particular, continuing economic difficulties in the global markets have led to an economic recession in certain markets in which the Company operates. As a result of these difficulties and other factors, including new or increased regulatory burdens, financial institutions and retail customers have failed and may continue to fail, resulting in a loss of current or potential customers, or deferred or canceled orders, including orders previously placed. Any customer deferrals or cancellations could materially affect the Company's sales and operating results.
Increased energy, raw material and labor costs could reduce the Company's operating results. Energy prices, particularly petroleum prices, and raw materials (e.g., steel) are cost drivers for the Company's business. In recent years, the price of petroleum has been highly volatile, particularly due to the unstable political conditions in the Middle East and increasing international demand from emerging markets. The current high inflation environment may have also led to increased energy and oil prices. During his campaign, President Biden stated his intent to reverse U.S. climate change policy and in one of his first actions after taking office, signed an executive order recommitting the United States to the Paris Agreement. New legislation and regulations designed to implement this shift in U.S. climate change strategy, such as President Biden’s proposed ban of new oil and gas production activities on public lands and properties, could cause significant reputational harm, causing usfuel and electricity prices to lose existingincrease. Price increases in fuel and electricity costs, such as those increases that may occur from climate change legislation or other environmental mandates, may continue to increase cost of operations and affect the Company’s ability to operate in specific markets. Any increase in the costs of energy would also increase the Company's transportation costs.
The primary raw materials in the Company's services, software and systems solutions are steel, plastics, and electronic parts and components. The majority of raw materials are purchased from various local, regional and global suppliers pursuant to supply contracts. These suppliers, particularly those of electric components serve many large customers across several industries. The price of these materials can fluctuate under the supply contracts in tandem with the pricing of raw materials, which are increasing due to inflationary pressures. Current price increases in steel and resin are being mitigated by long-term contracts and joint work with suppliers on general productivity improvement and supply chain optimization. Most supplier agreements include long-term productivity improvements that serve as the basis for absorbing the potential customers. Reputational damageraw materials increases.
The Company cannot assure that its labor costs going forward will remain competitive or will not increase, including as a result of the current high inflation environment and the competitive environment for labor. In the future, the Company's labor agreements may be amended, or become amendable, and new agreements could also result in diminished investor confidence. Actual or perceived vulnerabilitieshave terms with higher labor costs. In addition, labor costs may also lead to claims against us. Although our license agreements typically contain provisions that eliminate or limit our exposure to such liability, there is no assurance these provisions will withstand legal challenges. We could also incur significant expensesincrease in connection with customers’ system failures.the Company's growth. The Company may also become subject to collective bargaining agreements in the future in the event that non-unionized workers may unionize.
Risks Related to Competition.
The Company faces competition in global markets that could adversely affect its sales and financial condition. All phases of the Company's business are highly competitive. Some of its services and products are in direct competition with similar or alternative services or products provided by its competitors. The Company encounters competition in price, delivery, service, performance, product innovation, product recognition and quality.In a number of international markets in each region where the Company operates, it faces substantial competition from local service providers that offer competing services and products.
Local providers of competing services and products may also have a substantial advantage in attracting customers in their countries due to more established branding in that country, greater knowledge with respect to the tastes and preferences of customers residing in that country and/or their focus on a single market. In addition, sophisticated hardwaresome of these companies may have a dominant market share in their territories and may be owned by local stakeholders. Because of the potential for consolidation in any market, the Company's competitors may become larger, which could make them more efficient and permit them to be more price-competitive. Increased size could also permit them to operate in wider geographic areas and enhance their abilities in other areas such as R&D and customer service.
The Company expects that its competitors will continue to develop and introduce new and enhanced services and products. This could cause a decline in market acceptance of the Company's services and products or result in the loss of major customers. In addition, the Company's competitors could cause a reduction in the prices for some of its services and products as a result of intensified price competition. Also, the Company may be unable to effectively anticipate and react to new entrants in the marketplace competing with its services and products.
As a U.S.-based multi-national corporation, the Company must ensure its compliance with both U.S. and foreign regulatory requirements, while local competitors only need to observe applicable regional, national or local laws that may be less onerous. An inability to compete successfully could have an adverse effect on the Company's operating system softwareresults, financial condition and applications that we produce or procurecash flows in any given period.
Risks Related to Our Multi-National Business Operations.
Because the Company's operations are conducted worldwide, they are affected by risks of doing business abroad. The Company generates a significant percentage of revenue from third parties may contain defectsoperations conducted outside the U.S. Revenue from international operations amounted to approximately 75.1 percent in design or manufacture,2022, 77.1 percent in 2021, and 75.0 percent in 2020of total revenue during these respective years.
Accordingly, international operations are subject to the risks of doing business abroad, including, “bugs”among other things, the following:
•fluctuations in currency exchange rates, particularly in EMEA (primarily the euro), Great Britain (pound sterling), Mexico (peso), Thailand (baht) and Brazil (real);
•transportation and supply chain delays and interruptions;
•political and economic instability and disruptions, including the impact of trade agreements;
•the failure of foreign governments to abide by international agreements and treaties;
•restrictions on the transfer of funds and capital controls;
•the imposition of duties, tariffs and other problems that could unexpectedly interferetaxes;
•import and export controls;
•changes in governmental policies and regulatory environments;
•ensuring the Company's compliance with U.S. laws and regulations and applicable laws and regulations in other jurisdictions, including the operationForeign Corrupt Practices Act (FCPA), the U.K. Bribery Act, and applicable laws and regulations in other jurisdictions;
•increasingly complex laws and regulations concerning privacy and data security, including the GDPR;
•labor unrest and current and changing regulatory environments;
•the uncertainty of product acceptance by different cultures;
•the system. The costs to eliminaterisks of divergent business expectations or alleviate security problems, virusescultural incompatibility inherent in establishing strategic alliances with foreign partners;
•difficulties in staffing and bugs could be significant, and the efforts to address these problems could result in interruptions, delays or cessation of service that could impede sales, manufacturing, distribution or other critical functions.managing multi-national operations;
Portions of our IT infrastructure also may experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time. We may not be successful in implementing new systems, and transitioning data and other aspects of the process could be expensive, time consuming, disruptive and resource-intensive. Such disruptions could adversely impact•limitations on the ability to fulfill orders, serviceenforce legal rights and remedies;
•reduced protection for intellectual property rights in some countries;
•potentially adverse tax consequences, including repatriation of profits; and
•disruptions in our business, or the businesses of our suppliers or customers, and interruptdue to cybersecurity incidents, terrorist activity, armed conflict, war, public health concerns (including viral outbreaks, such as COVID-19), fires or other processes and, in addition, could adversely impact our ability to maintain effective internal control over financial reporting. Delayed sales, lower margins, lost customers or diminished investor confidence resulting fromnatural disasters.
Any of these disruptions could adversely affect our financial results, stock price and reputation.
An inability to attract, retain and motivate key employees could harm current and future operations.
In order to be successful, we must attract, retain and motivate executives and other key employees, including those in managerial, professional, administrative, technical, sales, marketing and IT support positions. We also must keep employees focused on our strategies and goals. Hiring and retaining qualified executives, engineers and qualified sales representatives are critical to our future, and competition for experienced employees in these areas can be intense. The failure to hire or loss of key employeesevents could have a significant impactan adverse effect on our operations.
Wethe Company's international operations by reducing the demand for its services and products or decreasing the prices at which it can sell its services and products, thereby adversely affecting its financial condition or operating results. The Company may not be able to generate sufficient cash flowscontinue to fund our operations and make adequate capital investments,operate in compliance with applicable customs, currency exchange control regulations, transfer pricing regulations or any other laws or regulations to pay dividends.
Our cash flows from operations depend primarily on sales and service margins. To develop new service and product technologies, support future growth, achieve operating efficiencies and maintain service and product quality, we must make significant capital investments in manufacturing technology, facilities and capital equipment, research and development, and service and product technology.which it may be subject. In addition, to cash provided from operations, we have from time to time utilized external sources of financing. Depending upon general market conditionsthese laws or other factors, weregulations may be modified in the future, and the Company may not be able to generate sufficient cash flowsoperate in compliance with those modifications.
Significant developments from recent and potential changes in U.S. trade policies, trade policies of other countries, or the issuance of sanctions forbidding or restricting trade where the Company has operations could have a material adverse effect on the Company and its financial condition and results of operations.Tariffs, and other governmental action relating to fund our operationsinternational trade agreements or policies, the adoption and make adequate capital investments,expansion of trade restrictions, the requirement for licenses or the occurrence of a trade war, may adversely impact demand for the Company’s products, costs, customers, suppliers and/or the U.S. economy or certain sectors thereof or may adversely impact the Company’s ability to continueselect a preferred supplier and, as a result, adversely impact its business.
The U.S. government may renegotiate, or potentially terminate, existing bilateral or multi-lateral trade agreements and treaties with foreign countries, including countries such as China. The Company manufactures a substantial amount of its products in China and has joint ventures with Chinese entities. On March 2, 2023 the U.S. Department of Commerce updated the Export Administration Regulation (EAR) list to pay dividends, either in whole or in part. In addition, any tighteninginclude a Chinese entity that is part of one of the credit markets may limit ourCompany's joint ventures. In the future, if the EAR list is updated and any joint ventures to which the Company is a partner becomes subject to the export regulations, the Company's ability to obtain alternative sourcesship U.S.-origin goods ma adversely affect the Company's ability to manufacture products.
Additional tariffs may cause the Company to increase prices to its customers, which may reduce demand, or, if it is unable to increase prices, result in lowering its margin on products sold. Furthermore, the Company’s global operations, including in China and Russia, subject it to sanctions laws in the countries where it trades and to U.S. sanctions.
The Company's operations in Russia have been affected by sanctions by a number of governments on the Russian financial sector, including the United States, the European Union, and the United Kingdom. These sanctions may have the effect of disrupting the Company's collection of outstanding accounts receivable and ability to fundgenerate revenue in Russia. Based on the projected effect of these sanctions or the imposition of additional sanctions, this impact on operations may require the Company to reduce or exit its business in Russia or another country. Any reduction or exit of our operations.business could result in changes, which could be material.
It remains unclear what the U.S. or foreign governments will or will not do with respect to sanctions, tariffs, international trade agreements and policies on a short-term or long-term basis. The Company cannot predict future trade policy or the terms of any renegotiated trade agreements and their impacts on its business.
Risks Related to Our Common Shares.
Anti-takeover provisions could make it more difficult for a third party to acquire the Company. Certain provisions of the Company's charter documents, including provisions limiting the ability of shareholders to raise matters at a meeting of shareholders without giving advance notice, may make it more difficult for a third party to gain control of the Company's board of directors and may have the effect of delaying or preventing changes in the Company's control or management. This could have an adverse effect on the market price of the Company's common shares. Additionally, Ohio corporate law provides that certain notice and informational filings and special shareholder meeting and voting procedures must be followed prior to consummation of a proposed control share acquisition, as defined in the Ohio Revised Code (ORC). Assuming compliance with the prescribed notice and information filings, a proposed control share acquisition may be made only if, at a special meeting of shareholders, the acquisition is approved by both a majority of its voting power represented at the meeting and a majority of the voting power remaining after excluding the combined voting power of the interested shares, as defined in the ORC. The application of these provisions of the ORC also could have the effect of delaying or preventing a change of control.
The declaration, payment and amount of dividends is at the discretion of the Company’s board of directors.Although the Company has paid dividends on its common shares in the past, the declaration and payment of future dividends, as well as the amount thereof, are subject to the declaration by the Company’s board of directors. The amount and size of any future dividends will depend on the Company’s results of operations, financial condition, capital levels, cash requirements, future prospects and other factors.
Future issuances of the Company’s common shares in connection with the Refinancing Transactions and the registered Exchange Offer could result in significant dilution to our shareholders and impair the market price of the common shares. In connection with the Refinancing Transactions, the Company issued to participants of the 2024 Exchange Offer and Consent Solicitation New serviceWarrants exercisable for up to 15,813,847 common shares (representing 19.99% of the common shares outstanding on the business day immediately preceding the December 29, 2022, (the "settlement date"), subject to reallocation following the consummation of the Registered Exchange Offer. Unless earlier cancelled in accordance with their terms, New Warrants can be exercised at any time on and after April 1, 2024 and prior to 5:00 p.m. New York City time on December 29, 2027 (or, if such day is not a business day, the next succeeding day that is a business day). No cash will be payable by a warrantholder in respect of the exercise price for a New Warrant upon exercise; rather, upon exercise, a holder of New Warrants will receive, on the applicable settlement date, a number of Common Shares equal to the greater of (i) zero and (ii) the product developmentsof (a) the number of warrant shares for such New Warrant as of the exercise date and (b) a fraction, the numerator of which is (x) the fair market value per share of the common shares as of the trading day immediately prior to the exercise date minus (y) the exercise price of $0.01 per share, and the denominator of which is the fair market value per share of the common shares as of the trading day immediately prior to the exercise date. The number of full shares issuable upon an exercise of New Warrants by a warrantholder at any time will be computed on the basis of the aggregate number of shares issuable pursuant to the New Warrants being exercised by such warrantholder as of the applicable exercise date. Further, the Company will be required to raise equity capital prior to the maturity date of the 2024 Senior Notes in an amount necessary to repurchase, redeem, prepay or pay in full the principal amount (and any other accrued and unpaid fees/expenses that remain unpaid at the time of repurchase, redemption, prepayment or payment in full) of any 2024 Senior Notes that failed to participate in the 2024 Exchange Offer and Consent Solicitation or the registered exchange pursuant to the registration statement on form S-4 filed with the SEC on February 10 2022, (as it may be unsuccessful.
We are constantly lookingsupplemented or amended(including by post-effective amendments) from time to develop new servicestime) (the "Registered Exchange Offer") in excess of $20 (such 2024 Senior Notes in excess of $20, the Excess Stub Notes), and products that complement or leverage the underlying design or process technologyproceeds of our traditional service and product offerings. We make significant investments in service and product technologies and anticipate expending significant resources for new software-led services and product development over the next several years. There can be no assurance that our service and product development effortssuch equity capital will be successful,required to be used to repurchase, redeem, prepay or pay in full the Excess Stub Notes prior to the maturity date of the 2024 Senior Notes. Issuances of common shares upon exercise of New Warrants or in connection with any raise of equity capital required to repurchase, redeem, prepay or pay in full the Excess Stub Notes, or the perception that we willthese issuances may occur, could depress the market price of the Company’s common shares and result in dilution to existing holders of the common shares, and such dilution could be ablesignificant depending on the size of the issuances.
The price of the Company’s common shares has been volatile, and an investment in the common shares could lose value. The risks discussed in this section could adversely affect the price of the Company’s common shares. The timing of announcements in the public market regarding new products, product enhancements or technological advances by the Company or its competitors, and any announcements by the Company or its competitors of acquisitions, major transactions or management changes could also affect the price of the Company’s common shares. The price of the Company’s common shares is subject to cost effectively developspeculation in the press and the analyst community, including with respect to changes in recommendations or manufacture these new servicesearnings estimates by financial analysts, changes in investors’ or analysts’ valuation measures for the Company’s common shares, the
Company’s credit ratings and products, that we will be ablemarket trends unrelated to successfully market these servicesthe Company’s performance. Sales of the Company’s common shares by the Company’s directors, officers, or other significant holders may also affect the price of the common shares. A significant drop in the price of the common shares could also expose the Company to the risk of securities class action lawsuits, which could result in substantial costs and products or that margins generated from salesdivert management’s attention and resources, which could adversely affect the Company’s business prospects, financial condition and results of these services and products will recover costs of development efforts.operations.
OurGeneral Risks.
The Company's ability to maintain effective internal control over financial reporting may be insufficient to allow usit to accurately report ourits financial results or prevent fraud, and this could cause ourits financial statements to become materially misleading and adversely affect the trading price of ourits common shares.
We requireThe Company requires effective internal control over financial reporting in order to provide reasonable assurance with respect to ourits financial reports and to effectively prevent fraud. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If the Company cannot provide reasonable assurance with respect to ourits financial statements and effectively prevent fraud, ourits financial statements could become materially misleading, which could adversely affect the trading price of ourits common shares.
If the Company is not able to maintain the adequacy of ourits internal control over financial reporting, including any failure to implement required new or improved controls, or if the Company experiences difficulties in the implementation of or the implemented controls required in connection with the Acquisition, ourits business, financial condition and operating results could be harmed. Any material weakness could affect investor confidence in the accuracy and completeness of ourits financial statements. As a result, ourthe Company's ability to obtain any additional financing, or additional financing on favorable terms, could be materially and adversely affected. This, in turn, could materially and adversely affect ourits business, financial condition and the market value of ourits securities and require usit to incur additional costs to improve ourits internal control systems and procedures. In addition, perceptions of the Company among customers, lenders, investors, securities analysts and others could also be adversely affected.
The Company had material weaknesses in its internal control overWe may be exposed to certain regulatory and financial reporting in the past, and can give no assurances that any additional material weaknesses will not arise in the future duerisks related to our failure to implement and maintain adequate internal control over financial reporting. In addition, although the Company has been successful historically in strengthening our controls and procedures, those controls and procedures may not be adequate to prevent or identify irregularities or ensure the fair presentation of our financial statements included in our periodic reports filed with the SEC.
Low investment performance by our pension plan assetsclimate change. Growing concerns about climate change may result in an increasethe imposition of additional regulations or restrictions to our net pension liabilitywhich we may become subject. A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to climate change, including regulating greenhouse gas emissions. The outcome of new legislation or regulation in the U.S. and expense,other jurisdictions in which we operate may require usresult in new or additional requirements, additional charges to fund a portion of our pension obligationsenergy efficiency activities, and divert funds from other potential uses.
We sponsor several defined benefit pension plans that coverfees or restrictions on certain eligible employees across the globe. Our pension expense and required contributions to our pension plans are directly affected by the value of plan assets, the projected rate of return on plan assets, the actual rate of return on plan assets and the actuarial assumptions we use to measure the defined benefit pension plan obligations.
A significant market downturn could occur in future periods resulting in a decline in the funded status of our pension plans and causing actual asset returns to be below the assumed rate of return used to determine pension expense. If return on plan assets in future periods perform below expectations, future pension expense will increase.
We establish the discount rate used to determine the present value of the projected and accumulated benefit obligations at the end of each year based upon the available market rates for high quality, fixed income investments. We match the projected cash flows of our pension plans against those generated by high-quality corporate bonds. The yield of the resulting bond portfolio provides a basis for the selected discount rate. An increase in the discount rate would reduce the future pension expense and, conversely, a decrease in the discount rate would increase the future pension expense.
Based on current guidelines, assumptions and estimates, including investment returns and interest rates, we plan to make contributions to our pension plans of $49.6 in 2018. The Company anticipates reimbursement of approximately $14 certain benefits paid from its trustee in 2018. Changes in the current assumptions and estimates couldactivities. Compliance with these climate change initiatives may also result in contributionsadditional costs to us, including, among other things, increased production costs, additional taxes, reduced emission allowances or additional restrictions on production or operations. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in years beyond 2018 that are greater than the projected 2018 contributions required. We cannot predict whether changing market or economic conditions, regulatory changes or other factors will further increase our pension expenses or funding obligations, diverting funds we would otherwise apply to other uses.
Our businesses areareas not subject to inherent risks, some for which we maintain third-party insurancesuch limitations. Even without such regulation, increased public awareness and some for which we self-insure. We may incur losses and be subject to liability claims thatadverse publicity about potential impacts on climate change emanating from us or our industry could have a material adverse effect on our financial condition, results of operations or cash flows.
harm us. We maintain insurance policies that provide limited coverage for some, but not all, of the potential risks and liabilities associated with our businesses. The policies are subject to deductibles and exclusions that result in our retention of a level of risk on a self-insurance basis. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive relative to the risks presented. As a result of market conditions, premiums and deductibles for certain insurance policies can increase substantially, and in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage. As a result, we may not be able to renewrecover the cost of compliance with new or more stringent laws and regulations, which could adversely affect our existing insurance policies or procure other desirable insurance on commercially reasonable terms, if at all. Even where insurance coverage applies, insurers may contest their obligations to make payments. Our financial condition, results of operations, andfinancial position or cash flows could be materially and adversely affected by losses and liabilities from uninsured or under-insured events, as well as by delays in the payment of insurance proceeds, or the failure by insurers to make payments. We also may incur costs and liabilities resulting from claims for damages to property or injury to persons arising from our operations.flows.
Our assumptions used to determine our self-insurance liability could be wrong and materially impact our business.
We evaluate our self-insurance liability based on historical claims experience, demographic factors, severity factors and other actuarial assumptions. However, if future occurrences and claims differ from these assumptions and historical trends, our business, financial results and financial condition could be materially impacted by claims and other expenses.
An adverse determination that ourthe Company's services, products or manufacturing processes infringe the intellectual property rights of others, an adverse determination that a competitor has infringed our intellectual property rights, or ourits failure to enforce ourits intellectual property rights could have a materially adverse effect on ourits business, operating results or financial condition.
As is common in any high technology industry, others have asserted from time to time, and may assert in the future, that ourthe Company's services, products or manufacturing processes infringe their intellectual property rights. A court determination that ourits services, products or manufacturing processes infringe the intellectual property rights of others could result in significant liability and/or require usit to make material changes to ourits services, products and/or manufacturing processes. We are unable to predict the outcome of assertions of infringement made against us.
The Company also seeks to enforce ourits intellectual property rights against infringement. In October 2015, the Company filed a complaint with the U.S. International Trade Commission (ITC) and the U.S. District Court for the Northern District of Ohio alleging that Nautilus Hyosung Inc., and its subsidiary Nautilus Hyosung America Inc., infringed upon the Company's patents. The ITC instituted an investigation and, in February 2017, issued a final determination that Nautilus Hyosung products infringe two of the Company's patents. The ITC further issued an exclusion order and cease and desist order which bar the importation and sale of certain Nautilus Hyosung deposit automation enabled ATMs and modules in the U.S. In response to these actions taken by the Company, in February 2016 Nautilus Hyosung filed complaints against the Company in front of the ITC and U.S. District Court for the Northern District of Texas alleging the Company infringes certain Nautilus Hyosung patents. In July 2017, the ITC dismissed three of theses retaliatory claims and ruled that a legacy Wincor product technically infringes one Nautilus Hyosung patent. The Company has appealed this one ruling and will continue to vindicate its intellectual property against infringement by others.
The Company cannot predict the outcome of actions to enforce ourits intellectual property rights, and, although we seekit seeks to enforce ourits intellectual property rights, weit cannot guarantee that weit will be successful in doing so. Any of the foregoing could have a materially adverse effect on ourthe Company's business, operating results or financial condition.
The Company may be exposed to liabilities under the FCPA or other worldwide anti-bribery laws, which could harm its reputation and have a material adverse effect on its business.The Company is subject to compliance with various laws and regulations, including worldwide anti-bribery laws. Anti-bribery laws generally prohibit companies, and third parties acting on their behalf, from engaging in bribery or making or receiving other improper payments to another person or entity, including government officials for the purpose of obtaining or retaining business or gaining an unfair business advantage or inducing a person to act improperly or rewarding them for doing so. The FCPA also requires proper record keeping and characterization of such payments in the Company's reports filed with the SEC.
The Company's employees and agents are required to comply with these laws. The Company operates in many parts of the world that have experienced governmental and commercial corruption to some degree, and strict compliance with anti-bribery laws may conflict with local customs and practices. Non-US companies, including some that may compete with the Company, may not be subject to the FCPA or other anti-bribery laws and may follow local customs and practices. Accordingly, such companies may be more likely to engage in activities prohibited by the anti-bribery laws which apply to the Company, which could have a significant adverse impact on the Company's ability to compete for business in such countries.
Despite the Company's commitment to legal compliance and corporate ethics, it cannot ensure that its policies and procedures will always protect it from intentional, reckless or negligent acts committed by its employees or agents. Violations of these laws, or allegations of such violations, could disrupt the Company's business and result in financial penalties, debarment from government contracts and other consequences that may have a material adverse effect on its reputation, business, financial condition or results of operations. Future changes in anti-bribery or economic sanctions laws and enforcement could also result in increased compliance requirements and related expenses that may also have a material adverse effect on its business, financial condition or results of operations.
Economic conditions and regulatory changes leading up to and following the United Kingdom's (U.K.) exit from the EU could have a material adverse effect on the Company's business and results of operations. The U.K.’s exit from the EU (Brexit) and the resulting significant change to the U.K.’s relationship with the EU and with countries outside the EU (and the laws, regulations and trade deals impacting business conducted between them) could disrupt the overall economic growth or stability of the U.K. and the EU and negatively impact the Company’s European operations. The U.K. and the EU have entered into a free trade agreement that now governs the U.K.’s relationship with the EU. While the U.K. and the EU can generally continue to trade with each other without the imposition of tariffs for imports and exports, there are new customs requirements that require additional documentation and data, and there are also new controls on the movement and reporting of goods. Although we have not experienced any material disruption in our business as a result of Brexit, we do not know the extent to which Brexit and the free trade agreement will ultimately impact the business and regulatory environment in the U.K., the rest of the EU or other countries, although it is possible there will be tighter controls and administrative requirements for imports and exports between the U.K. and the EU or other countries, as well as increased regulatory complexities. Any of these factors could adversely impact customer demand, our relationships with customers and suppliers and our results of operations.
Changes in laws or regulations or the manner of their interpretation or enforcement could adversely impact ourthe Company's financial performance and restrict ourits ability to operate ourits business or execute ourits strategies.
New laws or regulations, or changes in existing laws or regulations or the manner of their interpretation or enforcement, could increase ourthe Company's cost of doing business and restrict ourits ability to operate ourits business or execute ourits strategies. This includes, among other things, the possible taxation underincrease in U.S. law of certaincorporate income from foreign operations,tax rates, legislation and regulatory initiatives relating to climate change and environmental policy and other changes relating to the Biden Administration transition, compliance costs and enforcement under applicable securities laws, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the German Securities Trading Act (Wertpapierhandelsgesetz) and Regulation (EU) NoNo. 596/2014 of the European Parliament and of the Council of April 16, 2014, as well as costs associated with complying with the Patient Protection and Affordable Care Act of 2010 and the regulations promulgated thereunder. For example, under Section 1502 of the Dodd-Frank Act, the SEC has adopted additional disclosure requirements related to the source of certain “conflict minerals” for issuers for which such “conflict minerals” are necessary to the functionality or product manufactured, or contracted to be manufactured, by that issuer.
The metals covered by the rules include tin, tantalum, tungsten and gold, commonly referred to as “3TG.” Our suppliers may use some or all of these materials in their production processes. The SEC’s rules require us to perform supply chain due diligence on our supply chain, including the mine owner and operator. Global supply chains can have multiple layers, thus the costs of complying with these requirements could be substantial. These requirements may also reduce the number of suppliers who provide conflict free metals, and may affect our ability to obtain products in sufficient quantities or at competitive prices. Compliance costs and the unavailability of raw materials could have a material adverse effect on our results of operations. In addition, the Company’s business is subject to the U.K. Modern Slavery Act 2015 and the California Transparency in Supply Chain Act and similar laws and regulations, which relate to human trafficking, anti-slavery and impose compliance requirements on businesses and their suppliers.
Economic conditions and regulatory changes leading up to and following the United Kingdom’s likely exit from the European Union (EU) could have a material adverse effect on our business and results of operations.
Following a referendum in June 2016 in which voters in the U.K. approved an exit from the EU, it is expected that the U.K. government will initiate a process to leave the EU (often referred to as Brexit) and begin negotiating the terms of the U.K.’s future relationship with the EU. The Company faces uncertainty regarding the impact of the likely exit of the U.K. from the EU. Adverse consequences such as deterioration in global economic conditions, stability in global financial markets, volatility in currency exchange rates or adverse changes in regulation of the cross-border agreements could have a negative impact on our financial condition and results of operations.
Our actual operating results may differ significantly from ourits guidance.
From time to time, we releasethe Company releases guidance, including andany guidance that weit may include in the reports that we fileit files with the SEC regarding ourits future performance. This guidance, which consists of forward-looking statements, is prepared by ourits management and is qualified by, and subject to, the assumptions and the other information included in this Annual Reportannual report on Form 10-K, as well as the factors described under “Management's Discussion and Analysis of Financial Condition and Results of Operation - Operation—Forward-Looking Statement Disclosure.” OurThe Company’s guidance is not prepared with a view toward compliance with published guidelines of the American Institute of Certified Public Accountants, and neither ourits independent registered public accounting firm nor any other independent or outside party compiles or examines the guidance and, accordingly, no such person expresses any opinion or any other form of assurance with respect thereto.
Guidance is based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to business, economic and competitive uncertainties and contingencies, many of which are beyond ourthe Company’s control and are based upon specific assumptions with respect to future business decisions, some of which will change. The principal reason that we releasethe Company releases such data is to provide a basis for ourits management to discuss ourits business outlook with analysts and investors. We doThe Company does not accept any responsibility for any projections or reports published by any such persons.
Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidance furnished by usthe Company will not materialize or will vary significantly from actual results. Accordingly, ourthe Company’s guidance is only an estimate of what management believes is realizable as of the date of release. Actual results will vary from the guidance. Investors should also recognize that the reliability of any forecasted financial data diminishes the farther in the future that the data are forecast. In light of the foregoing, investors are urged to put the guidance in context and not to place undue reliance on it.
Anti-takeover provisions could make it more difficult for a third party to acquire us.
Certain provisions of our charter documents, including provisions limiting the ability of shareholders to raise matters at a meeting of shareholders without giving advance notice, may make it more difficult for a third party to gain control of our board of directors and may have the effect of delaying or preventing changes in our control or management. This could have an adverse effect on the market price of our common shares. Additionally, Ohio corporate law provides that certain notice and informational filings and special shareholder meeting and voting procedures must be followed prior to consummation of a proposed control share acquisition, as defined in the Ohio Revised Code. Assuming compliance with the prescribed notice and information filings, a proposed control share acquisition may be made only if, at a special meeting of shareholders, the acquisition is approved by both a majority of our voting power represented at the meeting and a majority of the voting power remaining after excluding the combined voting power of the interested shares, as defined in the Ohio Revised Code. The application of these provisions of the Ohio Revised Code also could have the effect of delaying or preventing a change of control.
ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
ITEM 2: PROPERTIES
As of December 31, 2022, the Company operates a real estate footprint of approximately 1,500,000 square feet and has realized a sustainable reduction from approximately 1,600,000 square feet in 2021. Since 2018, the Company reduced its
operating real estate footprint by more than 50 percent. The Company's corporate offices are locatedmain driver of recent reductions were consolidations of existing locations by reducing the rented areas, e.g., in North Canton, OhioMexico, relocating to smaller and Paderborn, Germany.more cost-efficient locations, e.g., Indonesia, Portugal, and exiting locations like Paddington, UK and an office area in Atlanta, Georgia.
Further, the Company owns or leases and operates sales, service, and administrative properties across the Americas, EMEA, and AP and is seeking to regionalize its manufacturing. The Company also owns or leases and operates manufacturing facilities primarily related to our Systems LOB in Greensboro, North Carolina,Canton, Ohio, Manaus, Brazil, China, India and Paderborn, Germany. The Company leases acontinues to have key software development centerdelivery hubs in Canada related to our Software LOB. The following are our principal locations in which the Company owns or leasesKatowice, Poland and operates selling, service and administrative offices in its three lines of business Services, Software and Systems:Mumbai, India.
|
| | | | | | | | | | |
Americas | | EMEA | | AP |
Barbados | | Haiti | | Algeria | | Israel | | Russia | | Australia |
Belize | | Honduras | | Austria | | Italy | | Slovakia | | China |
Bolivia | | Jamaica | | Belgium | | Luxembourg | | South Africa | | Hong Kong |
Brazil | | Mexico | | Czech Republic | | Malta | | Spain | | India |
Canada | | Nicaragua | | Denmark | | Morocco | | Sweden | | Indonesia |
Chile | | Panama | | Finland | | Namibia | | Switzerland | | Malaysia |
Colombia | | Paraguay | | France | | Netherlands | | Turkey | | Philippines |
Costa Rica | | Peru | | Germany | | Nigeria | | Uganda | | Singapore |
Dominican Republic | | Uruguay | | Greece | | Norway | | Ukraine | | Taiwan |
Ecuador | | Venezuela | | Hungary | | Poland | | United Arab Emirates | | Thailand |
El Salvador | | United States | | Ireland | | Portugal | | United Kingdom | | Vietnam |
Guatemala | | | | | | | | | | |
The Company considers that its properties are generally in good condition, are well maintained, and are generally suitable and adequate to carry on the Company's business. The Company also continues its focus on sustainability with its properties – e.g., starting to upgrade the Paderborn location with LED lights and initiating several global projects to save energy, e.g., by less heating/cooling and more area-specific illumination schedules.
The Company is exploring further opportunities to increase the sustainability of its properties, such as reviewing the solar energy potential at Company locations for on-site renewable energy systems. The Company is also investing into energy conservation initiatives through technology improvements including initiatives such as installing energy efficiency LED lighting, replacing inefficient heating and cooling systems, and installing new high-efficient HVAC systems and building management systems where feasible.
ITEM 3: LEGAL PROCEEDINGS
(dollars in millions)
At December 31, 2017, the Company was a party to several lawsuits that were incurred in the normal course of business, none of which individually or in the aggregate is considered material by management in relation to the Company's financial position or results of operations. In management's opinion, the Company's consolidated financial statements would not be materially affected by the outcome of those legal proceedings, commitments, or asserted claims.
In addition to the routine legal proceedings noted above, the Company was a party to the legal proceedings described below at December 31, 2017:
Indirect Tax Contingencies
The Company accrues non-income tax liabilitiesinformation required for indirect tax matters when management believes that a lossthis Item is probable and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. In the event any losses are sustained in excessincorporated herein by reference to Note 20 of accruals, they are charged against income. In evaluating indirect tax matters, management takes into consideration factors such as historical experience with matters of similar nature, specific facts and circumstances, and the likelihood of prevailing. Management evaluates and updates accruals as matters progress over time. It is reasonably possible that some of the matters for which accruals have not been established could be decided unfavorably to the Company and could require recognizing future expenditures. Also, statutes of limitations could expire without the Company paying the taxes for matters for which accruals have been established, which could result in the recognition of future gains upon reversal of these accruals at that time.
At December 31, 2017, the Company was a party to several routine indirect tax claims from various taxing authorities globally that were incurred in the normal course of business, none of which individually or in the aggregate is considered material by management in relation to the Company’s financial position or results of operations. In management’s opinion, the consolidated financial statements would not be materially affected by the outcome of these indirect tax claims and/or proceedings or asserted claims.
In addition to these routine indirect tax matters, the Company was a party to the proceedings described below:
In August 2012, onestatements—Indirect Tax Contingencies and Note 20 of the Company's Brazil subsidiaries was notified of a tax assessment of approximately R$270, including penalties and interest, regarding certain Brazil federal indirect taxes (Industrialized Products Tax, Import Tax, Programa de Integração Social and Contribution to Social Security Financing) for 2008 and 2009. The assessment alleges improper importation of certain components into Brazil's free trade zone that would nullify certain indirect tax incentives. On September 10, 2012, the Company filed its administrative defenses with the tax authorities.
In March 2017, the administrative proceedings concluded and the assessment was reduced approximately 95 percent to a total of R$17.3 including penalties and interest as of March 2017. The Company is pursuing its remedies in the judicial sphere and management continues to believe that it has valid legal positions. In addition, this matter could negatively impact Brazil federal indirect taxes in other years that remain open under statute. It is reasonably possible that the Company could be required to pay taxes, penalties and interest related to this matter, which could be material to the Company's consolidated financial statements.statements—Legal Contingencies.
Additionally, the Company has challenged the customs rulings in Thailand seeking to retroactively collect customs duties on previous imports of ATMs. Management believes that the customs authority’s attempt to retroactively assess customs duties is in contravention of World Trade Organization agreements and, accordingly, challenged the rulings. In the third quarter of 2015, the Company received a prospective ruling from the U.S. Customs Border Protection which is consistent with the Company's interpretation of the treaty in question. In August 2017, the Supreme Court of Thailand ruled in the Company's favor, finding that Customs' attempt to collect duties for importation of ATMs is improper. In addition, in August 2016 and February 2017, the tax court of appeals rendered decisions in favor of the Company related to more than half of the assessments at issue. The surviving matters remain at various stages of the appeals process and the Company will use the Supreme Court's decision in support of its position in those matters. Management remains confident that the Company has a valid legal position in these appeals. Accordingly, the Company does not have any amount accrued for this contingency.
At December 31, 2017 and 2016, the Company had an accrual related to the Brazil indirect tax matter disclosed above of $4.9 and $7.3, respectively. The reduction in the accrual is due to the expiration of the statute of limitations related to years subject to audit and foreign currency fluctuations in the Brazil real.
A loss contingency is reasonably possible if it has a more than remote but less than probable chance of occurring. Although management believes the Company has valid defenses with respect to its indirect tax positions, it is reasonably possible that a loss could occur in excess of the estimated accrual. The Company estimated the aggregate risk at December 31, 2017 to be up to $144.7 for its material indirect tax matters, of which $25.7 and $27.0, respectively, relates to the Brazil indirect tax matter and Thailand customs matter disclosed above. The aggregate risk related to indirect taxes is adjusted as the applicable statutes of limitations expire.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The common shares of the Company are listed on the New York Stock Exchange with a symbol of “DBD.” The price ranges of common shares of the Company for the periods indicated below are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | High | | Low | | High | | Low | | High | | Low |
| 1st Quarter | $ | 31.85 |
| | $ | 24.90 |
| | $ | 29.80 |
| | $ | 22.84 |
| | $ | 36.49 |
| | $ | 30.63 |
|
| 2nd Quarter | $ | 30.70 |
| | $ | 25.50 |
| | $ | 28.81 |
| | $ | 23.10 |
| | $ | 38.94 |
| | $ | 33.21 |
|
| 3rd Quarter | $ | 28.50 |
| | $ | 17.95 |
| | $ | 29.01 |
| | $ | 23.95 |
| | $ | 35.79 |
| | $ | 29.16 |
|
| 4th Quarter | $ | 23.50 |
| | $ | 16.00 |
| | $ | 25.90 |
| | $ | 21.05 |
| | $ | 37.98 |
| | $ | 29.60 |
|
| Full Year | $ | 31.85 |
| | $ | 16.00 |
| | $ | 29.80 |
| | $ | 21.05 |
| | $ | 38.94 |
| | $ | 29.16 |
|
There were 51,96835,385 shareholders of the Company at December 31, 2017,2022, which includes an estimated number of shareholders who havehad shares held in their accounts by banks, brokers, and trustees for benefit plans and the agent for the dividend reinvestment plan.
OnIn May 2018, the basisCompany announced the decision of amountsits Board of Directors to reallocate future dividend funds towards debt reduction and other capital resource needs. Accordingly, the Company has not paid and declared quarterly, the annualized dividends per share were $0.40, $0.96 and $1.15 in 2017, 2016 and 2015, respectively.a dividend since 2018.
Information concerning the Company’s share repurchases made during the fourth quarter of 2017:2022 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans | | Maximum Number of Shares that May Yet Be Purchased Under the Plans (2) |
| October | | 6,673 | | | $ | 2.50 | | | — | | | 2,426,177 | |
| November | | 88 | | | $ | 5.44 | | | — | | | 2,426,177 | |
| December | | 13,149 | | | $ | 2.09 | | | — | | | 2,426,177 | |
| Total | | 19,910 | | | $ | 2.24 | | | — | | | |
|
| | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans | | Maximum Number of Shares that May Yet Be Purchased Under the Plans (2) |
| October | | 4,117 |
| | $ | 23.21 |
| | — |
| | 2,426,177 |
|
| November | | — |
| | $ | — |
| | — |
| | 2,426,177 |
|
| December | | 8,084 |
| | $ | 17.76 |
| | — |
| | 2,426,177 |
|
| Total | | 12,201 |
| | $ | 19.60 |
| | — |
| | |
| |
(1) | All shares were surrendered or deemed surrendered to the Company in connection with the Company’s stock-based compensation plans. |
| |
(2) | The total number of shares repurchased as part of the publicly announced share repurchase plan was 13,450,772 as of December 31, 2017. The plan was approved by the Board of Directors in April 1997. The Company may purchase shares from time to time in open market purchases or privately negotiated transactions. The Company may make all or part of the purchases pursuant to accelerated share repurchases or Rule 10b5-1 plans. The plan has no expiration date. The following table provides a summary of Board of Director approvals to repurchase the Company's outstanding common shares:
|
(1)All shares were surrendered or deemed surrendered to the Company in connection with the Company’s stock-based compensation plans.
(2)The total number of shares repurchased as part of the publicly announced share repurchase plan was 13,450,772 as of December 31, 2022. The plan was approved by the Board of Directors in April 1997. The Company may purchase shares from time to time in open market purchases or privately negotiated transactions. The Company may make all or part of the purchases pursuant to accelerated share repurchases or Rule 10b5-1 plans. The plan has no expiration date. The following table provides a summary of Board of Director approvals to repurchase the Company's outstanding common shares: | | | | | | | | |
| | Total Number of Shares
Approved for Repurchase |
| 1997 | | 2,000,000 | |
| 2004 | | 2,000,000 | |
| 2005 | | 6,000,000 | |
| 2007 | | 2,000,000 | |
| 2011 | | 1,876,949 | |
| 2012 | | 2,000,000 | |
| | 15,876,949 | |
PERFORMANCE GRAPH
The graph below compares the cumulative five-year total return provided to shareholders on Diebold Nixdorf, Inc.'sthe Company's common shares relative to the cumulative total returns of the S&P 500 index, the S&P Midcap 400 index and two customized peer groups, consisting of twenty-three companies and sixteen companies, respectively, whose individual companies are listed in footnotes 1 and 2 below. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in ourthe Company's common shares, in each index and in each of the peer groups on December 31, 20122017 and its relative performance is tracked through December 31, 2017.2022.
The Compensation Committee of ourthe Company's Board of Directors annually reviews and approves the selection of Peer Grouppeer group companies, adjusting the group from yeartime to yeartime based on changes in ourthe Company's industry and ourthe Company’s operations, the current Peer Grouppeer group and the comparability of our Peer Grouppeer group companies. In addition, for fiscal year 2017,
1.There are seventeen companies included in the Compensation Committee, withCompany's 2021 & 2022 peer group, which are: ACI Worldwide, Benchmark Electronics Inc., Bread Financial Holding, Broadridge Financial Solutions Inc., Ciena Corporation, Euronet Worldwide Inc., Juniper Networks Inc., Logitech International SA, NCR Corp., Netapp Inc., Pitney Bowes Inc., Sabre Corp., Sanmina Corp., The Brink's Company, Unisys Corp., Western Union Co. and Zebra Technologies Corp.
2.There are fifteen companies included in the adviceCompany's 2020 peer group, which are: Alliance Data Systems Corp., Benchmark Electronics Inc., Broadridge Financial Solutions Inc., Ciena Corporation, Euronet Worldwide Inc., Juniper Networks Inc., Logitech International SA, NCR Corp., Netapp Inc., Pitney Bowes Inc., Sabre Corp., Sanmina Corp., Unisys Corp., Western Union Co. and support of Aon Hewitt as the Compensation Committee consultant, established a new Peer Group in order to support comparable companies more closely aligned with the Company’s operations following the Acquisition. Specifically, the criteria used to select the Peer Group included comparable global companies that design manufacture and service products based on market capitalization and revenues, direct competitors, among others.Zebra Technologies Corp.
| |
(1) | There are twenty-three companies included in the Company's 2016 peer group, which are: Actuant Corp, Allegion PLC, Benchmark Electronics Inc., Brady Corp., Brinks Co., Convergys Corp., DST Systems Inc., Fidelity National Information Services Inc., Fiserv Inc., Global Payments Inc., Harris Corp, International Game Technology PLC, Intuit Inc., Logitech International SA, Mettler-Toledo International Inc., NCR Corp., Netapp Inc., Pitney Bowes Inc., Sensata Technologies Holding NV, Timken Co., Unisys Corp., Western Union Co. and Woodward Inc. |
| |
(2) | The sixteen companies included in the Company's 2017 peer group are: Alliance Data Systems Corp., Benchmark Electronics Inc., Convergys Corp., DST Systems Inc., DXC Technology Co., Global Payments Inc., Harris Corp., Juniper Networks Inc., Logitech International SA, Motorola Solutions Inc., NCR Corp., Netapp Inc., Pitney Bowes Inc., Unisys Corp., Western Union Co. and Zebra Technologies Corp. |
ITEM 6: SELECTED FINANCIAL DATA[RESERVED]
The following table should be read in conjunction with “Part II - Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II - Item 8 - Financial Statements and Supplementary Data” of this Form 10-K.
|
| | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (in millions, except per share data) |
| Results of operations | | | | | | | | | |
| Net sales | $ | 4,609.3 |
| | $ | 3,316.3 |
| | $ | 2,419.3 |
| | $ | 2,734.8 |
| | $ | 2,582.7 |
|
| Cost of sales | 3,599.6 |
| | 2,594.6 |
| | 1,767.3 |
| | 2,008.6 |
| | 1,996.7 |
|
| Gross profit | $ | 1,009.7 |
| | $ | 721.7 |
| | $ | 652.0 |
| | $ | 726.2 |
| | $ | 586.0 |
|
| | | | | | | | | | |
| Amounts attributable to Diebold Nixdorf, Incorporated | | | | | | | | | |
| Income (loss) from continuing operations, net of tax | $ | (233.1 | ) | | $ | (176.7 | ) | | $ | 57.8 |
| | $ | 104.7 |
| | $ | (195.3 | ) |
| Income from discontinued operations, net of tax | — |
| | 143.7 |
| | 15.9 |
| | 9.7 |
| | 13.7 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (233.1 | ) | | $ | (33.0 | ) | | $ | 73.7 |
| | $ | 114.4 |
| | $ | (181.6 | ) |
| | | | | | | | | | |
| Basic earnings (loss) per common share | | | | | | | | | |
| Income (loss) from continuing operations, net of tax | $ | (3.09 | ) | | $ | (2.56 | ) | | $ | 0.89 |
| | $ | 1.62 |
| | $ | (3.06 | ) |
| Income from discontinued operations, net of tax | — |
| | 2.08 |
| | 0.24 |
| | 0.15 |
| | 0.21 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (3.09 | ) | | $ | (0.48 | ) | | $ | 1.13 |
| | $ | 1.77 |
| | $ | (2.85 | ) |
| | | | | | | | | | |
| Diluted earnings (loss) per common share | | | | | | | | | |
| Income (loss) from continuing operations, net of tax | $ | (3.09 | ) | | $ | (2.56 | ) | | $ | 0.88 |
| | $ | 1.61 |
| | $ | (3.06 | ) |
| Income from discontinued operations, net of tax | — |
| | 2.08 |
| | 0.24 |
| | 0.15 |
| | 0.21 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (3.09 | ) | | $ | (0.48 | ) | | $ | 1.12 |
| | $ | 1.76 |
| | $ | (2.85 | ) |
| | | | | | | | | | |
| Number of weighted-average shares outstanding | | | | | | | | | |
| Basic shares | 75.5 |
| | 69.1 |
| | 64.9 |
| | 64.5 |
| | 63.7 |
|
| Diluted shares | 75.5 |
| | 69.1 |
| | 65.6 |
| | 65.2 |
| | 63.7 |
|
| | | | | | | | | | |
| Dividends | | | | | | | | | |
| Common dividends paid | $ | 30.6 |
| | $ | 64.6 |
| | $ | 75.6 |
| | $ | 74.9 |
| | $ | 74.0 |
|
| Common dividends paid per share | $ | 0.40 |
| | $ | 0.96 |
| | $ | 1.15 |
| | $ | 1.15 |
| | $ | 1.15 |
|
| | | | | | | | | | |
| Consolidated balance sheet data (as of period end) | | | | | | | | | (unaudited) |
| Current assets | $ | 2,508.4 |
| | $ | 2,619.6 |
| | $ | 1,643.6 |
| | $ | 1,655.5 |
| | $ | 1,555.4 |
|
| Current liabilities | $ | 1,799.4 |
| | $ | 1,824.5 |
| | $ | 955.8 |
| | $ | 1,027.8 |
| | $ | 893.8 |
|
| Net working capital | $ | 709.0 |
| | $ | 795.1 |
| | $ | 687.8 |
| | $ | 627.7 |
| | $ | 661.6 |
|
| Property, plant and equipment, net | $ | 364.5 |
| | $ | 387.0 |
| | $ | 175.3 |
| | $ | 165.7 |
| | $ | 160.9 |
|
| Total long-term liabilities | $ | 2,451.9 |
| | $ | 2,376.9 |
| | $ | 851.1 |
| | $ | 759.5 |
| | $ | 668.9 |
|
| Redeemable noncontrolling interests | $ | 492.1 |
| | $ | 44.1 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Total assets | $ | 5,250.2 |
| | $ | 5,270.3 |
| | $ | 2,242.4 |
| | $ | 2,342.1 |
| | $ | 2,183.5 |
|
| Total equity | $ | 506.8 |
| | $ | 1,024.8 |
| | $ | 435.5 |
| | $ | 554.8 |
| | $ | 620.8 |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of DecemberDECEMBER 31, 20172022
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Significant Highlights
Overview
During 2017, Diebold Nixdorf:
Launched the DN2020 integration and transformation program and realized more than $100 of cost savings during the year.
Rationalized the manufacturing footprint from a capacity of approximately 180,000 ATMs per year to approximately 100,000 ATMs per year and consolidated approximately 25 percent of service parts depots across the globe.
Shifted production to the manufacturing facility in Suzhou, China operated by its strategic alliance partner, Inspur Group. This strategic alliance is enabling the Company to realize procurement advancements through better access to local suppliers and is enhancing our ability to adapt to market conditions.
Consolidated legal entities in order to simplify sales, service operations and business processes through a single entity in each country.
Was named as the largest manufacturer of ATMs by Retail Banking Research's report "Global ATM Market and Forecasts to 2022."
Introduced new mobility management services offering with as-a-service, security and data analytics offerings.
Won a number of retail contracts to modernize checkout solutions and implement omni-channel retailing, including a $53.0 store lifecycle management deal with a European fashion retailer.
Introduced Vynamic, the first end-to-end Connected Commerce software portfolio in the marketplace.
Announced strategic partnership with Kony, Inc. (Kony) to white label mobile application solutions for financial institutions and retailers.
Received the "Global Self-Checkout Systems Growth Excellence Leadership Award" from Frost & Sullivan in recognition of the Company's product innovation, growth, channel partnership strategies, and ability to serve multiple retailer segments.
Announced product readiness to support the Microsoft® Windows 10 operating system.
OVERVIEW
Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes that appear elsewhere inwithin this annual reportAnnual Report on Form 10-K. For additional information regarding general information
Organizational Simplification Initiative
In connection with the appointment of a new Chief Executive Officer, a cost savings program was announced to simplify the Company's operating model by focusing on the areas of our business that provide the most value to our customers and shareholders. The intent is to streamline our operations and move the organization closer to the customer by standardizing and digitizing processes wherever possible to remove redundancies and drive a more efficient organization. Doing so is anticipated to result in annual efficiencies of greater than $150.0.
Another key priority of the new leadership team is to solidify our supply chain to achieve stability and meet the strong demand we are experiencing. The Company seeks to limit inflationary costs throughout the supply chain and particularly as it relates to raw materials and logistics costs. To facilitate this initiative, the Company is in the process of regionalizing its manufacturing and related supply chain activities.
Refinancing Transactions
On October 20, 2022, the Company, certain of its subsidiaries, including Diebold Nixdorf Dutch Holding B.V., a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) incorporated under Dutch law and a direct wholly owned subsidiary of the Company (the Dutch Subsidiary), and certain initial consenting holders entered into a Transaction Support Agreement (which was subsequently amended on November 28, 2022 and December 20, 2022), to which the other consenting holders became parties (together with all exhibits, annexes and schedules thereto, and as so amended, the Transaction Support Agreement). As contemplated in the Transaction Support Agreement, the following refinancing transactions (the Refinancing Transactions) were completed on December 29, 2022:
•The Company and certain of its subsidiaries obtained a new $250 million asset-based credit facility (the ABL Facility), which will mature in July 2026, subject to a springing maturity to a date that is 91 days prior to the maturity of certain indebtedness of the Company or its subsidiaries above a certain threshold amount. The ABL Facility is provided by, and replaces the commitments of, the Company’s existing revolving credit lenders under the Credit Agreement, dated as of November 23, 2015 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the Existing Credit Agreement), among the Company, as borrower, the Company’s subsidiary borrowers party thereto, the lenders party thereto from time to time and JPMorgan Chase Bank N.A., as administrative agent.
•Diebold Nixdorf Holding Germany GmbH (the German Borrower), a wholly-owned subsidiary of the Company, obtained a new $400 million superpriority term loan credit facility (the Superpriority Facility), which will mature in July 2025.
•Certain holders of the term loans (the Existing Term Loans) under the Existing Credit Agreement exchanged such Existing Term Loans at par into extended term loans (the New Term Loans and, such exchange, the Term Loan Exchange), which will mature in July 2025.
•The Company amended the Existing Credit Agreement to, among other things, permit the Refinancing Transactions, remove substantially all negative covenants and mandatory prepayments, and direct the collateral agent to release the liens on certain collateral securing the Company’s obligations under the Existing Credit Agreement and the Company’s existing subsidiary guarantors’ obligations under the related guarantees (in each case, to the extent permitted, including under applicable law).
•The Company consummated a private exchange offer (the Private 2024 Exchange Offer) and consent solicitation with respect to the outstanding 2024 Senior Notes, which included (i) a private offer to certain eligible holders to exchange any and all 2024 Senior Notes for units (the Units) consisting of (a) new 8.50%/12.50% Senior Secured PIK Toggle Notes due 2026 issued by the Company (the 2L Notes) and (b) a number of warrants (the Warrants) to purchase common shares of the Company and (ii) a related consent solicitation to adopt certain proposed amendments to the indenture governing the 2024 Senior Notes (the 2024 Senior Notes Indenture) to eliminate certain of the covenants, restrictive provisions and events of default intended to protect holders, among other things, from such indenture (collectively, the 2024 Exchange Offer and Consent Solicitation).
•(i) Certain holders of the Company’s 9.375% Senior Secured Notes due 2025 (the 2025 USD Senior Notes), issued pursuant to the Indenture, dated as of July 20, 2020 (as amended, the 2025 USD Senior Notes Indenture) exchanged such 2025 USD Senior Notes for new 9.375% Senior Secured Notes due 2025 (the New 2025 USD Senior Notes), being issued under the 2025 USD Senior Notes Indenture and with identical terms to the 2025 USD Senior Notes (after
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of DECEMBER 31, 2022
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
giving effect to the proposed amendments as described below), and (ii) certain holders of the Dutch Subsidiary’s 9.000% Senior Secured Notes due 2025 (the 2025 EUR Senior Notes and, together with the 2025 USD Senior Notes, the 2025 Senior Notes), issued pursuant to that certain Indenture, dated as of July 20, 2020 (the 2025 EUR Senior Notes Indenture) exchanged such 2025 EUR Senior Notes for new 9.00% Senior Secured Notes due 2025 (the New 2025 EUR Senior Notes and, together with the New 2025 USD Senior Notes, the New 2025 Notes). The Company also consummated the related consent solicitations and effected certain proposed amendments to the 2025 USD Senior Notes Indenture and the 2025 EUR Senior Notes Indenture.
Public 2024 Exchange Offer
On February 10, 2023, the Company filed with the SEC a registration statement on Form S-4, registering an exchange offer (the Public 2024 Exchange Offer) with respect to the 2024 Senior Notes, on substantially the same terms as the Private 2024 Exchange Offer, to exchange the remaining 2024 Senior Notes outstanding following the Private 2024 Exchange Offer for Units. The Public 2024 Exchange Offer is currently scheduled to expire on March 24, 2023. The Company is required to raise equity capital prior to the maturity date of the 2024 Senior Notes in an amount necessary to repurchase, redeem, prepay or pay in full the principal amount of any 2024 Senior Notes that are not exchanged in the Public 2024 Exchange Offer in excess of $20 aggregate principal amount of 2024 Senior Notes (such 2024 Senior Notes in excess of $20, the Excess Stub Notes).
Reportable Segment Update
In the second quarter of 2022, we reorganized our reportable segments in connection with the new and simplified operating model. We believe the new segmentation aligns with our focus on standard and centralized global product and service offerings that support our customer base, which is largely comprised of global financial institutions and retailers. Our new reporting units, determined in accordance with ASC 350, "Intangibles - goodwill and other", are the same as the operating and reportable segments, which are global Banking and global Retail.
The reorganization of our operating model was considered a triggering event indicating a test for goodwill impairment was required on the effective date of the change. As of April 30, 2022, we performed an interim quantitative goodwill impairment test for both our old and new reporting units using a combination of the income valuation and market approach methodology. The determination of the fair value of the reporting unit requires significant estimates and assumptions, including significant unobservable inputs. The key inputs included, but were not limited to, discount rates, terminal growth rates, market multiple data from selected guideline public companies, management’s internal forecasts which include numerous assumptions such as projected net sales, gross profit, sales mix, operating and capital expenditures and earnings before interest and taxes margins, among others. No impairment resulted from the quantitative interim goodwill impairment test under either the legacy or new reporting unit structure.
As of April 30, 2022, we determined that the fair value of Eurasia Banking had a cushion of approximately 10 percent when compared with carrying amounts prior to the change. The other legacy reporting units had significant excess fair value or cushion when compared to their carrying amount. As of April 30, 2022 and under the new reporting unit structure, both banking and retail had significant excess fair value or cushion when compared to their carrying amount
As of our annual impairment testing date of October 1, 2022, Banking had a cushion of approximately 100 percent and Retail had a cushion of approximately 120 percent.
While we believe our estimates regarding the Company, itsfair value of our reporting units are appropriate, changes in certain assumptions or our failure to execute on the current plan could have a significant impact to the estimated fair value and may result in material non-cash impairment charges. We will continue to monitor our reporting units for changes to the overall business strategy, competitors and operations, refer to Item 1. Business.environment that could ultimately impact their estimated fair value.
Business Drivers
The businessCompany's operating model is based upon unit economics and service contract base. Business drivers of the Company's future net sales performance include, but are not limited to:
Demand•demand for self-service and automation from Banking and Retail customers driven by the evolution of consumer behavior;
•demand for cost efficiencies and better usage of real estate for bank branches and retail stores as they transform their businesses to meet the needs of their customers while facing macro-economic challenges;
•demand for services on distributed IT assets such as ATMs, POS and SCO, including managed services and professional services;
Timing•timing of systemproduct upgrades and/or replacement cycles for ATMs, POS and SCO;
Demand for software products and professional services;
Demand for security products and services for the financial, retail and commercial sectors;
Demand for innovative technology in connection with our Connected Commerce strategy;
Integration of legacy salesforce, business processes, procurement, and internal IT systems; and
Realization of cost reductions and synergies, which leverage the Company's global scale, reduce overlap and improve operating efficiencies.
During the first quarter of 2017, the Company reorganized the management team reporting to the Chief Operating Decision Maker (CODM) based on the following three LOBs: Services, Systems, and Software. As a result, the Company reclassified comparative periods for consistency, which were previously reported as four geographical segments of: NA, AP, EMEA and LA. The presentation of comparative periods also reflects the reclassification of certain global manufacturing administration expenses from corporate charges not allocated to segments.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of DecemberDECEMBER 31, 20172022
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
•demand for software products and professional services;
The table below presents the changes in comparative financial data•demand for security products and services for the years ended December 31, 2017, 2016financial, retail and 2015. Comments on significant year-to-year fluctuations follow the table. In August 2016, the Company completed the Acquisition. In February 2016, the Company recognized a gaincommercial sectors; and
•demand for innovative technology in discontinued operations related to the divestiture of its NA ES business. These events resulted in a significant impact in the comparative information discussed below.
The following discussion should be read in conjunctionconnection with the consolidated financial statements and the accompanying notes that appear elsewhere in this annual report on Form 10-K.Company's strategy.
|
| | | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | | | % of Net Sales | | % Change | | | | % of Net Sales | | % Change | | | | % of Net Sales |
| Net sales | | | | | | | | | | | | | | | |
| Services and software | $ | 2,873.9 |
| | 62.4 | | 44.9 | | $ | 1,983.0 |
| | 59.8 | | 38.2 | | $ | 1,434.8 |
| | 59.3 |
| Systems | 1,735.4 |
| | 37.6 | | 30.2 | | 1,333.3 |
| | 40.2 | | 35.4 | | 984.5 |
| | 40.7 |
| | 4,609.3 |
| | 100.0 | | 39.0 | | 3,316.3 |
| | 100.0 | | 37.1 | | 2,419.3 |
| | 100.0 |
| Cost of sales | | | | | | | | | | | | | | | |
| Services and software | 2,161.0 |
| | 46.9 | | 54.1 | | 1,402.2 |
| | 42.3 | | 48.1 | | 946.8 |
| | 39.1 |
| Systems | 1,438.6 |
| | 31.2 | | 20.6 | | 1,192.4 |
| | 36.0 | | 45.3 | | 820.5 |
| | 33.9 |
| | 3,599.6 |
| | 78.1 | | 38.7 | | 2,594.6 |
| | 78.3 | | 46.8 | | 1,767.3 |
| | 73.0 |
| Gross profit | 1,009.7 |
| | 21.9 | | 39.9 | | 721.7 |
| | 21.8 | | 10.7 | | 652.0 |
| | 26.9 |
| Selling and administrative expense | 933.7 |
| | 20.3 | | 22.7 | | 761.2 |
| | 23.0 | | 55.9 | | 488.2 |
| | 20.2 |
| Research, development and engineering expense | 155.5 |
| | 3.4 | | 41.1 | | 110.2 |
| | 3.3 | | 26.8 | | 86.9 |
| | 3.6 |
| Impairment of assets | 3.1 |
| | 0.1 | | (68.4) | | 9.8 |
| | 0.3 | | (48.1) | | 18.9 |
| | 0.8 |
| (Gain) loss on sale of assets, net | 1.0 |
| | — | | N/M | | 0.3 |
| | — | | N/M | | (0.6 | ) | | — |
| | 1,093.3 |
| | 23.8 | | 24.0 | | 881.5 |
| | 26.6 | | 48.6 | | 593.4 |
| | 24.5 |
| Operating profit (loss) | (83.6 | ) | | (1.8) | | (47.7) | | (159.8 | ) | | (4.8) | | N/M | | 58.6 |
| | 2.4 |
| Other income (expense) | (92.1 | ) | | (2.0) | | 17.3 | | (78.5 | ) | | (2.4) | | N/M | | (12.8 | ) | | (0.5) |
| Income (loss) from continuing operations before taxes | (175.7 | ) | | (3.8) | | (26.3) | | (238.3 | ) | | (7.2) | | N/M | | 45.8 |
| | 1.9 |
| Income tax (benefit) expense | 29.8 |
| | 0.6 | | N/M | | (67.6 | ) | | (2.0) | | N/M | | (13.7 | ) | | (0.6) |
| Income (loss) from continuing operations, net of tax | (205.5 | ) | | (4.5) | | 20.4 | | (170.7 | ) | | (5.1) | | N/M | | 59.5 |
| | 2.5 |
| Income from discontinued operations, net of tax | — |
| | — | | N/M | | 143.7 |
| | 4.3 | | N/M | | 15.9 |
| | 0.6 |
| Net income (loss) | (205.5 | ) | | (4.5) | | N/M | | (27.0 | ) | | (0.8) | | N/M | | 75.4 |
| | 3.1 |
| Net income attributable to noncontrolling interests, net of tax | 27.6 |
| | 0.6 | | N/M | | 6.0 |
| | 0.2 | | N/M | | 1.7 |
| | 0.1 |
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (233.1 | ) | | (5.1) | | N/M | | $ | (33.0 | ) | | (1.0) | | N/M | | $ | 73.7 |
| | 3.0 |
| | | | | | | | | | | | | | | | |
| Amounts attributable to Diebold Nixdorf, Incorporated | | | | | | | | | | | | |
| Income (loss) before discontinued operations, net of tax | $ | (233.1 | ) | | (5.1) | | 31.9 | | $ | (176.7 | ) | | (5.3) | | N/M | | $ | 57.8 |
| | 2.4 |
| Income from discontinued operations, net of tax | — |
| | — | | N/M | | 143.7 |
| | 4.3 | | N/M | | 15.9 |
| | 0.6 |
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (233.1 | ) | | (5.1) | | N/M | | $ | (33.0 | ) | | (1.0) | | N/M | | $ | 73.7 |
| | 3.0 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
RESULTS OF OPERATIONS
2017 comparisonThis Results of Operations focuses on discussion of 2022 results as compared to 2021 results. For discussion of 2021 results as compared to 2020 results, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our Form 10-K for the year ended December 31, 2021 filed with 2016the SEC on March 11, 2022.
Net Sales
The following table represents information regarding our net sales for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | % Change in CC (1) | | % of Total Net Sales for the Year Ended |
| 2022 | | 2021 | | % Change | | | 2022 | | 2021 |
| Segments | | | | | | | | | | | |
| Banking | | | | | | | | | | | |
| Services | $ | 1,548.1 | | | $ | 1,681.2 | | | (7.9) | | | (3.8) | | | 44.7 | | | 43.1 | |
| Products | 874.3 | | | 1,029.9 | | | (15.1) | | | (10.2) | | | 25.3 | | | 26.4 | |
| Total Banking | $ | 2,422.4 | | | $ | 2,711.1 | | | (10.6) | | | (6.2) | | | 70.0 | | | 69.5 | |
| | | | | | | | | | | |
| Retail | | | | | | | | | | | |
| Services | $ | 550.8 | | | $ | 622.4 | | | (11.5) | | | (1.6) | | | 15.9 | | | 15.9 | |
| Products | 487.5 | | | 571.7 | | | (14.7) | | | (6.5) | | | 14.1 | | | 14.6 | |
| Total Retail | $ | 1,038.3 | | | $ | 1,194.1 | | | (13.0) | | | (4.0) | | | 30.0 | | | 30.5 | |
| | | | | | | | | | | |
| Total net sales | $ | 3,460.7 | | | $ | 3,905.2 | | | (11.4) | | | (5.5) | | | 100.0 | | | 100.0 | |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | Percent of Total Net Sales for the Year Ended |
| | 2017 | | 2016 | | % Change | | % Change in CC (1) | | 2017 | | 2016 |
| Segments | | | | | | | | | | | |
| Services | $ | 2,397.3 |
| | $ | 1,726.7 |
| | 38.8 |
| | 35.7 |
| | 52.0 | | 52.1 |
| Software | 476.6 |
| | 256.3 |
| | 86.0 |
| | 78.2 |
| | 10.3 | | 7.7 |
| Systems | 1,735.4 |
| | 1,333.3 |
| | 30.2 |
| | 26.6 |
| | 37.7 | | 40.2 |
| Net sales | $ | 4,609.3 |
| | $ | 3,316.3 |
| | 39.0 |
| | 35.4 |
| | 100.0 | | 100.0 |
| | | | | | | | | | | | |
| Geographic regions | | | | | | | | | | | |
| Americas | $ | 1,605.8 |
| | $ | 1,662.3 |
| | (3.4 | ) | | (4.5 | ) | | 34.8 | | 50.1 |
| EMEA | 2,380.1 |
| | 1,183.2 |
| | 101.2 |
| | 90.4 |
| | 51.6 | | 35.7 |
| AP | 623.4 |
| | 470.8 |
| | 32.4 |
| | 31.5 |
| | 13.6 | | 14.2 |
| Net sales | $ | 4,609.3 |
| | $ | 3,316.3 |
| | 39.0 |
| | 35.4 |
| | 100.0 | | 100.0 |
| | | | | | | | | | | | |
| Solutions | | | | | | | | | | | |
| Banking | $ | 3,429.0 |
| | $ | 2,799.9 |
| | 22.5 |
| | 20.0 |
| | 74.4 | | 84.4 |
| Retail | 1,180.3 |
| | 516.4 |
| | 128.6 |
| | 115.3 |
| | 25.6 | | 15.6 |
| Net sales | $ | 4,609.3 |
| | $ | 3,316.3 |
| | 39.0 |
| | 35.4 |
| | 100.0 | | 100.0 |
(1) The Company calculates constant currency (CC) by translating the prior-year period results at the current year exchange rate.
Net sales increased $1,293.0decreased $444.5, or 39.011.4 percent, including incremental net sales from the Acquisition of $1,517.7 and a net favorableunfavorable currency impact of $88.3$241.6 primarily related to the euro, and the Brazil real. Net sales were adversely impacted by $30.4 related to deferred revenue purchase accounting adjustments. The amountsresulting in a constant currency decrease of $202.9. After excluding $125.3 attributable to revenue of divested businesses, net sales decreased by $77.6.
Segments
•Banking net sales decreased $288.7, including a net unfavorable currency impact of $128.5 related primarily to the Acquisition are impacted by the alignmenteuro and integrationrevenue of customer portfolios, solution offerings and operations between the legacy companies, which may result in unfavorable comparisons to prior year. The following results includedivested businesses of $55.5. Excluding the impact of foreign currency and purchase accounting adjustments:
Segments
Servicesdivestitures, net sales increased$670.6, which included incrementaldecreased $104.7 driven by unplanned reductions in installation activity, including delays resulting from global supply chain disruptions, non-recurrence of prior-year refresh projects and the Company's initiative to reduce low margin services contracts.
•Retail net sales from the Acquisition of $652.5 anddecreased $155.8, including a net favorableunfavorable currency impact of $40.1.$113.1 mostly related to the euro and revenue of divested businesses of $69.8. Excluding the incrementalcurrency and divestitures, net sales increased $27.1 primarily from the Acquisition and currency, net sales decreased $22.0 attributable to the run-off of multi-vendor service contractsa growing retail contract base as well as lower installation revenue tied to decreased systems volumes in the Americas. This was partially offset by higher managed services net sales in AP. Services net sales in 2017 also included an unfavorable impactfavorable mix of $15.2 related to purchase accounting adjustments, which was an increase of $7.1 compared to the prior year.
solutions sold.
Software net sales increased$220.3, which included incremental net sales from the Acquisition of $202.5 and a net favorable currency impact of $11.1. Excluding the incremental net sales from the Acquisition and currency, net sales increased $6.7 primarily related to higher volume and project activity in EMEA. This increase was partially offset by lower volume in the Americas and AP as noted below.
Systems net sales increased$402.1, including incremental net sales from the Acquisition of $662.7 and a net favorable currency impact of $37.1. Excluding the incremental net sales from the Acquisition and currency, net sales decreased $297.7 as systems net sales were adversely impacted by lower banking solutions activity across the Company and lower retail solutions activity in the Americas. The banking volume declines were primarily due to lower banking project activity in the Americas and EMEA and from structural changes in the AP market. Systems net sales in 2017 also included an unfavorable impact of $15.2 related to purchase accounting adjustments, which was an increase of $7.1 compared to the prior year.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of DecemberDECEMBER 31, 20172022
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
Geographic Regions
Americas net sales decreased$56.5 or 3.4 percent. The incremental net sales from the Acquisition accounted for $105.8. Excluding the incremental net sales from the Acquisition, net sales decreased$162.3 as a result of fewer large systems projects across the Americas, including Brazil voting solutions which was down $54.3 and Mexico banking solutions. In addition, lower services revenue in North America related to a decrease in multi-vendor service contract volume and lower installations resulting from the decrease in large systems projects.
EMEA net sales increased$1,196.9 or 101.2 percent. The incremental net sales from the Acquisition accounted for $1,228.2. Excluding the incremental net sales from the Acquisition, net sales decreased$31.3 primarily attributable to a large prior year systems project in Turkey that was not replicated in 2017 as well as lower systems volume in Germany. Additionally, lower sales in the U.K. also contributed to the decrease related to the Competition and Markets Authority (CMA) review and ultimate divestiture of the Company’s legacy banking business on June 30, 2017. The systems decrease was offset in part by services as a result of higher retail solutions activity and software which benefited from increased volume across the geographic region.
AP net sales increased$152.6 or 32.4 percent. The incremental net sales from the Acquisition accounted for $183.7. Excluding the incremental net sales from the Acquisition, net sales decreased$31.1primarily due to lower systems volume related to the market structure change in China, partially offset by higher services sales in India.
Solutions
Banking net sales increased$629.1 or 22.5 percent . The incremental net sales from the Acquisition accounted for $836.4. Excluding the incremental net sales from the Acquisition, net sales decreased$207.3 primarily due to lower systems volumes and the associated installation activity across the Company, with lower large project activity impacting all regions. Additionally, banking services decreased primarily due to the run-off of multi-vendor service contracts in the Americas and an incremental $8.5 related to purchase accounting adjustments. These decreases were partially offset by higher banking services sales in AP.
Retail net sales increased$663.9 or 128.6 percent. The incremental net sales from the Acquisition accounted for $681.3. Excluding the incremental net sales from the Acquisition, net sales decreased$17.4 due to lower demand for voting solutions in Brazil of $54.3. Lower voting solutions volume was partially offset by increased services and software revenue in EMEA and higher systems volume and the associated services in AP.
Gross Profit and Gross Margin
The following table represents information regarding our gross profit and gross margin for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | $ Change | | % Change |
| Gross profit - services | $ | 618.1 | | | $ | 726.3 | | | $ | (108.2) | | | (14.9) | |
| Gross profit - products | 139.2 | | | 317.1 | | | (177.9) | | | (56.1) | |
| Total gross profit | $ | 757.3 | | | $ | 1,043.4 | | | $ | (286.1) | | | (27.4) | |
| | | | | | | |
| Gross margin - services | 29.4 | % | | 31.5 | % | | | | |
| Gross margin - products | 10.2 | % | | 19.8 | % | | | | |
| Total gross margin | 21.9 | % | | 26.7 | % | | | | |
|
| | | | | | | | | | | | | |
| | 2017 | | 2016 | | $ Change | | % Change |
| Gross profit - services and software | $ | 712.9 |
| | $ | 580.8 |
| | $ | 132.1 |
| | 22.7 |
| Gross profit - systems | 296.8 |
| | 140.9 |
| | 155.9 |
| | N/M |
| Total gross profit | $ | 1,009.7 |
| | $ | 721.7 |
| | $ | 288.0 |
| | 39.9 |
| | | | | | | | |
| Gross margin - services and software | 24.8 | % | | 29.3 | % | |
| | |
| Gross margin - systems | 17.1 | % | | 10.6 | % | |
|
| | |
| Total gross margin | 21.9 | % | | 21.8 | % | |
|
| | |
Services and software gross margin wasdecreased 210 basis points primarily due to inflationary labor and logistics costs, as well as lower in 2017fixed cost absorption due in part to the impact of the Acquisition, which utilizes a third-party labor model to support its service and softwarelower revenue stream, resulting in a dilutive effect on margins. Services and softwarebase.
Product gross margin was adversely impacted by higher non-routine and restructuring costs compared to the prior year, as 2017 included non-routine charges of $41.5 primarily related to restructuring charges of $27.4 and purchase accounting adjustments associated with the Acquisition. Additionally,decreased 960 basis points. The decrease in product gross margin was also impacted by lower contract maintenance revenue in Americas combined with increased labor costs and investments. The labor investments are ais the result of higher turnover rates of techniciansinflationary costs throughout the supply chain, most notably raw material inflation and freight inflation. While the associated trainingCompany is focused on obtaining price increases to support additional product lines.offset the inflationary costs, long lead times between order entry and revenue recognition do not allow for pricing actions to take immediate effect.
Systems gross margin in 2017 increased primarily as a result of higher non-routine costs in the prior year of $90.1 compared to $39.8 in 2017. The higher non–routine costs in the prior year primarily relate to purchase accounting adjustments to record inventory
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
acquired in the Acquisition at fair value. Additionally, the incremental gross profit associated with the Acquisition includes higher margin business across both banking and retail solutions.
Operating Expenses
The following table represents information regarding our operating expenses for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | $ Change | | % Change |
| Selling and administrative expense | $ | 741.6 | | | $ | 775.6 | | | $ | (34.0) | | | (4.4) | |
| Research, development and engineering expense | 120.7 | | | 126.3 | | | (5.6) | | | (4.4) | |
| Impairment of assets | 111.8 | | | 1.3 | | | 110.5 | | | N/M |
| Loss (gain) on sale of assets, net | (5.1) | | | 3.1 | | | (8.2) | | | N/M |
| Total operating expenses | $ | 969.0 | | | $ | 906.3 | | | $ | 62.7 | | | 6.9 | |
|
| | | | | | | | | | | | | |
| | 2017 | | 2016 | | $ Change | | % Change |
| Selling and administrative expense | $ | 933.7 |
| | $ | 761.2 |
| | $ | 172.5 |
| | 22.7 |
| Research, development and engineering expense | 155.5 |
| | 110.2 |
| | 45.3 |
| | 41.1 |
| Impairment of assets | 3.1 |
| | 9.8 |
| | (6.7 | ) | | (68.4) |
| (Gain) loss on sale of assets, net | 1.0 |
| | 0.3 |
| | 0.7 |
| | N/M |
| Total operating expenses | $ | 1,093.3 |
| | $ | 881.5 |
| | $ | 211.8 |
| | 24.0 |
The selling and administrative expense in 2017 increased $172.5 inclusive of incremental expenses from the Acquisition of $272.4 and an unfavorable currency impact of $17.9. Excluding the impact of currency and the Acquisition, sellingSelling and administrative expense decreased $117.8 from$34.0, or $83.6 after excluding the overall cost reductions tiedimpact of $32.0 in non-directly attributable refinancing-related charges and $16.0 in increased restructuring costs in the current year compared to DN2020prior as well as lower$1.6 of additional other charges occurring in 2022. The decrease is predominantly the result of payroll expense decreases resulting from the headcount reduction stemming from the organizational simplification as well as a reduction in bonus expense due to the Company not achieving its incentive compensation expense related to the Company's annual incentive plans. Additionally, there were decreases notedthresholds in restructuring and non-routine costs primarily related to legal, acquisition and divestiture expenses.2022.
Selling and administrative non-routine expenses were $175.4 and $150.8 in 2017 and 2016, respectively. The primary components of the non-routine expenses in 2017 pertained to acquisition and divestiture costs, including related integration activities, totaling $85.0, purchase accounting adjustments of $85.0 related to intangible asset amortization and executive severance of $5.4. The year-over-year increase was primarily related to incremental purchase accounting and integration expenses offset by a decrease in legal, acquisition and divestiture costs. Selling and administrative expense included restructuring charges of $21.3 and $28.8 in 2017 and 2016, respectively.
Research, development and engineering expense increased by $45.3 to $155.5 in 2017 due primarily to incremental expense associated with the Acquisition of $62.7.decreased $5.6. Excluding the incremental impact of additional restructuring charges of $9.1 and charges from the Acquisition, expense was favorably impacted by the benefitsheld for sale non-core European retail business of streamlining the cost structure as part of the Company's integration activities. Research,$9.9, research, development and engineering expense included restructuring reversalsdecreased $24.6. Headcount within the research and development organization was significantly reduced in connection with the organizational simplification and related product portfolio rationalization. Additionally, certain activities are being moved to lower cost jurisdictions.
The Company incurred $111.8 in impairment charges in 2022, of $(1.1)which $38.4 related to the impairment of capitalized North American ERP implementation costs which are discussed in 2017 comparedNote 22 of the consolidated financial statements. $16.8 of impairment was due to $5.1 of restructuring coststhe war in 2016.
In 2017,Ukraine in which the Company recorded impairments totaling $3.1impaired certain assets in Ukraine, Russia, and Belarus which are discussed in Note 23 of the consolidated financial statements. $46.9 related to IT transformationgoodwill, capitalized software and integration activities.right-of-use lease asset impairment within the held for sale non-core European retail business which were impaired to bring the carrying value of the held for sale European retail business down to estimated fair value less cost to sell and $9.7 was due to facility closures and other divestitures made during the year.
In 2017,Net gain on sales of assets for 2022 was $5.1, primarily related to the sale of an IP address for $3.5 as well as a European facility sale for a $1.9 gain, both in the third quarter. Net loss on sale of assets in 2021 was primarily related tofrom the divestiture of the Company's electronic security (ES) business non-core German IT business.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of DECEMBER 31, 2022
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in Chile and from building closures in EMEA due to integration efforts. These losses were partially offset by a gain on sale of assets primarily related to the Company's divestiture of its business in the U.K. and its ES business in Mexico.millions, except per share amounts)
Operating expense as a percent of net sales in 2017 was 23.7 percent compared with 26.6 percent in 2016 due to increased revenue and overall cost reductions tied to DN2020 which more than offset the incremental operating costs from the Acquisition.
Operating Profit (Loss)
The following table represents information regarding our operating profit (loss) for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | $ Change | | % Change |
| Operating profit (loss) | $ | (211.7) | | | $ | 137.1 | | | $ | (348.8) | | | N/M |
| Operating margin | (6.1) | % | | 3.5 | % | | | | |
|
| | | | | | | | | | | | | |
| | 2017 | | 2016 | | $ Change | | % Change |
| Operating profit (loss) | $ | (83.6 | ) | | $ | (159.8 | ) | | $ | 76.2 |
| | (47.7) |
| Operating margin | (1.8 | )% | | (4.8 | )% | |
| | |
The operating lossOperating profit decreased in 2017$348.8 compared to 2016 primarily due to higher gross margin that more than offset an increase in operating expense, which included amortization of acquired intangible assets,the prior year, driven largely by non-recurring impairment charges and increased restructuring and non-routinetransformation costs, related to acquisitionsas noted above, as well as decreases in service and divestitures.product gross profit resulting from inflationary costs. This unfavorability was partially offset by decreases in selling and administrative expense as well as reduced research, development, and engineering expense as a result of the Company's cost savings measures and decreased incentive compensation expense.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
Other Income (Expense)
The following table represents information regarding our other income (expense) for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | $ Change | | % Change |
| Interest income | $ | 10.0 | | | $ | 6.1 | | | $ | 3.9 | | | 63.9 | |
| Interest expense | (199.2) | | | (195.3) | | | (3.9) | | | (2.0) | |
| Foreign exchange loss, net | (7.8) | | | (2.0) | | | (5.8) | | | (290.0) | |
| Miscellaneous, net | 2.2 | | | 3.4 | | | (1.2) | | | (35.3) | |
| Loss on refinancing | (32.1) | | | — | | | (32.1) | | | N/M |
| Other income (expense) | $ | (226.9) | | | $ | (187.8) | | | $ | (39.1) | | | 20.8 | |
|
| | | | | | | | | | | | | |
| | 2017 | | 2016 | | $ Change | | % Change |
| Interest income | $ | 20.3 |
| | $ | 21.5 |
| | $ | (1.2 | ) | | (5.6) |
| Interest expense | (117.3 | ) | | (101.4 | ) | | (15.9 | ) | | 15.7 |
| Foreign exchange gain (loss), net | (3.9 | ) | | (2.1 | ) | | (1.8 | ) | | (85.7) |
| Miscellaneous, net | 8.8 |
| | 3.5 |
| | 5.3 |
| | N/M |
| Other income (expense) | $ | (92.1 | ) | | $ | (78.5 | ) | | $ | (13.6 | ) | | 17.3 |
The decreaseNet other expense increased in interest income in 2017 compared with 2016, was a result of lower interest income of the Company's marketable securities, which are2022 primarily held for cash management in Brazil. Interest expense was higher in 2017 associated with the financing required for the Acquisition, offset by improved interest rates from the Company's repricing certain of its debt in May 2017. Foreign exchange gain (loss), net in 2017 was unfavorable as a result of the incremental impact of the Acquisition. Miscellaneous, net in 2017 consisted primarily of income from the Aisino and Inspur strategic alliances in China. Miscellaneous, net in 2016 included a mark-to-market net gain of $9.2 associated with the Company's foreign currency option contracts entered and foreign currency forward contract and $6.3 in financing feesrelated to third-party costs directly related to the Company’s bridge financing requiredRefinancing Transactions of $32.1 that were expensed as incurred due to these Refinancing Transactions being accounted for theAcquisition.as a modification. Additionally, foreign exchange resulted in unfavorable additional expense of $5.8. Net interest income and expense were consistent year-over-year.
Income (Loss) from Continuing Operations, net of taxNet Loss
The following table represents information regarding our net income from continuing operations,(loss), net of tax, for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | $ Change | | % Change |
| Net loss | $ | (585.6) | | | $ | (78.1) | | | $ | (507.5) | | | N/M |
| Percent of net sales | (16.9) | % | | (2.0) | % | | | | |
| Effective tax rate | (34.0) | % | | (54.6) | % | | | | |
|
| | | | | | | | | | | | | |
| | 2017 | | 2016 | | $ Change | | % Change |
| Income (loss) from continuing operations, net of tax | $ | (205.5 | ) | | $ | (170.7 | ) | | $ | (34.8 | ) | | 20.4 |
| Percent of net sales | (4.5 | )% | | (5.1 | )% | |
| | |
| Effective tax rate (benefit) | (17.0 | )% | | (28.4 | )% | |
|
| | |
Income (loss) from continuing operations,Net loss was unfavorable $507.5 largely driven by the decreased operating profit and loss on refinancing discussed in previous sections. Also impacting the net ofloss is a $121.5 increase in tax was $(205.5). The increaseexpense, which is primarily duefully attributable to the reasons described above and the change in income tax (benefit) expense.
The effective tax rate for 2017 (17.0) percentvaluation allowances on the overall loss from continuing operations. The U.S. enacteddeferred tax assets recorded in connection with the Tax Act that was signed into law by the President on December 22, 2017. The Tax Act changed many aspects of U.S. corporate income taxation and included a reductionCompany's going concern assessment discussed in Note 11 of the corporate income tax rate from 35% to 21%, implementation of a territorial tax system and imposition of a tax on deemed repatriated earnings of foreign subsidiaries. The resulting impact to the Company is an estimated $45.1 reduction to deferred income taxes for the income tax rate change and an estimated one-time non-cash charge of $36.6 related to deferred foreign earnings.consolidated financial statements.
Due to the complexities involved in accounting for the recently enacted Tax Act, the U.S. SEC’s Staff Accounting Bulletin (SAB) 118 requires that the Company include in its financial statements the reasonable estimate of the impact of the Tax Act on earnings to the extent such reasonable estimate has been determined. The Company recorded a reasonable estimate of such effects, the net one-time charge related to the Tax Act may differ, possibly materially, due to, among other things, further refinement of its calculations, changes in interpretations and assumptions, additional guidance that may be issued by the U.S. Government, and actions and related accounting policy decisions the Company may take as a result of the Tax Act. The Company will complete its analysis over a one-year measurement period ending December 31, 2018 and any adjustments during this measurement period will be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting period when such adjustments are determined.
The effective tax rate for 2016 of 28.4 percent on the overall loss from continued operations. The benefit on the overall loss was negatively impacted by the Acquisition including a valuation allowance for certain post-acquisition losses and non-deductible acquisition related expenses. The overall effective tax rate was decreased further by the jurisdictional income (loss) and varying respective statutory rates within the acquired entities.
Refer to note 7 Income Taxes included in Item 8. Financial Statements and Supplementary Data of this Annual Report for further details regarding the reconciliation of the effective tax rate.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of DecemberDECEMBER 31, 20172022
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
Income from Discontinued Operations, Net of Tax
The closing of the NA ES divestiture occurred on February 1, 2016 and the Company recorded a gain (loss) on sale, net of tax, of 145.0 in 2016. Additionally, the income from discontinued operations, net of tax includes a net loss of 1.3 as a result of the operations included through February 1, 2016.
Segment Net Sales and Operating Profit Summary
The following tables represent information regarding the Company's net sales andsegment operating profit by reporting segment:
|
| | | | | | | | | | | | | |
| Services: | 2017 | | 2016 | | $ Change | | % Change |
| Net sales | $ | 2,397.3 |
| | $ | 1,726.7 |
| | $ | 670.6 |
| | 38.8 |
| Segment operating profit (loss) | $ | 344.8 |
| | $ | 298.7 |
| | $ | 46.1 |
| | 15.4 |
| Segment operating profit margin | 14.4 | % | | 17.3 | % | | | | |
Services net sales increased $670.6 including incremental net sales frommetrics, which exclude the Acquisition of $652.5 and a net favorable currency impact of $40.1. Excludingrestructuring and transformation, non-routine charges, and the incremental net sales fromheld for sale non-core European retail business because these items are not assigned to a segment in any of the AcquisitionCompany's reporting metrics, including those used by the Chief Operating Decision Maker for assessing performance and currency, net salesallocating resources. Refer to Note 24 of the consolidated financial statements for further details regarding the determination of reportable segments and the reconciliation between segment operating profit and consolidated operating profit.
| | | | | | | | | | | | | | | | | | | | | | | |
| Banking: | 2022 | | 2021 | | $ Change | | % Change |
| Net sales | $ | 2,422.4 | | | $ | 2,711.1 | | | $ | (288.7) | | | (10.6) | |
| Segment operating profit | $ | 310.8 | | | $ | 440.6 | | | $ | (129.8) | | | (29.5) | |
| Segment operating profit margin | 12.8 | % | | 16.3 | % | | | | |
Banking operating profit decreased $22.0$129.8 attributable to the run-offdecrease in sales resulting from unfavorable foreign currency, reductions in installation activity, including delays resulting from global supply chain disruptions, non-recurrence of multi-vendor service contractsprior-year refresh projects as well as lower installation revenue tiedreductions in both service and product gross margins as a result of inflationary raw material, labor and logistics costs and reduced fixed cost absorption. Pricing actions to decreased systems volumes inoffset inflationary costs have a delayed impact due to the Americas. Thislong lead times between order entry and fulfillment. The operating profit unfavorability was partially offset by higher managed services net sales in AP. Services net sales in 2017 also included an unfavorable impact of $15.2 related to purchase accounting adjustments, which was an increase of $7.1 compared to the prior year.
Segment operating profit increased $46.1 in 2017 compared to 2016. The incremental portion from the Acquisition accounted for $27.2reductions in operating profit inclusive of restructuringexpenses stemming from headcount reductions and non-routine items of $39.4 in 2017. Excluding the incremental portion from the Acquisition in addition to restructuring and non-routine items, segmentreduced incentive compensation.
| | | | | | | | | | | | | | | | | | | | | | | |
| Retail: | 2022 | | 2021 | | $ Change | | % Change |
| Net sales | $ | 1,018.2 | | | $ | 1,194.1 | | | $ | (175.9) | | | (14.7) | |
| Segment operating profit | $ | 134.0 | | | $ | 164.6 | | | $ | (30.6) | | | (18.6) | |
| Segment operating profit margin | 13.2 | % | | 13.8 | % | | | | |
Retail operating profit decreased $20.5 in 2017 driven by lower gross profit partially offset by lower operating expense. Gross profit decreased as a result of contract maintenance revenue declines in the Americas combined with increased labor investments. The labor investments are a result of higher turnover rates of technicians and the associated training to support additional product lines. Additionally, 2017 was adversely impacted by lower installation gross profit as a result of decreased systems volumes. The segment benefited from lower operating expense related to cost reduction activities.
Segment operating profit margin decreased primarily due$30.6 attributable to the impact of the Acquisition, which utilizes a higher third-party labor model to support its servicedecrease in sales resulting entirely from foreign currency translation and software revenue stream, resulting in a dilutive effect on margins in 2017.
|
| | | | | | | | | | | | | |
| Software: | 2017 | | 2016 | | $ Change | | % Change |
| Net sales | $ | 476.6 |
| | $ | 256.3 |
| | $ | 220.3 |
| | 86.0 |
| Segment operating profit (loss) | $ | 33.7 |
| | $ | 9.6 |
| | $ | 24.1 |
| | N/M |
| Segment operating profit margin | 7.1 | % | | 3.7 | % | | | | |
Software net sales increased $220.3 including incremental net sales from the Acquisition of $202.5divestitures, and a net favorable currency impact of $11.1. Excluding the incremental net salesdecline in gross margins resulting predominantly from the Acquisition and currency, net sales increased $6.7 primarily related to higher volume and project activity in EMEA.inflationary raw material costs. This increaseunfavorability was partially offset by lower volumereductions in the Americasoperating expenses stemming from headcount reductions and AP as noted earlier.reduced incentive compensation.
Segment operating profit increased $24.1 in 2017. The Acquisition contributed an incremental $16.9 segment operating profit in 2017. Excluding the incremental portion from the Acquisition, operating profit increased $7.2 driven by higher gross profit and lower operating expense in EMEA.
Segment operating profit margin increased due to the positive incremental impact of the acquired software business as well as lower operating expense resulting from the cost reduction activities in 2017.
|
| | | | | | | | | | | | | | |
| Systems: | 2017 | | 2016 | | $ Change | | % Change |
| Net sales | $ | 1,735.4 |
| | $ | 1,333.3 |
| | $ | 402.1 |
| | 30.2 |
|
| Segment operating profit (loss) | $ | (24.2 | ) | | $ | (24.7 | ) | | $ | 0.5 |
| | (2.0 | ) |
| Segment operating profit margin | (1.4 | )% | | (1.9 | )% | | | | |
Systems net sales increased $402.1, including incremental net sales from the Acquisition of $662.7 and a net favorable currency impact of $37.1. Excluding the incremental net sales from the Acquisition and currency, net sales decreased $297.7 as systems net sales were adversely impacted by lower banking solutions activity across the Company, including structural changes in the AP
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of DecemberDECEMBER 31, 20172022
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
LIQUIDITY AND CAPITAL RESOURCES
market
On December 29, 2022, and lower retail solutions activity inas discussed above, the Americas. Systems net sales in 2017 also included an unfavorable impactCompany completed the Refinancing Transactions, which were a series of $15.2 relatedtransactions with certain key financial stakeholders to purchase accounting adjustments, which was an increaserefinance certain debt with near-term maturities and provide the Company with new capital. As planned, at the closing of $7.1 comparedthe Refinancing Transactions, the Company drew down the ABL Facility and made payments to suppliers and vendors to work towards improved supplier relationships. As of December 31, 2022, therefore, the Company had zero availability under the ABL Facility and $344 of cash, cash equivalents, restricted cash and short-term investments. As designed, the ABL Facility availability resets each month. Initially, the Company believed that the Refinancing Transactions, along with cash from operations, would be sufficient to meet the Company’s near-term and long-term liquidity needs for at least the next 12 months. Over the course of the first quarter of 2023, based on the Company’s revenue cycle and the composition of the borrowing base under the ABL Facility, the availability under the ABL Facility as of March 2023 has been substantially limited. In addition, slower-than-expected conversion of inventory into revenue has further suppressed liquidity. Accordingly, without modifications to the prior year.
SegmentABL Facility and access to additional capital, the Company currently projects that it will not generate sufficient cash from operations or have access to other sources of liquidity to sustain its operating loss in 2017 remained flat comparedneeds or to meet its obligations as they become due over the twelve-month period subsequent to the prior year. The incremental portion from the Acquisition was a $16.5 operating profit, inclusive of restructuring and non-routine items of $41.5 in 2017.Excluding the incremental portion from the Acquisition in addition to restructuring and non-routine items, operating profit decreased 57.8 in 2017. The decrease in segment operating profit was derived from lower gross profit due to volume declines in the Americas, higher project activity in EMEA during the prior year and structural market changes in AP. Lower gross profit was partially offset by favorable operating expense in EMEA.
Segment operating profit margin was flat to prior year due to the incremental benefit of the Acquisition and lower operating expense resulting from the cost reduction integration activities offset by lower banking solution activity across the Company.
Refer to note 22 to the consolidated financial statements, which is contained in Item 8filing of this annual report on Form 10-K, for further details of segment revenue and operating profit.10-K.
2016 comparison with 2015
Net Sales
The following table represents informationaccompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 11 of the consolidated financial statements, the Company is required to raise equity capital to repay any amount exceeding $20 of the remaining principal balance of the 2024 Senior Notes. Failure to raise sufficient equity will constitute an event of default under the Superpriority Facility, the New Term Loans and the 2025 Senior Notes would become due and payable, which the Company would not have sufficient liquidity to repay. Because of this uncertainty, and because of the uncertainty regarding our net sales for the years endedCompany’s ability to sustain its operating needs or to meet its obligations as they become due over the twelve-month period, the accompanying consolidated financial statements contain a “going concern” uncertainty paragraph. The inclusion of the “going concern” uncertainty paragraph would have constituted a default under the agreements governing the ABL Facility, the Superpriority Facility and the New Term Loans as of December 31:31, 2022; however, the requisite lenders under each of these facilities have waived such default.
|
| | | | | | | | | | | | | | | |
| | | | | | | | Percent of Total Net Sales for the Year Ended |
| | 2016 | | 2015 | | % Change | | % Change in CC (1) | | 2016 | | 2015 |
| Segments | | | | | | | | | | | |
| Services | $ | 1,726.7 |
| | $ | 1,295.7 |
| | 33.3 | | 35.5 | | 52.1 | | 53.6 |
| Software | 256.3 |
| | 139.1 |
| | 84.3 | | 87.9 | | 7.7 | | 5.7 |
| Systems | 1,333.3 |
| | 984.5 |
| | 35.4 | | 39.4 | | 40.2 | | 40.7 |
| Net sales | $ | 3,316.3 |
| | $ | 2,419.3 |
| | 37.1 | | 40.1 | | 100.0 | | 100.0 |
| | | | | | | | | | | | |
| Geographic regions | | | | | | | | | | | |
| Americas | $ | 1,662.3 |
| | $ | 1,573.4 |
| | 5.7 | | 6.9 | | 50.1 | | 65.0 |
| EMEA | 1,183.2 |
| | 406.3 |
| | 191.2 | | 202.8 | | 35.7 | | 16.8 |
| AP | 470.8 |
| | 439.6 |
| | 7.1 | | 12.0 | | 14.2 | | 18.2 |
| Net sales | $ | 3,316.3 |
| | $ | 2,419.3 |
| | 37.1 | | 40.1 | | 100.0 | | 100.0 |
| | | | | | | | | | | | |
| Solutions | | | | | | | | | | | |
| Banking | $ | 2,799.9 |
| | $ | 2,401.5 |
| | 16.6 | | 19.1 | | 84.4 | | 99.3 |
| Retail | 516.4 |
| | 17.8 |
| | N/M | | N/M | | 15.6 | | 0.7 |
| Net sales | $ | 3,316.3 |
| | $ | 2,419.3 |
| | 37.1 | | 40.1 | | 100.0 | | 100.0 |
(1)The Company calculates constant currency by translatingis currently working to improve its operating performance and its cash, liquidity and financial position. In addition, the prior-year period results atCompany is in discussions with the current year exchange rate.
Net sales increased $897.0 or 37.1 percent including incremental net sales fromlenders under the Acquisition of $1,054.8 and a net unfavorable currency impact of $52.5 primarily relatedABL Facility regarding modifications to the Brazil real, China renminbi, India rupeeABL Facility to provide the Company with access to additional borrowings thereunder. The Company is also engaged in discussions with its lenders regarding additional short-term liquidity, including potentially providing additional liquidity in the form of a "first-in-last-out" facility to be provided under the ABL Facility, which a lender has provided a "highly confident letter" for, subject to customary conditions. The Company expects the first-in-last-out facility to provide $55 of additional liquidity and South Africa rand.to close by March 20, 2023, however, there can be no assurance that such facility will be entered into by such date or at all. In addition, net salesthe Company is in discussions with its lenders about other strategic initiatives and liquidity solutions for its business. However, there can be no assurance that the Company’s efforts to improve its operating performance and financial position will be successful, that it will be able to modify the terms of the ABL Facility, or that it will be able to obtain additional financing on commercially reasonable terms or at all. As a result, the Company’s liquidity and ability to timely pay its obligations when due could be adversely affected.
The Company's total cash and cash availability as of December 31, 2022 and 2021 was adversely impacted $16.2 relatedas follows:
| | | | | | | | | | | | | |
| 2022 | | 2021 | | |
| Cash, cash equivalents, and restricted cash | $ | 319.1 | | | $ | 388.9 | | | |
| Additional cash availability from: | | | | | |
| Revolving credit facility | — | | | 284.0 | | | |
| Short-term investments | 24.6 | | | 34.3 | | | |
| Total cash and cash availability | $ | 343.7 | | | $ | 707.2 | | | |
As of December 31, 2022, the ABL Facility Under the Company's credit agreement (the Credit Agreement) provides for a revolving credit facility with commitments of up to deferred revenue purchase accounting adjustments.$250 and matures on July 20, 2026. The following results includeweighted average interest rate on outstanding ABL borrowings as of December 31, 2022 was 7.66 percent which is based on the impactSecured Overnight Financing Rate (SOFR). There was $344 in cash, cash equivalents, restricted cash and short term investments and zero borrowing availability under the ABL Facility as of foreign currency and purchase accounting adjustments:December 31, 2022 after giving effect to $29.0 in outstanding letters of credit.
Segments
Services net sales increased$431.0 including incremental net sales from the Acquisition of $434.6 and a net unfavorable currency impact of $21.6. Excluding the incremental net sales from the Acquisition and currency, net sales increased $26.7 attributable to higher maintenance service revenue related to an increase in multi-vendor service contracts in the Americas. This was partially offset by lower net sales across service business lines in AP resulting from market structure changes in the region. Services net sales also included an unfavorable impact of $8.1 related to purchase accounting adjustments.
Software net sales increased$117.2 including incremental net sales from the Acquisition of $146.0 and a net unfavorable currency impact of $2.7. Excluding the incremental net sales from the Acquisition and currency, net sales decreased $26.1 primarily related to lower volumes in the Americas and EMEA.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of DecemberDECEMBER 31, 20172022
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
Systems net sales increased$348.8, including incremental net sales from the Acquisition of $474.2 and a net unfavorable currency impact of $28.2. Excluding the incremental net sales from the Acquisition and currency, net sales decreased $105.9 as systems net sales were adversely impacted by lower banking solution activity across the Company. In the Americas and EMEA, the volume declines were primarily due to lower banking project activity and in AP mainly due to structural changes in the market. This was partially offset by higher retail solutions activity in the Americas. Systems net sales also included an unfavorable impact of $8.1 related to purchase accounting adjustments.
A more detailed discussion of segment net sales is included under "Segment Net Sales and Operating Profit Summary" below.
Geographic Regions
Americas net sales increased$88.9 or 5.7 percent. The incremental net sales from the Acquisition accounted for $89.4. Excluding the incremental net sales from the Acquisition, net sales was flat. The Americas benefited from higher systems retail solutions in Brazil and higher services revenue related to an increase in multi-vendor service contract volume. This was offset by fewer large systems banking projects across the region and a decrease in software revenue associated with the conclusion of Agilis 3/Windows 7 upgrade activity.
EMEA net sales increased$776.9 or 191.2 percent. The incremental net sales from the Acquisition accounted for $822.1. Excluding the incremental net sales from the Acquisition, net sales decreased$45.2 primarily attributable to fewer large projects in the Middle East, United Kingdom and Poland in conjunction with lower overall software volume.
AP net sales increased$31.2 or 7.1 percent. The incremental net sales from the Acquisition accounted for $143.3. Excluding the incremental net sales from the Acquisition, net sales decreased$112.1 primarily due to lower systems and services volume related to the market structure changes in China and the local government's demonetization program in India.
Solutions
Banking net sales increased$398.4 or 16.6 percent. The incremental net sales from the Acquisition accounted for $616.7. Excluding the incremental net sales from the Acquisition, net sales decreased$218.3 primarily due to lower systems volumes across the Company with lower large project activity impacting all regions. In addition, banking software decreased primarily due to the completion of the Agilis 3/Windows 7 upgrade activity in the Americas. Banking net sales was also unfavorably impacted by $9.8 related to purchase accounting adjustments.
Retail net sales increased$498.6. The incremental net sales from the Acquisition accounted for $438.1. Excluding the incremental net sales from the Acquisition, net sales increased$60.5 due to higher demand in Brazil for voting solutions and was unfavorably impacted by $6.4 related to purchase accounting adjustments.
Gross Profit
The following table represents information regarding our gross profit for the years ended December 31:
|
| | | | | | | | | | | | | |
| | 2016 | | 2015 | | $ Change | | % Change |
| Gross profit - services and software | $ | 580.8 |
| | $ | 488.0 |
| | $ | 92.8 |
| | 19.0 |
| Gross profit - systems | 140.9 |
| | 164.0 |
| | (23.1 | ) | | (14.1) |
| Total gross profit | $ | 721.7 |
| | $ | 652.0 |
| | $ | 69.7 |
| | 10.7 |
| | | | | | | | |
| Gross margin - services and software | 29.3 | % | | 34.0 | % | |
| | |
| Gross margin - systems | 10.6 | % | | 16.7 | % | |
| | |
| Total gross margin | 21.8 | % | | 26.9 | % | |
| | |
Services and software gross margin was lower in the year ended December 31, 2016 due in part to the impact of the Acquisition, which utilizes a higher third-party labor model to support its service and software revenue stream, resulting in a dilutive effect on margins. Services and software gross margin was also adversely impacted by higher restructuring and non-routine costs compared to the prior year. In the year ended December 31, 2016, services and software gross profit was adversely impacted by a non-routine revenue reduction of $8.1 related to purchase accounting adjustments associated with the Acquisition. Services and software gross profit also included restructuring charges of $20.8 and $3.1 in 2016 and 2015, respectively. In addition, the Americas was unfavorably impacted due to retro-active contract adjustments and customer service level agreement penalties.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
Systems gross margin decreased as a result of purchase accounting valuation adjustments associated with the Acquisition, primarily related to inventory revaluation. Purchase accounting adjustments included an $8.1 reduction in revenue and an increase in cost of sales of $82.6. Gross profit included total restructuring charges of $4.7 and $1.4 in 2016 and 2015, respectively. Excluding the impact of non-routine and restructuring, gross margin was flat between years. Americas systems gross margin declined due to unfavorable customer and product solution mix in 2016. Additionally, systems gross margins in EMEA and AP were relatively flat due to the favorable impact of the Acquisition, which was partially offset by an unfavorable blend of country revenue and the deteriorating market conditions in China.
Operating Expenses
The following table represents information regarding our operating expenses for the years ended December 31:
|
| | | | | | | | | | | | | |
| | 2016 | | 2015 | | $ Change | | % Change |
| Selling and administrative expense | $ | 761.2 |
| | $ | 488.2 |
| | $ | 273.0 |
| | 55.9 |
| Research, development and engineering expense | 110.2 |
| | 86.9 |
| | 23.3 |
| | 26.8 |
| Impairment of assets | 9.8 |
| | 18.9 |
| | (9.1 | ) | | (48.1) |
| (Gain) loss on sale of assets, net | 0.3 |
| | (0.6 | ) | | 0.9 |
| | N/M |
| Total operating expenses | $ | 881.5 |
| | $ | 593.4 |
| | $ | 288.1 |
| | 48.6 |
Excluding the impact of incremental expense associated with the Acquisition of $220.6, the increase in selling and administrative expense primarily resulted from higher total non-routine charges. To a lesser extent, higher corporate legal and professional fees also negatively impacted selling and administrative expense in 2016. These increases were partially offset by a decrease in sales commission expense, lower IT and marketing expenses related to transformation initiatives, favorable currency impact and a decrease in bad debt expense in the Americas.
Non-routine expenses in selling and administrative expense of $150.8 and $36.3 were included in 2016 and 2015, respectively. The primary components of the non-routine expenses pertained to acquisition and divestiture costs totaling $118.9 and purchase accounting adjustments of $29.7 related to intangible asset amortization. Selling and administrative expense included restructuring charges of $28.8 and $16.1 in 2016 and 2015, respectively.
Research, development and engineering expense as a percent of net sales in 2016 and 2015 was 3.3 percent and 3.6 percent, respectively. Excluding the impact of the Acquisition, research and development expense decreased primarily as a result of lower reinvestment associated with the Company's transformation initiatives compared to the prior year. Research, development and engineering expense included restructuring charges of $5.1 and $0.6 in 2016 and 2015, respectively.
During the fourth quarter of 2016, the Company recorded a $9.8 impairment charge related to redundant legacy Diebold internally-developed software and an indefinite-lived trade name in Americas as a result of the Acquisition. The decrease in the gross carrying value of internally-developed software is primarily due to a $9.1 impairment during the first quarter of 2015 of certain internally-developed software related to redundant legacy Diebold software as a result of the acquisition of Phoenix.
Operating Profit (Loss)
The following table represents information regarding our operating profit (loss) for the years ended December 31:
|
| | | | | | | | | | | | | |
| | 2016 | | 2015 | | $ Change | | % Change |
| Operating profit (loss) | $ | (159.8 | ) | | $ | 58.6 |
| | $ | (218.4 | ) | | N/M |
| Operating margin | (4.8 | )% | | 2.4 | % | |
| | |
The decrease in operating profit was due to a decline in systems gross profit primarily associated with the inventory valuation adjustment from the Acquisition and higher operating expenses. These operating expenses included amortization of acquired intangible assets, restructuring and non-routine costs of acquisitions and divestitures.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
Other Income (Expense)
The following table represents information regarding our other income (expense) for the years ended December 31:
|
| | | | | | | | | | | | | |
| | 2016 | | 2015 | | $ Change | | % Change |
| Interest income | $ | 21.5 |
| | $ | 26.0 |
| | $ | (4.5 | ) | | (17.3) |
| Interest expense | (101.4 | ) | | (32.5 | ) | | (68.9 | ) | | N/M |
| Foreign exchange gain (loss), net | (2.1 | ) | | (10.0 | ) | | 7.9 |
| | 79.0 |
| Miscellaneous, net | 3.5 |
| | 3.7 |
| | (0.2 | ) | | (5.4) |
| Other income (expense) | $ | (78.5 | ) | | $ | (12.8 | ) | | $ | (65.7 | ) | | N/M |
The decrease in interest income was driven primarily by a decrease in customer financing in Brazil and was negatively impacted by currency of $1.2. Interest expense was higher than the prior year associated with the financing required for the Acquisition. The foreign exchange loss, net in 2015 included $7.5 related to the devaluation of Venezuela currency. Miscellaneous, net in 2016 included a mark-to-market gain of $35.6 associated with the Company's foreign currency option contracts entered into on November 23, 2015, a mark-to-market loss of $26.4 associated with the Company’s foreign currency forward contract entered into on April 29, 2016 and $6.3 in financing fees related to the Company’s bridge financing required for the Acquisition.
Income (Loss) from Continuing Operations, Net of Tax
The following table represents information regarding our income (loss) from continuing operations, net of tax, for the years ended December 31:
|
| | | | | | | | | | | | | |
| | 2016 | | 2015 | | $ Change | | % Change |
| Income (loss) from continuing operations, net of tax | $ | (170.7 | ) | | $ | 59.5 |
| | $ | (230.2 | ) | | N/M |
| Percent of net sales | (5.1 | )% | | 2.5 | % | |
| | |
| Effective tax rate (benefit) | (28.4 | )% | | (29.9 | )% | |
| | |
Income (loss) from continuing operations, net of tax was $(170.7). This was primarily due to higher non-routine expenses, increased interest expense and the change in income tax benefit.
The effective tax rate for 2016 was 28.4 percent on the overall loss from continued operations. The benefit on the overall loss was negatively impacted by the Acquisition including a valuation allowance for certain post-acquisition losses and non-deductible acquisition related expenses. The overall effective tax rate was decreased further by the jurisdictional income (loss) mix and varying statutory rates within the acquired entities.
In 2015, the overall negative effective tax rate of (29.9) percent on income from continued operations resulted from the repatriation of foreign earnings, the associated recognition of foreign tax credits and related benefits due to the passage of the Protecting Americans from Tax Hikes (PATH) Act of 2015. In addition, the overall negative effective tax rate was due to the combined income mix and varying statutory rates in the Company's foreign operations.
Income from Discontinued Operations, Net of Tax
Income from discontinued operations, net of tax was $143.7 and $15.9 for the years ended December 31, 2016 and 2015, respectively. The closing of the NA ES divestiture occurred on February 1, 2016 and the Company recorded a gain on sale, net of tax, of $145.0 for the year ended December 31, 2016. Additionally, the income from discontinued operations, net of tax includes a net loss of $1.3 as a result of the operations included through February 1, 2016 and net income of $15.9 for the year ended December 31, 2015. The closing purchase price was subject to a customary working capital adjustment, which was finalized in the third quarter of 2016.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
Segment Revenue and Operating Profit Summary
The following tables represent information regarding our revenue and operating profit by reporting segment for the years ended December 31:
|
| | | | | | | | | | | | | |
| Services: | 2016 | | 2015 | | $ Change | | % Change |
| Net sales | $ | 1,726.7 |
| | $ | 1,295.7 |
| | $ | 431 |
| | 33.3 |
| Segment operating profit (loss) | $ | 298.7 |
| | $ | 262.8 |
| | $ | 35.9 |
| | 13.7 |
| Segment operating profit margin | 17.3 | % | | 20.3 | % | | | | |
Services net sales increased $431.0 including incremental net sales from the Acquisition of $434.6 and a net unfavorable currency impact of $21.6. Excluding the incremental net sales from the Acquisition and currency, net sales increased $26.7 attributable to higher maintenance service revenue related to an increase in multi-vendor service contracts in the Americas. This was partially offset by lower net sales across service business lines in AP. Services net sales also included an unfavorable impact of $8.1 related to purchase accounting adjustments.
Segment operating profit increased $35.9 in 2016 compared to 2015. The incremental portion from the Acquisition accounted for $55.5 in segment operating profit in 2016. Excluding the incremental portion from the Acquisition, segment operating profit decreased $19.6 in 2016 driven by lower gross profit in AP mainly due to structural changes in the market and incremental costs related to customer service level agreement contract requirements.
Segment operating profit margin decreased in part to the impact of the Acquisition, which utilizes a higher third-party labor model to support its service and software revenue stream, resulting in a dilutive effect on margins in 2016.
|
| | | | | | | | | | | | | | |
| Software: | 2016 | | 2015 | | $ Change | | % Change |
| Net sales | $ | 256.3 |
| | $ | 139.1 |
| | $ | 117.2 |
| | 84.3 |
|
| Segment operating profit (loss) | $ | 9.6 |
| | $ | 11.8 |
| | $ | (2.2 | ) | | (18.6 | ) |
| Segment operating profit margin | 3.7 | % | | 8.5 | % | | | | |
Software net sales increased $117.2 including incremental net sales from the Acquisition of $146.0 and a net unfavorable currency impact of $2.7. Excluding the incremental net sales from the Acquisition and currency, net sales decreased $26.1 primarily related to lower volumes in the Americas and EMEA.
Segment operating profit decreased $2.2 in 2016. The incremental portion from the Acquisition accounted for $22.4 in segment operating profit in 2016. Excluding the incremental portion from the Acquisition, operating profit decreased $24.6 in 2016. The decrease in operating profit was driven by lower gross profit from prior year high margin upgrade projects in North America and lower volume in EMEA.
Segment operating profit margin decreased due to lower upgrade project volume in the Americas as well as lower volume in EMEA, partially offset by the positive impact of the Acquisition.
|
| | | | | | | | | | | | | | |
| Systems: | 2016 | | 2015 | | $ Change | | % Change |
| Net sales | $ | 1,333.3 |
| | $ | 984.5 |
| | $ | 348.8 |
| | 35.4 |
|
| Segment operating profit (loss) | $ | (24.7 | ) | | $ | (48.8 | ) | | $ | 24.1 |
| | (49.4 | ) |
| Segment operating profit margin | (1.9 | )% | | (5.0 | )% | | | | |
Systems net sales increased $348.8, including incremental net sales from the Acquisition of $474.2 and a net unfavorable currency impact of $28.2. Excluding the incremental net sales from the Acquisition and currency, net sales decreased $105.9 as systems net sales were adversely impacted by lower banking solution activity across the Company. In the Americas and EMEA, the volume declines were primarily due to lower banking project activity and in AP mainly due to structural changes in the market. This was partially offset by higher retail solutions activity in the Americas. Systems net sales also included an unfavorable impact of $8.1 related to purchase accounting adjustments.
Segment operating loss decreased $24.1 in 2016. The incremental portion from the Acquisition was a $47.4 segment operating profit in 2016. Excluding the incremental portion from the Acquisition, segment operating loss increased $23.4 in 2016. The increase in segment operating loss was attributable to lower gross profit associated with banking volume declines in each region offset by higher retail solutions activity in the Americas. The increase in segment operating loss was offset by lower operating expense, particularly in research and development expense as a result of lower reinvestment associated with the maturity of the Company's transformation initiatives.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
Segment operating profit margin increased due to the positive impact of the acquisition in 2016.
Refer to note 22 to the consolidated financial statements, which is contained in Item 8 of this annual report on Form 10-K, for further details of segment revenue and operating profit.
LIQUIDITY AND CAPITAL RESOURCES
Capital resources are obtained from income retained in the business, borrowings under the Company’s senior notes, committed and uncommitted credit facilities and operating and capital leasing arrangements. Management expects that the Company’s capital resources will be sufficient to finance planned working capital needs, research and development activities, investments in facilities or equipment, pension contributions, the payment of dividends on the Company’s common shares, the payment of guaranteed dividends, including the purchase of minority shares, related to the Diebold Nixdorf AG ordinary shares not controlled by the Company and any repurchases of the Company’s common shares for at least the next 12 months. At December 31, 2017, $555.6 or 90.1 percent of the Company’s cash and cash equivalents and short-term investments reside in international tax jurisdictions. Repatriation of certain international held funds could be negatively impacted by potential payments for certain foreign taxes. The Company has earnings in certain jurisdictions available for repatriation of $1,399.0 with no additional tax expense primarily as a result of the Tax Act. Part of the Company’s growth strategy is to pursue strategic acquisitions. The Company has made acquisitions in the past and intends to make acquisitions in the future. The Company intends to finance any future acquisitions with either cash and short-term investments, cash provided from operations, borrowings under available credit facilities, proceeds from debt or equity offerings and/or the issuance of common shares.
The Company's total cash and cash availability as of December 31, 2017 and 2016 was as follows:
|
| | | | | | | |
| | 2017 | | 2016 |
| Cash and cash equivalents | $ | 535.2 |
| | $ | 652.7 |
|
| Additional cash availability from: | | | |
| Uncommitted lines of credit | 216.9 |
| | 198.6 |
|
| Revolving facility | 445.0 |
| | 520.0 |
|
| Short-term investments | 81.4 |
| | 64.1 |
|
| Total cash and cash availability | $ | 1,278.5 |
| | $ | 1,435.4 |
|
The following table summarizes the results, excluding the impact of cash in businesses held for sale, of our consolidated statement of cash flows for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| Net cash flow provided (used) by: | 2022 | | 2021 | | 2020 |
| Operating activities | $ | (387.9) | | | $ | 123.3 | | | $ | 18.0 | |
| Investing activities | (23.8) | | | (49.2) | | | (82.6) | |
| Financing activities | 349.8 | | | (3.6) | | | 16.9 | |
| | | | | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (8.2) | | | (5.7) | | | (3.2) | |
| Net decrease in cash, cash equivalents and restricted cash | $ | (70.1) | | | $ | 64.8 | | | $ | (50.9) | |
|
| | | | | | | | | | | |
| Net cash flow provided by (used in) | 2017 | | 2016 | | 2015 |
| Operating activities - continuing operations | $ | 37.1 |
| | $ | 39.3 |
| | $ | 32.1 |
|
| Investing activities - continuing operations | (128.8 | ) | | (923.3 | ) | | (62.4 | ) |
| Financing activities - continuing operations | (63.7 | ) | | 881.3 |
| | 41.7 |
|
| Discontinued operations, net | — |
| | 351.3 |
| | 2.6 |
|
| Effect of exchange rate changes on cash and cash equivalents | 37.9 |
| | (8.0 | ) | | (23.9 | ) |
| Net increase (decrease) in cash and cash equivalents | $ | (117.5 | ) | | $ | 340.6 |
| | $ | (9.9 | ) |
During 2017, cash and cash equivalents decreased $117.5 primarily due to cash utilized for investing and financing activities as well as payments of $72.1, $77.1, $99.9 and $78.2 for integration initiatives, restructuring programs, interest on debt and income taxes, respectively. These uses were offset by the cash provided by continuing operations.
Operating Activities. Cash flows from operating activities can fluctuate significantly from period to period as working capital needs and the timing of payments for income taxes, restructuring activities, pension funding and other items impact reported cash flows. Net cash provided byused in operating activities was $37.1$387.9 for the year ended December 31, 2017, a decrease of $2.2 from $39.32022, compared to $123.3 net cash provided by operating activities for the year ended December 31, 2016. The overall decrease was primarily due to lower contributions from working capital and deferred revenue offset by lower income from continuing operations primarily from integration initiatives and restructuring programs. Additional detail is included below:2021.
•Cash flows from continuing operating activities during the year ended December 31, 20172022 compared to the year ended December 31, 20162021 were unfavorably impacted by $507.5 in additional net loss. While some of the contributing factors to the larger loss in 2022 such as the $111.8 in impairments and $127.4 of valuation allowance are non-cash, reduced profitability still played a $34.8 increasesignificant role in lossthe reduction in cash flows from continuing operations, netoperating activities. Refer to "Results of tax. (refer to Results of OperationsOperations" discussed above for further discussion of the Company's net loss.
•The net aggregate of inventories and accounts payable was a decrease in operating cash flow of $141.0 during the year ended December 31, 2022, compared to an operating cash source of $156.6 during the year ended December 31, 2021. The $297.6 change is largely a result of vendor payment timing whereby payments were strictly controlled at year-end in 2021. In comparison, the Company began normalizing vendor payments in the fourth quarter of 2022. Also contributing to the 2022 cash usage was investments in inventory in response to high product demand and long lead times.
•The net aggregate of trade receivables and deferred revenue was an increase in operating cash source of $91.2 during the year ended December 31, 2022, compared to an operating cash source of $7.3 in the year ended December 31, 2021. The $83.9 net change is primarily due to increased deferred revenue balances resulting from customers prepaying for units which are delayed.
Investing Activities. Net cash used by investing activities was $23.8 for the year ended December 31, 2022 compared to net cash used by investing activities of $49.2 for the year ended December 31, 2021. The most significant drivers of the $25.4 improvement were increases from divestitures and asset sales and timing of investment maturities as compared to prior year.
The Company anticipates total capital expenditures and capitalized software development costs of approximately $50.0 in 2023 to be utilized for improvements to the Company's product line and investments in its infrastructure. The Company intends to finance these investments with borrowings under the Company's committed and uncommitted credit facilities and funds provided by income generated by the business.
Financing Activities. Net cash provided by financing activities was $349.8 for the year ended December 31, 2022 compared to net cash used by financing activities of $3.6 for the year ended 2021, a change of $353.4. Refer to Note 11 of the consolidated financial statements for details of the Company's cash flows related to debt borrowings and repayments, most notably those in connection with the December 2022 Refinancing Transactions.
As part of the Refinancing Transactions, on December 29, 2022, the German Borrower borrowed approximately $400.6 principal amount of super-priority term loans under the Superpriority Facility (the Super Priority Term Loans) that mature in 2025. The net proceeds from continuing operations, netthe offering were used to pay down 15 percent of tax).
both the Term B - USD and Term B - EUR facilities and for general corporate purposes. Additionally, as part of this refinancing, the Company replaced its Revolving Facility with the ABL in a cashless exchange.
Refer to Note 11 of the consolidated financial statements for additional information regarding the Company's debt obligations. The Company paid cash for interest related to its debt of $231.6 and $175.1 for the years ended December 31, 2022 and 2021, respectively. The increase is primarily related acceleration of interest payments as required by the Refinancing Transactions in December 2022.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of DecemberDECEMBER 31, 20172022
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
The net aggregateContractual and Other Obligations.We have certain contractual obligations and commitments for general operating purposes. Refer to Note 11 of trade accounts receivable, inventories and accounts payable provided $34.6 and $113.1 in operating cash flows during the year ended December 31, 2017 and 2016, respectively. The decrease is a result of the timing of seasonal declines in working capital accounts primarily related to the Acquisition. Additionally in 2016, Diebold Nixdorf AG included a favorable comparison to the acquisition date and a non-cash purchase accounting inventory revaluation adjustment of $62.7. The decrease in cash provided by trade accounts receivables is primarily related to lower cash collected in U.S, and EMEA compared to the prior year. The decrease in cash used by accounts payable is a result of reduced spending in EMEA, AP and the U.S., offset by slightly higher spending in the rest of the Americas compared to the prior year.
Deferred revenue provided $26.0 of operating cash during the year ended December 31, 2017, compared to $61.6 in the year ended December 31, 2016. The decrease in cash flow associated with deferred revenue is due to timing of customer prepayments primarily in EMEA offset by AP and Americas compared to the prior year.
The aggregate of income taxes and deferred income taxes used $20.7 of operating cash during the year ended December 31, 2017, compared to $146.3 used in 2016. The 2017 impact primarily related to the impact of the Tax Act, while the 2016 primarily related to the tax impacts related to the Acquisition.
In the aggregate, the other combined certain assets and liabilities used of $90.0 in 2017 and provided $28.4 in 2016. The increased use of $118.4 was primarily due to payments related to the restructuring accruals associated with DN2020, offset by warranty accrual, collections of finance and lease receivables and the non-cash sources of Diebold Nixdorf AG accrued noncontrolling interest guaranteed dividend.
The most significant changes in adjustments to net income include increased depreciation and amortization expense and additional share-based compensation expense. Depreciation and amortization expense increased $117.4 to $252.2 in 2017 compared to$134.8 during 2016 primarily due to incremental depreciation and amortization expense related to the Acquisition.The increase in share-based compensation expense to $33.9 in 2017 from $22.2 in 2016 was primarily due to an incremental increase in awards granted as a result of the Acquisition and an additional synergy grant in 2017 related to DN2020. Other adjustments to net income includes the gains from divestitures of the legacy Diebold business in the U.K. and the ES business located in Mexico offset by the loss from sale of the ES business in Chile during 2017. During 2016, the other adjustments to net income include foreign currency option and forward contracts that hedged against the effect of exchange rate fluctuations on the cash purchase consideration, acquisition related costs and any outstanding Diebold Nixdorf AG borrowings that were euro denominated and expected to be paid on or near the closing of the Acquisition. During 2016, the Company recorded a $9.3 mark-to-market net gain on foreign currency option and forward contracts which is reflected in other income (expense) miscellaneous, net.
Investing Activities. Net cash used in investing activities was $128.8 for the year ended December 31, 2017 compared to net cash used in investing activities of $923.3 for the year ended December 31, 2016. The maturities and purchases of investments primarily relate to short-term investment activity in Brazil and for 2017 also include the Company's investment in Kony. The proceeds from the sale of assets primarily include cash from the divestitures of the legacy Diebold business in the U.K. and the ES businesses located in Mexico and Chile. The $794.5 change was primarily due to the funding of the Acquisition offset by $16.2 of proceeds from sale of foreign currency option contracts and payments for acquisitions of Moxx and Visio for $5.6 in the aggregate, net of cash acquired, and other investing activities. This decrease was partially offset by an increase in capital expenditures and certain other assets of $29.9 and $12.9 primarily due to the incremental expenditures related to the Acquisition. The Company's capital expenditures reflect normal investment activities to support operations. As a result of anticipated steps in forming our strategic alliance with Inspur Group, the Company deposited $8.0 into an escrow account, which is included in restricted cash from investing activities of the consolidated statements of cash flows and in other current assets of the consolidated balance sheets. The cash provided by the discontinued operations, net, includes the cash provided by the operations of the NA ES business. In the first quarter of 2016, discontinued operations, net, primarily related to the $365.1 proceeds received for the NA ES business divestiture.
The Company anticipates capital expenditures of approximately $85 in 2018 to be utilized in IT, infrastructure and integration related investments. Currently, the Company finances these investments primarily with funds provided by income retained in the business, borrowings under the Company's committed and uncommitted credit facilities, and operating and capital leasing arrangements.
Financing Activities. Net cash used in financing activities was $63.7 for the year ended December 31, 2017 compared to net cash provided by financing activities of $881.3 for the year ended 2016, a change of $945.0. The decrease was primarily due to a decrease $968.8 in debt borrowing net of repayments, including associated debt issuance costs, related to the Acquisition. An increase of $7.4 in cash distributions to noncontrolling interests primarily related to Diebold Nixdorf AG partially offset the reduction in dividends paid.
Benefit Plans. The Company plans to make contributions to its retirement plans of $49.6 for the year ended December 31, 2018. The Company anticipates reimbursement of approximately $14 in certain benefits paid from its trustee in 2018. Beyond 2018,
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
minimum statutory funding requirements for the Company's U.S. pension plans may become more significant. The actual amounts required to be contributed are dependent upon, among other things, interest rates, underlying asset returns and the impact of legislative or regulatory actions related to pension funding obligations. The Company has adopted a pension investment policy designed to achieve an adequate funded status based on expected benefit payouts and to establish an asset allocation that will meet or exceed the return assumption while maintaining a prudent level of risk. The plan's target asset allocation adjusts based on the plan's funded status. As the funded status improves or declines, the debt security target allocation will increase and decrease, respectively. Management monitors assumptions used for our actuarial projections as well as any funding requirements for the plans.
Payments due under the Company's other post-retirement benefit plans are not required to be funded in advance. Payments are made as medical costs are incurred by covered retirees, and are principally dependent upon the future cost of retiree medical benefits under these plans. The Company expects the other post-retirement benefit plan payments to be $1.1 in 2018 (refer to note 15 to the consolidated financial statements which is containedfor scheduled maturities and interest rates of our long-term debt. The Company's leases support global staff via the use of office space, warehouses, vehicles and IT equipment and are discussed in Item 8 of this annual report on Form 10-K, for further discussionadditional detail within Note 16 of the Company's pensionconsolidated financial statements. Changes in our business needs, fluctuating interest rates, and other post-retirement benefit plans).
Dividends.factors may result in actual payments differing from our estimates. We cannot provide certainty regarding the timing and amounts of these payments or our ability to refinance outstanding debt on favorable terms or at all. The Company paid dividends of $30.6, $64.6Company’s material cash obligations include the following contractual and $75.6 in the years ended December 31, 2017, 2016 and 2015, respectively. Annualized dividends per share were $0.40, $0.96 and $1.15 for the years ended December 31, 2017, 2016 and 2015, respectively. The first quarterly dividend of 2018 is $0.10 per share payable March 16, 2018 to shareholders of record on February 26, 2018.
Contractual Obligations.The following table summarizes the Company’s approximate obligations and commitments to make future payments under contractualother obligations as of December 31, 2017:2022: |
| | | | | | | | | | | | | | | | | | | |
| | | | Payment due by period |
| | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
Short-term uncommitted lines of credit (2) | $ | 16.2 |
| | $ | 16.2 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Long-term debt | 1,888.0 |
| | 50.5 |
| | 500.8 |
| | 29.2 |
| | 1,307.5 |
|
Interest on debt (1) | 444.6 |
| | 89.4 |
| | 163.9 |
| | 135.5 |
| | 55.8 |
|
| Minimum operating lease obligations | 230.4 |
| | 89.6 |
| | 84.3 |
| | 43.4 |
| | 13.1 |
|
| Purchase commitments | 16.4 |
| | 11.1 |
| | 5.3 |
| | — |
| | — |
|
| Total | $ | 2,579.4 |
| | $ | 240.6 |
| | $ | 754.3 |
| | $ | 208.1 |
| | $ | 1,376.4 |
|
| |
(1)
| Amounts represent estimated contractual interest payments on outstanding long-term debt and notes payable. Rates in effect as of December 31, 2017 are used for variable rate debt.
|
| |
(2)
| The amount available under the short-term uncommitted lines at December 31, 2017 was $216.9. Refer to Note 14 Debt in Item 8 Financial Statements and Supplementary Data for additional information.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Payment due by period |
| | | | | | | | | |
| Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
Short-term uncommitted lines of credit (1) | $ | 0.9 | | | $ | 0.9 | | | $ | — | | | $ | — | | | $ | — | |
Debt (2) | 2,828.4 | | | 24.9 | | | 2,209.2 | | | 594.3 | | | — | |
Interest on debt (3) | 566.1 | | | 173.4 | | | 342.6 | | | 50.1 | | | — | |
| Minimum lease obligations | 169.4 | | | 58.0 | | | 59.4 | | | 22.7 | | | 29.3 | |
| Purchase commitments | — | | | — | | | — | | | — | | | — | |
| Total | $ | 3,564.8 | | | $ | 257.2 | | | $ | 2,611.2 | | | $ | 667.1 | | | $ | 29.3 | |
In connection with the Acquisition, the Company entered into the DPLTA, which entitles the Diebold Nixdorf AG minority shareholders to receive recurring cash compensation, or a guaranteed dividend, 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 Company's anticipates paying $24.6 during 2018 for the guaranteed dividend based on the remaining Diebold Nixdorf AG minority shareholders and euro rate as of December 31, 2017. The ultimate amounts of the future cash payments related to recurring guaranteed dividends are uncertain.
At December 31, 2017, the Company also maintained uncertain tax positions of $48.4, for which there is a high degree of uncertainty as to the expected timing of payments (refer to note 7 to the consolidated financial statements, which is contained in Item 8 of this annual report on Form 10-K).
The Company entered into a revolving and term loan credit agreement (the Credit Agreement), dated as of November 23, 2015, among the Company and certain of the Company's subsidiaries, as borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders named therein. The Credit Agreement included, among other things, mechanics for the Company’s existing revolving and term loan A facilities to be refinanced under the Credit Agreement. On December 23, 2015, the Company entered into a Replacement Facilities Effective Date Amendment, which amended the Credit Agreement, among the Company, certain of the Company’s subsidiaries, the lenders identified therein and JPMorgan Chase Bank, N.A., as Administrative Agent, pursuant to which the Company refinanced its $520.0 revolving and $230.0 term loan A senior unsecured credit facilities (which have been terminated and repaid in full) with, respectively, a new unsecured revolving facility (the Revolving Facility) in an amount of up to $520.0 and a new (non-delayed draw) unsecured term loan A facility (the Term Loan A Facility) on substantially the same terms as the Delayed Draw Term Facility (as defined in the Credit Agreement) in the amount of up to $230.0. The Revolving Facility and Term Loan A Facility are subject to the same maximum consolidated net leverage ratio and minimum consolidated interest coverage
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
ratio as the Delayed Draw Term Facility. 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 credit facility borrowings as of December 31, 2017 and December 31, 2016 was 3.63 percent and 2.56 percent, respectively, which is variable based on the London Interbank Offered Rate (LIBOR). (1)The amount available under the revolving credit facilityshort-term uncommitted lines at December 31, 2022 was $25.0. Refer to Note 11 of the consolidated financial statements for additional information.
(2)Debt maturities in total differ from Note 11 of the consolidated financial statements due to PIK (paid-in-kind) interest associated with the 2L Notes that will increase the carrying value of this instrument over the term of the 2L Notes.
(3)Amounts represent estimated contractual interest payments on outstanding long-term debt and notes payable. Rates in effect as of December 31, 2017 was $445.0.2022 are used for variable rate debt.
On April 19, 2016,In addition to the general operating items above, the Company issued $400.0 aggregate principal amount of senior notes due 2024 (the 2024 Senior Notes). The 2024 Senior Notes areprovides eligible employees with benefits pursuant to the pension and will be guaranteed by certainpostretirement plans further described in Note 15 of the Company’s existingconsolidated financial statements. Future contributions and future domestic subsidiaries.
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 USD-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). Prior to the Incremental Agreement, the interest rate for the Term Loan B Facility - USD was LIBOR plus an applicable margin of 4.50 percent (or, at the Company’s option, prime plus an applicable margin of 3.50 percent), and the interest rate for the Term Loan B Facility - Euro was at the EURIBOR plus an applicable margin of 4.25 percent.
The Incremental Amendment also renewed the repricing premium of 1.00 percent in relation to the Term Loan B Facility to the date that is six months after the Incremental Effective Date, removed the requirement to prepay the repriced Dollar Term Loan and the repriced Euro Term Loan upon any asset sale or casualty event if the Company is below a total net leverage ratio of 2.5:1.0 on a pro forma basis for such asset sale or casualty event and provides additional restricted payments and investment carveouts in regards to assets acquired with the Acquisition. All other material provisions under the Credit Agreement were unchanged.
On May 6 and August 16, 2016, the Company entered into the Second and Third Amendments to the Credit Agreement, which re-denominated a portion of the Term Loan B Facility into euros and guaranteed the prompt and complete payment and performance of the obligations when due under the Credit Agreement. On February 14, 2017, the Company entered into the Fourth Amendment to the Credit Agreement which released certain restrictions on the Delayed Draw Term Loan A effective immediately.
The Credit Agreement financial ratios at December 31, 2017 are as follows:
a maximum total net debt to adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) leverage ratio of 4.25 to 1.00 as of December 31, 2017 (reducing to 4.00 on December 31, 2018, and further reduced to 3.75 on June 30, 2019); and
a minimum adjusted EBITDA to net interest expense coverage ratio of not less than 3.00 to 1.00
The Company incurred $1.1 and $39.2 of fees in the years ended December 31, 2017 and 2016, respectively,disbursements related to the Credit Agreement and 2024 Senior Notes, whichplans are amortized asdependent upon a componentnumber of interest expense overfactors, including the terms.
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 + 2.00% | | December 2020 | | 5 |
| Term Loan A Facility | | LIBOR + 2.00% | | December 2020 | | 5 |
| Delayed Draw Term Loan A Facility | | LIBOR + 2.00% | | December 2020 | | 5 |
| Term Loan B Facility - USD | | LIBOR(i) + 2.75% | | November 2023 | | 7.5 |
| Term Loan B Facility - Euro | | EURIBOR(ii) + 3.00% | | November 2023 | | 7.5 |
| 2024 Senior Notes | | 8.5% | | April 2024 | | 8 |
| |
(i)
| LIBOR with a floor of 0.0 percent. |
| |
(ii)
| EURIBOR with a floor of 0.0 percent. |
The debt facilities under the Credit Agreement are secured by substantially all assetsfunded status of the Company and its domestic subsidiaries that are borrowers or guarantors under the Credit Agreement, subject to certain exceptions and permitted liens.plans.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
In March 2006, the Company issued senior notes (the 2006 Senior Notes) in an aggregate principal amount of $300.0. The Company funded the repayment of $75.0 aggregate principal amount of the 2006 Senior Notes at maturity in March 2013 using borrowings under its revolving credit facility and the repayment of $175.0 aggregate principal amount of the 2006 Senior Notes that matured in March 2016 through the use of proceeds from the divestiture of the Company's NA ES business. Prepayment of the remaining $50.0 aggregate principal amount of the 2006 Senior Notes were paid in full on May 2, 2016. The prepayment included a make-whole premium of $3.9, which was paid in addition to the principal and interest of the 2006 Senior Notes and is included in interest expense for the year ended December 31, 2016.
On November 23, 2015, the Company entered into two foreign currency option contracts to purchase €1,416.0 for $1,547.1 to hedge against the effect of exchange rate fluctuations on the euro-denominated cash consideration related to the Acquisition and estimated euro-denominated transaction related costs and any outstanding Diebold Nixdorf AG borrowings. At that time, the euro-denominated cash component of the purchase price consideration approximated €1,162.2. The foreign currency option contracts were sold during the second quarter of 2016 for cash proceeds of $42.6, which are included in investing activities in the consolidated statements of cash flows, resulting in a gain of $35.6 during the year ended December 31, 2016 and $7.0 during the fourth quarter of 2015. The weighted average strike price was $1.09 per euro. These foreign currency option contracts were non-designated and included in other current assets on the consolidated balance sheet as of December 31, 2016 based on the net asset position.
On April 29, 2016, the Company entered into one foreign currency forward contract to purchase €713.0 for $820.9 to hedge against the effect of exchange rate fluctuations on the euro-denominated cash consideration related to the Acquisition and estimated euro denominated transaction related costs and any outstanding Diebold Nixdorf AG borrowings. The forward rate was $1.1514. The foreign currency forward contract was settled for $792.6 during the third quarter of 2016, which is included in investing activities in the consolidated statements of cash flows, resulting in a loss of $26.4 during the year ended December 31, 2016. This foreign currency forward contract is non-designated and included in other current assets or other current liabilities based on the net asset or net liability position, respectively, in the consolidated balance sheets. The gains and losses from the revaluation of the foreign currency forward contract are included in other income (expense) miscellaneous, net on the consolidated statements of operations.
During November 2016, the Company entered into multiple pay-fixed receive-variable interest rate swaps outstanding with an aggregate notional amount of $400.0. These instruments were used to hedge the variable cash flows associated with existing variable-rate debt. Additionally, the Company has a non-designated interest swap, which was acquired in connection with the Acquisition, with a notional amount of €50.0 with a fair value of €(5.5) and €(6.9) as of December 31, 2017 and 2016, respectively.
During the year ended December 31, 2016, the Company recorded a $9.3 mark-to-market gain (loss) on foreign currency and forward option contracts reflected in miscellaneous, net.
Refer to note 19 to the consolidated financial statements, which is contained in Item 8 of this annual report on Form 10-K for additional information regarding the Company's hedging and derivative instruments.
Off-Balance Sheet Arrangements. The Company enters into various arrangements not recognized in the consolidated balance sheets that have or could have an effect on its financial condition, results of operations, liquidity, capital expenditures or capital resources. The principal off-balance sheet arrangements that the Company enters into are guarantees operating leases (refer to note 16 to the consolidated financial statements, which is contained in Item 8 of this annual report on Form 10-K) and sales of finance receivables. The Company provides its global operations guarantees and standby letters of credit through various financial institutions to suppliers, customers, regulatory agencies and insurance providers. If the Company is not able to comply with its contractual obligations, the suppliers, regulatory agencies and insurance providers may draw on the pertinent bank (refer note 17 to the consolidated financial statements, which is contained in Item 8 of this annual report on Form 10-K).bank. The Company has sold finance receivables to financial institutions while continuing to service the receivables. The Company records these sales by removing finance receivables from the consolidated balance sheets and recording gains and losses in the consolidated statement of operations (refer to note 9 toNote 7 of the consolidated financial statements,statements).
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of DECEMBER 31, 2022
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
Supplemental Guarantor Financial Information. Diebold Nixdorf, Incorporated initially issued its 8.5 percent Senior Notes due 2024 (the 2024 Senior Notes) in an offering exempt from the registration requirements of the Securities Act, which is containedwere later exchanged in Item 8an exchange offer registered under the Securities Act, and any 2L Notes issued pursuant to the Public 2024 Exchange Offer (the “Public 2L Notes”) will be issued in a transaction registered under the Securities Act. The 2024 Senior Notes are and will be, and the Public 2L Notes will be, guaranteed by certain of Diebold Nixdorf, Incorporated's existing and future subsidiaries which are listed on Exhibit 22.1 to this annual report on Form 10-K).10-K. The following presents the consolidating financial information separately for Diebold Nixdorf, Incorporated (the Parent Company), the issuer of the guaranteed obligations, and the guarantor subsidiaries, as specified in the indenture governing the Company's obligations under the 2024 Senior Notes and the indenture that will govern the Company’s obligations under the Public 2L Notes, on a combined basis.
Each guarantor subsidiary is 100 percent owned by the Parent Company at the date of each balance sheet presented. The 2024 Senior Notes are, and the Public 2L Notes will be, fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary. The guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the occurrence of certain conditions. Each entity in the consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use by the Parent Company and the guarantor subsidiaries of the equity method of accounting to reflect ownership interests in subsidiaries which are eliminated upon consolidation.
| | | | | | | | |
| | Summarized Balance Sheet |
| | December 31, 2022 |
| Total current assets | | $ | 1,818.9 | |
| Total non-current assets | | $ | 1,401.2 | |
| | |
| Total current liabilities | | $ | 2,662.6 | |
| Total non-current liabilities | | $ | 2,748.7 | |
| | | | | | | | |
| | Summarized Statement of Operations |
| | Year ended |
| | December 31, 2022 |
| Net sales | | $ | 2,521.2 | |
| Cost of sales | | 1,857.8 | |
| Gross profit | | 663.4 | |
| | |
| Selling and administrative expense | | 690.0 | |
| Research, development and engineering expense | | 83.4 | |
| Impairment of assets | | 52.0 | |
| Loss (gain) on sale of assets, net | | (4.6) | |
| Operating profit | | (157.4) | |
| | |
| Interest income | | 1.6 | |
| Interest expense | | (298.3) | |
| Foreign exchange (loss) gain, net | | 36.5 | |
| Miscellaneous gain/(loss), net | | (13.2) | |
| Income from continuing operations before taxes | | (430.8) | |
| | |
| Net (loss) income | | $ | (494.7) | |
| | |
As of December 31, 2022, the Issuers and the guarantor subsidiaries on a combined basis had the following balances with non-guarantor subsidiaries:
| | | | | | | | | | |
| | Summarized Balance Sheet |
| | December 31, 2022 | | |
| Total current assets | | $ | 820.5 | | | |
| Total non-current assets | | $ | — | | | |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of DECEMBER 31, 2022
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
The following tables present summarized financial information for the subsidiaries of the Company whose securities are pledged as the Collateral (together, the “Collateral Group”) on a combined basis with intercompany balances and transactions between entities in the Consolidated Group eliminated. No trading market for the subsidiaries in the Collateral Group exists.
| | | | | | | | |
| | Summarized Balance Sheet |
| | December 31, 2022 |
| Total current assets | | $ | 2,362.4 | |
| Total non-current assets | | $ | 1,248.3 | |
| | |
| Total current liabilities | | $ | 1,035.7 | |
| Total non-current liabilities | | $ | 1,443.0 | |
| | | | | | | | |
| | Summarized Statements of Operation |
| | Year ended |
| | December 31, 2022 |
| Net sales | | $ | 2,370.9 | |
| Cost of sales | | 1,541.5 | |
| Gross profit | | 829.4 | |
| | |
| Selling and administrative expense | | 420.9 | |
| Research, development and engineering expense | | 84.8 | |
| Impairment of assets | | 25.8 | |
| Loss (gain) on sale of assets, net | | (1.3) | |
| Operating profit | | 299.2 | |
| | |
| Interest income | | 3.5 | |
| Interest expense | | (44.7) | |
| Foreign exchange (loss) gain, net | | 28.5 | |
| Miscellaneous gain/(loss), net | | (53.6) | |
| Income from continuing operations before taxes | | $ | 232.9 | |
| | |
| Net (loss) income | | $ | 239.3 | |
| | |
As of December 31, 2022, the Collateral Group on a combined basis had the following balances with non-guarantor subsidiaries:
| | | | | | | | |
| | Summarized Balance Sheet |
| | December 31, 2022 |
| Total current assets | | $ | 1,332.0 | |
| Total non-current assets | | $ | — | |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of DECEMBER 31, 2022
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements. The consolidated financial statements of the Company are prepared in conformity with U.S. GAAP.generally accepted accounting principles in the United States (U.S. GAAP). The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities and reported amounts of revenues and expenses. Such estimates include revenue recognition, the valuation of trade and financing receivables, inventories, goodwill, intangible assets, other long-lived assets, legal contingencies, guarantee obligations, and assumptions used in the calculation of income taxes, pension and post-retirement benefits and customer incentives, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors. Management monitors the economic conditions and other factors and will adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.
The Company’s significant accounting policies are described in noteNote 1 toof the consolidated financial statements, which is contained in Item 8 of this annual report on Form 10-K. Management believes that, of its significant accounting policies, its policies concerning revenue recognition, allowances for credit losses, inventory reserves, goodwill, long-lived assets, taxes on income, contingencies and pensions and post-retirement benefits are the most critical because they are affected significantly by judgments, assumptions and estimates. Additional information regarding these policies is included below.
Revenue Recognition. Revenue is measured based on consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Company’s revenue recognition policy is consistentamount of consideration can vary depending on discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties, or other similar items contained in the contract with the requirementscustomer of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 605, Revenue Recognition (ASC 605).which generally these variable consideration components represents minimal amount of net sales. The Company recordsrecognizes 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 and 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 realized,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 of the consolidated financial statements. 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 realizable and earned.as needed by the customer. This input method is the most accurate assessment of progress toward completion the Company can apply.
Product revenue is recognized at the point in time that the customer obtains control of the product, which could be upon delivery or upon completion of installation services, depending on contract terms. The application of U.S. GAAPCompany’s software licenses are functional in nature (the IP has significant stand-alone functionality); as such, the revenue recognition principles to the Company's customer contracts requires judgment, including the determination of whether an arrangement includes multiple deliverables such as hardware,distinct software maintenance and /or other services. For contracts that contain multiple deliverables, total arrangement considerationlicense sales is allocated at the inceptionpoint in time that the customer obtains control of the arrangement to each deliverable based onrights granted by the relative selling price method. The relative selling price method is based on a hierarchy consisting of vendor specific objective evidence (VSOE) (price sold on a stand-alone basis), if available, or third-party evidence (TPE), if VSOE is not available, or estimated selling price (ESP) if neither VSOE nor TPE is available. The Company's ESP is consistentlicense.
Professional services integrate the commercial solution with the objective of determining VSOE, which iscustomer's existing infrastructure and helps define the price at which we would expectoptimal user experience, improve business processes, refine existing staffing models and deploy technology to transact on a stand-alone salemeet branch and store automation objectives. Revenue from professional services are recognized over time, because the customer simultaneously receives and consumes the benefits of the deliverable. The determination of ESP is based on applying significant judgment to weigh a variety of company-specific factors including our pricing practices, customer volume, geography, internal costs and gross margin objectives. This information is gathered from experience in customer negotiations, recent technological trends andCompany’s performance as the competitive landscape. In contracts that involve multiple deliverables, maintenance services are typically accounted for under FASB ASC 605-20, Separately Priced Extended Warranty and Product Maintenance Contracts. There have beenperformed or when the Company’s performance creates an asset with no material changes to these estimates for the periods presentedalternative use and the Company believes that these estimateshas an enforceable right to payment for performance completed to date. Generally revenue will be recognized using an input measure, typically costs incurred. The typical contract length for service is generally should not be subject to significant changesone year and is billed and paid in the future, until the adoption of the new revenue standard. However, changes to deliverables in future arrangements could materially impact the amount of earned or deferred revenue.advance except for installations, among others.
For sales of software, excluding software required for the equipment to operate as intended, the Company applies the software revenue recognition principles within FASB ASC 985-605, Software - Revenue Recognition. For software and software-related deliverables (software elements), the Company allocates revenue based upon the relative fair value of these deliverables as determined by VSOE. If the Company cannot obtain VSOE for any undelivered software element, revenue is deferred until all deliverables have been delivered or until VSOE can be determined for any remaining undelivered software elements. When the fair value of a delivered element cannot be established, but fair value evidence exists for the undelivered software elements, the Company uses the residual method to recognize revenue. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement consideration is allocated to the delivered elements and recognized as revenue. Determination of amounts deferred for software support requires judgment about whether the deliverables can be divided into more than one unit of accounting and whether the separate deliverables have value to the customer on a stand-alone basis. There have been no material changes to these deliverables for the periods presented. However, changes to deliverables in future arrangements and the ability to establish VSOE could affect the amount and timing of revenue recognition.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of DecemberDECEMBER 31, 20172022
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
Services may be sold separately or in bundled packages. 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 or 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 or 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 following is a description of principal solutions offered within the Company's two main customer segments that generate the Company's revenue.
Banking
Products. Products for banking customers consist of cash recyclers and dispensers, intelligent deposit terminals, teller automation tools and kiosk technologies, as well as physical security solutions. The Company provides its banking customers front-end applications for consumer connection points and back-end platforms that manage channel transactions, operations and integration and facilitate omnichannel transactions, endpoint monitoring, remote asset management, customer marketing, merchandise management and analytics. These offerings include highly configurable, API enabled software that automates legacy banking transactions across channels.
Services. The Company provides its banking customers product-related services which include proactive monitoring, rapid resolution of incidents through remote service capabilities or an on-site visit and professional services. 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.
Retail
Products. The retail product portfolio includes modular, integrated and mobile POS and SCO terminals that meet evolving automation and omnichannel requirements of consumers. Supplementing the POS system is a broad range of peripherals, including printers, scales and mobile scanners, as well as the cash management portfolio which offers a wide range of banknote and coin processing systems. Also in the portfolio, the Company provides SCO 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.
The Company's platform software is installed within retail data centers to facilitate omnichannel transactions, endpoint monitoring, remote asset management, customer marketing, merchandise management and analytics.
Services. The Company provides its retail customers product-related services which include on-demand services and professional services. Diebold Nixdorf AllConnect Services for retailers include maintenance and availability services to continuously improve retail self-service fleet availability and performance. These include: total implementation services to support both current and new store concepts; managed mobility services to centralize asset management and ensure effective, tailored mobile capability; monitoring and advanced analytics providing operational insights to support new growth opportunities; and store life-cycle management to proactively monitors store IT endpoints and enable improved management of internal and external suppliers and delivery organizations.
Inventory Reserves. At each reporting period, the Company identifies and writes down its excess and obsolete inventories to net realizable value based on usage forecasts, order volume and inventory aging. With the development of new products, the Company also rationalizes its product offerings and will write-down discontinued product to the lower of cost or net realizable value.
Acquisitions and Divestitures. Acquisitions are accounted for using the purchase method of accounting. This method requires the Company to record assets and liabilities of the business acquired at their estimated fair market values as of the acquisition date. Any excess cost of the acquisition over the fair value of the net assets acquired is recorded as goodwill. The Company generally uses valuation specialists to perform appraisals and assist in the determination of the fair values of the assets acquired and liabilities assumed. These valuations require management to make estimates and assumptions that are critical in determining the fair values of the assets and liabilities.
For divestitures, the Company considers assets to be held for sale when management approves and commits to a formal plan to actively market the assets for sale at a price reasonable in relation to their estimated fair value, the assets are available for immediate sale in their present condition, an active program to locate a buyer and other actions required to complete the sale have been initiated, the sale of the assets is probable and expected to be completed within one year (or, if it is expected that others will impose conditions on the sale of the assets that will extend the period required to complete the sale, that a firm purchase commitment is probable within one year) and it is unlikely that significant changes will be made to the plan. Upon designation as held for sale, the Company records the assets at the lower of their carrying value or their estimated fair value, reduced for the cost to dispose of the assets, and ceases to record depreciation expense on the assets.
The Company reports financial results for discontinued operations separately from continuing operations to distinguish the financial impact of a divestiture from ongoing operations. Discontinued operations reporting occurs only when the disposal of a component or a group of components of the Company represents a strategic shift that will have a major effect on the Company's operations and financial results. During the year ended December 31, 2015, management of the Company, through receipt in October 2015 of the required authorization from its Board of Directors after a potential buyer had been identified, committed to a plan to divest the NA electronic security business. As such, all of the criteria required for held for sale and discontinued operations classification were met during the fourth quarter of 2015. The divestiture of its NA electronic security business closed on February 1, 2016. Accordingly, the assets and liabilities, operating results and operating and investing cash flows for are presented as discontinued operations separate from the Company’s continuing operations for all periods presented. Prior period information has been reclassified to present this business as discontinued operations for all periods presented, and has therefore been excluded from both continuing operations and segment results for all periods presented in these consolidated financial statements and the notes to the consolidated financial statements. All assets and liabilities classified as held for sale are included in total current assets based on the cash conversion of these assets and liabilities within one year (refer to note 23 to the consolidated financial statements, which is contained in Item 8 of this annual report on Form 10-K).
Assets and liabilities of a discontinued operation are reclassified as held for sale for all comparative periods presented in the consolidated balance sheet. The results of operations of a discontinued operation are reclassified to income from discontinued operations, net of tax, for all periods presented. For assets that meet the held for sale criteria but do not meet the definition of a discontinued operation, the Company reclassifies the assets and liabilities in the period in which the held for sale criteria are met, but does not reclassify prior period amounts.
Goodwill. Goodwill is the cost in excess of the net assets of acquired businesses (refer to note 13 toNote 8 of the consolidated financial statements, which is contained in Item 8 of this annual report on Form 10-K)statements). The Company tests all existing goodwill at least annually as of October 31 for impairment on a reporting unit basis. basis using either a quantitative or qualitative approach. The annual goodwill impairment test was performed using a quantitative analysis in 2022, qualitative analysis in 2021 and a quantitative analysis in 2020. As a result of the reporting unit change in Q2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of DECEMBER 31, 2022
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
2022, we performed an interim quantitative goodwill impairment test. No impairment resulted from the quantitative interim goodwill impairment test under either the legacy or new reporting unit structure.
A qualitative analysis is performed by assessing recent trends and factors, including projected market outlook and growth rates, forecasted and actual sales and operating profit margins, discount rates, industry data, and other relevant qualitative factors. These trends and factors are compared to, and based on, the assumptions used in the most recent quantitative analysis performed for each reporting unit. The results of the qualitative analyses did not indicate a need to perform a quantitative analysis.
In years in which quantitative analyses were performed, the fair value of the reporting units is determined based upon a combination of the income and market approaches, which are standard valuation methodologies. The income approach uses discounted estimated future cash flows, whereas the market approach or guideline public company method utilizes market data of similar publicly traded companies. The fair value of the reporting unit is defined as the price that would be received in a sale of the net assets in an orderly transaction between market participants at the assessment date. The Company compares the fair value of each reporting unit with its carrying value and would recognize an impairment charge if the amount carrying amount exceeds the reporting unit’s fair value.
The techniques used in the Company's quantitative assessments incorporate a number of assumptions that the Company believes to be reasonable and to reflect market conditions at the assessment date. Assumptions in estimating future cash flows are subject to a high degree of judgment. The Company makes all efforts to forecast future cash flows as accurately as possible with the information available at the time the forecast is made. To this end, the Company evaluates the appropriateness of its assumptions as well as its overall forecasts by comparing projected results of upcoming years with actual results of preceding years and validating that differences therein are reasonable. Key assumptions, which typically are Level 3 inputs, include discount rates, terminal growth rates, market multiple data from selected guideline public companies, management's internal forecasts which include numerous assumptions such as projected net sales, gross profit, sales mix, operating and capital expenditures, among others. A number of benchmarks from independent industry and other economic publications were also used. Changes in assumptions and estimates after the assessment date may lead to an outcome where impairment charges would be required in future periods. Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions.
The Company tests for interim impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the carrying value of a reporting unit below its reported amount. Beginning with the first quarter of 2017, the Company’s reportable operating segments are based on the conclusion of the assessment on the following lines of business: Software, Systems, and Services and will reclassify comparative periods for consistency. Each year, the Company may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. In evaluating whether it is more likely than not the fair value of a reporting unit is less than its carrying amount, the Company considers the following events and circumstances, among others, if applicable: (a) macroeconomic conditions such as general economic conditions, limitations on accessing capital or other developments in equity and credit markets; (b) industry and market considerations such as competition, multiples or metrics and changes in the market for the Company's products and services or regulatory and political environments; (c) cost factors such as raw materials, labor or other costs; (d) overall financial performance such as cash flows, actual and planned revenue and earnings compared with actual and projected results of relevant prior periods; (e) other relevant events such as changes in key personnel, strategy or customers; (f) changes in the composition of a reporting unit's assets or expected sales of all or a portion of a reporting unit; and (g) any sustained decrease in share price.
If the Company's qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying value, or if management elects to perform a quantitative assessment of goodwill, a two-step impairment test is used to identify potential goodwill impairment and measure the amount of any impairment loss to be recognized. In the first step, the
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
Company compares the fair value of each reporting unit with its carrying value. The fair value of the reporting units is determined based upon a combination of the income valuation and market approach in valuation methodology. The income approach uses discounted estimated future cash flows, whereas the market approach or guideline public company method utilizes market data of similar publicly traded companies. The Company’s step 1 impairment test of goodwill of a reporting unit is based upon the fair value of the reporting unit, defined as the price that would be received to sell the net assets or transfer the net liabilities in an orderly transaction between market participants at the assessment date. In the event that the net carrying amount exceeds the fair value, a step 2 test must be performed whereby the fair value of the reporting unit’s goodwill must be estimated to determine if it is less than its net carrying amount. In its two-step test, the Company uses the discounted cash flow method and the guideline company method for determining the fair value of its reporting units. Under these methods, the determination of implied fair value of the goodwill for a particular reporting unit is the excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities in the same manner as the allocation in a business combination.
The techniques used in the Company's qualitative assessment and, if necessary, two-step impairment test incorporate a number of assumptions that the Company believes to be reasonable and to reflect market conditions forecast at the assessment date. Assumptions in estimating future cash flows are subject to a high degree of judgment. The Company makes all efforts to forecast future cash flows as accurately as possible with the information available at the time the forecast is made. To this end, the Company evaluates the appropriateness of its assumptions as well as its overall forecasts by comparing projected results of upcoming years with actual results of preceding years and validating that differences therein are reasonable. Key assumptions, all of which are Level 3 inputs (refer to note 20 to the consolidated financial statements, which is contained in Item 8 of this annual report on Form 10-K), relate to price trends, material costs, discount rate, customer demand, and the long-term growth and foreign exchange rates. A number of benchmarks from independent industry and other economic publications were also used. Changes in assumptions and estimates after the assessment date may lead to an outcome where impairment charges would be required in future periods. Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions.
In August 2016, the Company acquired Diebold Nixdorf AG. During the first quarter of 2017, in connection with the business combination agreement related to the Acquisition, the Company realigned its reportable operating segment to its lines of business to drive greater efficiency and further improve customer service.
The acquired Diebold Nixdorf AG goodwill is primarily the result of anticipated synergies achieved through increased scale, a streamlined portfolio of products and solutions, higher utilization of the service organization, workforce rationalization in overlapping regions and shared back office resources. The Company also expects, after completion of the business combination and related integration, to generate improved free cash flow, which would be used to make investments in innovative software and solutions and reduce debt. The Company has allocated goodwill to its Services, Software and Systems reportable operating segments. The goodwill associated with the Acquisition is not deductible for income tax purposes.
In the fourth quarter of 2017, goodwill was reviewed for impairment based on a two-step test, which resulted in no impairment in any of the Company's reporting units. The Company estimated the fair value of its nine reporting unit using a combination of the income valuation and market approach in valuation methodology. The determination of the fair value of the reporting unit requires significant estimates and assumptions, including significant unobservable inputs. The key inputs included, but were not limited to, discount rates, terminal growth rates, market multiple data from selected guideline public companies, management’s internal forecasts which include numerous assumptions such as projected net sales, gross profit, sales mix, operating and capital expenditures and earnings before interest and taxes margins, among others. Management determined that the Services-AP and Software-EMEA reporting units had excess fair value of $15.4 or 8.1 percent and $1.3 or 0.6 percent, respectively, when compared to their carrying amounts. The other reporting units had excess fair value of approximately $50 or greater cushion when compared to their carrying amount. Changes in certain assumptions or the Company's failure to execute on the current plan could have a significant impact to the estimated fair value of the reporting units.
Long-Lived Assets. Impairment of long-lived assets is recognized when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the expected future undiscounted cash flows are less than the carrying amount of the asset, an impairment loss is recognized at that time to reduce the asset to the lower of its fair value or its net book value. The Company tests all existing indefinite-lived intangibles at least annually for impairment as of October 31.
Taxes on Income. Deferred taxes are provided on an asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences, operating loss carry-forwards and tax credits. Deferred tax liabilities are recognized for taxable temporary differences and undistributed earnings in certain jurisdictions. Deferred tax assets are reduced by a valuation allowance when, based upon the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Determination of a valuation allowance involves estimates regarding the timing and amount of the reversal of taxable temporary differences, expected future taxable income and the impact of tax planning strategies. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
The Company operates in numerous taxing jurisdictions and is subject to examination by various federal, state and foreign jurisdictions for various tax periods. Additionally, the Company has retained tax liabilities and the rights to tax refunds in connection with various acquisitions and divestitures of businesses. The Company’s income tax positions are based on research and interpretations of the income tax laws and rulings in each of the jurisdictions in which the Company does business. Due to the subjectivity of interpretations of laws and rulings in each jurisdiction, the differences and interplay in tax laws between those jurisdictions, as well as the inherent uncertainty in estimating the final resolution of complex tax audit matters, the Company’s estimates of income tax liabilities may differ from actual payments or assessments.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of DECEMBER 31, 2022
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
The Company assesses its position with regard to tax exposures and records liabilities for these uncertain tax positions and any related interest and penalties, when the tax benefit is not more likely than not realizable. The Company has recorded an accrual that reflects the recognition and measurement process for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. Additional future income tax expense or benefit may be recognized once the positions are effectively settled.
At the end of each interim reporting period, the Company estimates the effective tax rate expected to apply to the full fiscal year. The estimated effective tax rate contemplates the expected jurisdiction where income is earned, as well as tax planning alternatives. Current and projected growth in income in higher tax jurisdictions may result in an increasing effective tax rate over time. If the actual results differ from estimates, the Company may adjust the effective tax rate in the interim period if such determination is made.
Contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. There is no liability recorded for matters in which the liability is not probable and reasonably estimable. Attorneys in the Company's legal department monitor and manage all claims filed against the Company and review all pending investigations. Generally, the estimate of probable loss related to these matters is developed in consultation with internal and outside legal counsel representing the Company. These estimates are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. The Company attempts to resolve these matters through settlements, mediation and arbitration proceedings when possible. If the actual settlement costs, final judgments, or fines, after appeals, differ from the estimates, the future results may be materially impacted. Adjustments to the initial estimates are recorded when a change in the estimate is identified.
Pensions and Other Post-retirement Benefits. Annual net periodic expense and benefit liabilities under the Company’s defined benefit plans are determined on an actuarial basis. Assumptions used in the actuarial calculations have a significant impact on plan obligations and expense. Members of the management investment committeeThe Company periodically reviewreviews the actual experience compared with the more significant assumptions used and make adjustments to the assumptions, if warranted. The discount rate is determined by analyzing the average return of high-quality (i.e., AA-rated), fixed-income investments and the year-over-year comparison of certain widely used benchmark indices as of the measurement date. The expected long-term rate of return on plan assets is determined using the plans’ current asset allocation and their expected long term rates of return based on a geometric averaging over 20 years.return. The rate of compensation increase assumptions reflects the Company’s long-term actual experience and future and near-term outlook. Pension benefits are funded through deposits with trustees. Other post-retirement benefits are not funded and the Company’s policy is to pay these benefits as they become due.
The following table represents assumed healthcare cost trend rates at December 31:
| | | | | | | | | | | |
| 2022 | | 2021 |
| Healthcare cost trend rate assumed for next year | 6.0 | % | | 5.6 | % |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 4.0 | % | | 4.0 | % |
| Year that rate reaches ultimate trend rate | 2046 | | 2045 |
RECENTLY ISSUED ACCOUNTING GUIDANCE
Refer to Note 1 of the consolidated financial statements for information on recently issued accounting guidance.
|
| | | | | |
| | 2017 | | 2016 |
| Healthcare cost trend rate assumed for next year | 6.8 | % | | 7.0 | % |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 5.0 | % | | 5.0 | % |
| Year that rate reaches ultimate trend rate | 2025 |
| | 2025 |
|
The healthcare trend rates for the postemployment benefits plans in the U.S. are reviewed based upon the results of actual claims experience. The Company used initial healthcare cost trends of 6.8 percent and 7.0 percent in 2017 and 2016, respectively, with an ultimate trend rate of 5.0 percent reach in 2025. Assumed healthcare cost trend rates have a modest effect on the amounts reported for the healthcare plans.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of DecemberDECEMBER 31, 20172022
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
FORWARD-LOOKING STATEMENT DISCLOSURE
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:
|
| | | | | | | |
| | One-Percentage-Point Increase | | One-Percentage-Point Decrease |
| Effect on total of service and interest cost | $ | — |
| | $ | — |
|
| Effect on other post-retirement benefit obligation | $ | 0.5 |
| | $ | (0.5 | ) |
During 2017, the Society of Actuaries released a new mortality improvement projection scale (MP-2017) resulting from recent studies measuring mortality rates for various groups of individuals. As of December 31, 2017, the Company adopted for the pension plan in the U.S. the use of the RP-2014 base mortality table modified to remove the post-2006 projections using the MP-2014 mortality improvement scale and replacing it with projections using the fully generational MP-2017 projection scale. For the plans outside the U.S., the mortality tables used are those either required or customary for local accounting and/or funding purposes.
RECENTLY ISSUED ACCOUNTING GUIDANCE
Refer to note 1 to the consolidated financial statements, which is contained in Item 8 of thisThis annual report on Form 10-K for information on recently issued accounting guidance.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of December 31, 2017
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
FORWARD-LOOKING STATEMENT DISCLOSURE
In this annual report on Form 10-K,contains statements that are not reported financial results or other historical information and are “forward-looking statements.”statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events and are not guarantees of future performance. These forward-looking statements include, but are not limited to, projections, statements regarding the Acquisition, its financing of the Acquisition, itsCompany's expected future performance (including expected results of operations and financial guidance), and the Company’s future financial condition, potential impact of the ongoing coronavirus (COVID-19) pandemic, anticipated operating results, strategy plans, future liquidity and plans. Forward-looking statements mayfinancial position.
Statements can generally be identified by the use of theas forward-looking because they include words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,” “believes,” “estimates,” “potential,” “target,” “predict,” “project,” “seek,” and variations thereof or “could,” “should” or words of similar expressions. These statementsmeaning. Statements that describe the Company's future plans, objectives or goals are used to identifyalso forward-looking statements. These forward-lookingForward-looking statements reflect the current views of the Company with respect to future events and involve significantare subject to assumptions, risks and uncertainties that could cause actual results to differ materially.
Although the Company believes that these forward-looking statements are based upon reasonable assumptions regarding, among other things, the economy, its knowledge of its business, and on key performance indicators that impact the Company, these forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those expressed in or implied by the forward-looking statements. The Company is not obligated to update forward-looking statements, whether as a result of new information, future events or otherwise.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Some
The factors that may affect the Company's results include, among others:
•the overall impact of the risks, uncertaintiesglobal supply chain complexities on the Company and its business, including delays in sourcing key components as well as longer transport times, especially for container ships and U.S. trucking, given the Company’s reliance on suppliers, subcontractors and availability of raw materials and other factors thatcomponents;
•the ability of the Company to raise necessary equity capital to pay the 2024 Senior Notes at maturity if there is insufficient participation in the Public 2024 Exchange Offer;
•the Company's ability to generate sufficient cash or have sufficient access to capital resources to service its debt, which, if unsuccessful or insufficient, could cause actual resultsforce the Company to differ materially from those expressedreduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance its indebtedness;
•the Company's ability to comply with the covenants contained in or implied by the forward-looking statements include, but are not limited to:agreements governing its debt and to successfully refinance its debt in the future;
•the Company’s ability to successfully convert its backlog into sales, including our ability to overcome supply chain and liquidity challenges;
•the ultimate impact of the DPLTA with Diebold Nixdorf AGongoing COVID-19 pandemic and other public health emergencies, including further adverse effects to the Company’s supply chain, maintenance of increased order backlog, and the outcomeeffects of the appraisal proceedings initiated in connection with the implementation of the DPLTA;any COVID-19 related cancellations;
the ultimate outcome and results of integrating the operations of the Company and Diebold Nixdorf AG;
the ultimate outcome of the Company’s pricing, operating and tax strategies applied to Diebold Nixdorf AG and the ultimate ability to realize cost reductions and synergies;
•the Company's ability to successfully operatemeet its cost-reduction goals and continue to achieve benefits from its cost-reduction initiatives and other strategic alliances in China with the Inspur Group and Aisino Corp.;
changes in political, economic or other factorsinitiatives, such as currency exchange rates, inflation rates, recessionary or expansive trends, taxes and regulations and laws affecting the worldwide business in eachcurrent $150 million-plus cost savings plan;
•the success of the Company's operations,Company’s new products, including the impactits DN Series line and EASY family of the Tax Act;retail checkout solutions, and electronic vehicle charging service business;
the Company’s reliance on suppliers and any potential disruption to the Company’s global supply chain;
the impact of market and economic conditions economic conditions, including any additional deterioration and disruption in the financial and service markets, including the bankruptcies, restructurings or consolidations of financial institutions, which could reduce our customer base and/or adversely affect our customers' ability to make capital expenditures, as well as adversely impact the availability and cost of credit;
the acceptance of the Company's product and technology introductions in the marketplace;
competitive pressures, including pricing pressures and technological developments;
changes in the Company's relationships with customers, suppliers, distributors and/or partners in its business ventures;
the effect of legislative and regulatory actions in the U.S. and internationally and the Company’s ability to comply with government regulations;
•the impact of a securitycybersecurity breach or operational failure on the Company's business;
•the Company'sCompany’s ability to successfully integrateattract, retain and motivate key employees;
•the Company’s reliance on suppliers, subcontractors and availability of raw materials and other acquisitions into its operations;components;
the impact of the Company's strategic initiatives;
the Company's ability to maintain effective internal controls;
•changes in the Company's intention to further repatriate cash and cash equivalents and short-term investments residing in international tax jurisdictions, which could negatively impact foreign and domestic taxes;
•the Company's success in divesting, reorganizing or exiting non-core and/or non-accretive businesses and its ability to successfully manage acquisitions, divestitures, and alliances;
•the ultimate outcome of the appraisal proceedings initiated in connection with the implementation of the Domination and Profit Loss Transfer Agreement with the former Diebold Nixdorf AG (which was dismissed in the Company’s favor at the lower court level in May 2022) and the merger/squeeze-out;
•the impact of market and economic conditions, including the bankruptcies, restructuring or consolidations of financial institutions, which could reduce the Company’s customer base and/or adversely affect its customers' ability to make capital expenditures, as well as adversely impact the availability and cost of credit;
•the impact of competitive pressures, including pricing pressures and technological developments;
•changes in political, economic or other factors such as currency exchange rates, inflation rates (including the impact of possible currency devaluations in countries experiencing high inflation rates), recessionary or expansive trends, hostilities or conflicts (including the war between Russia and Ukraine and the tension between the U.S. and China), disruption in energy supply, taxes and regulations and laws affecting the worldwide business in each of the Company's operations;
•the Company's ability to maintain effective internal controls;
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS as of DECEMBER 31, 2022
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
(unaudited)
(in millions, except per share amounts)
•unanticipated litigation, claims or assessments, as well as the outcome/impact of any current/pending litigation, claims or assessments, including but not limited to assessments;
•the Company's Brazil tax dispute;
potential security violations to the Company's IT systems;
the investment performanceeffect of our pension plan assets, which could require us to increase our pension contributions, and significant changes in healthcare costs, including those that may result from government action;
law and regulations or the amountmanner of enforcement in the U.S. and timing of repurchases ofinternationally and the Company's common shares, if any; and
the Company'sCompany’s ability to achieve benefits from its cost-reduction initiatives comply with applicable laws and regulations; and
•and other strategic changes, including its planned restructuring actions, as well as as its business process outsourcing initiative.factors included in the Company’s filings with the SEC.
Except to the extent required by applicable law or regulation, the Company undertakes no obligation to update these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events.
You should consider these factors carefully in evaluating forward-looking statements and are cautioned not to place undue reliance on such statements.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(dollars in millions, except per share amounts)
The Company is exposed to foreign currency exchange rate risk inherent in its international operations denominated in currencies other than the U.S. dollar. A hypothetical 10 percent movement in the applicable foreign exchange rates would have resulted in an increase or decrease in 20172022 operating loss of $5.0 and 2016 year-to-date$6.1, respectively. A hypothetical 10 percent movement in the applicable foreign exchange rates would have resulted in an increase or decrease in 2021 operating profit of $18.0 and $3.6,$23.9 and $29.2, respectively. The sensitivity model assumes an instantaneous, parallel shift in the foreign currency exchange rates. Exchange rates rarely move in the same direction. The assumption that exchange rates change in an instantaneous or parallel fashion may overstate the impact of changing exchange rates on amounts denominated in a foreign currency.
The Company’s risk-management strategy uses derivative financial instruments such as forwards to hedge certain foreign currency exposures. The intent is to offset gains and losses that occur on the underlying exposures with gains and losses on the derivative contracts hedging these exposures. The Company does not enter into derivatives for trading purposes. The Company’s primary exposures to foreign exchange risk are movements in the euro, Great BritainBritish pound, sterling, CanadaCanadian dollar, BrazilBrazilian real, ThailandThai baht Mexico pesos and China yuan renminbi.Mexican peso.
The Company manages interest rate risk with the use of variable rate borrowings under its committed and uncommitted credit facilities and interest rate swaps. VariableAt December 31, 2022 and 2021, variable rate borrowings under the credit facilities totaled $1,504.0$1,240.5 and $1,460.0$833.2, respectively, of which $400.0 and $452.6$325.0 were effectively converted to fixed rate using interest rate swaps at December 31, 2017 and 2016, respectively.2021. A one percentage point increase or decrease in interest rates would have resulted in an increase or decrease in interest expense of $10.5$12.4 and $10.1$5.1 for 20172022 and 2016,2021, respectively, including the impact of the swap agreements. The Company’s primary exposure to interest rate risk is movements in the EURIBOR, SOFR and LIBOR, which is consistent with prior periods.while historically the primary exposure was related to movement in the LIBOR. Refer to Item 1A of this annual report on Form 10-K for a discussion of risks relating to any discontinuance, modification or other reforms to LIBOR or any other reference rate, or the establishment of alternative reference rates.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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FINANCIAL STATEMENTS |
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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Diebold Nixdorf, Incorporated:
Opinion on the ConsolidatedFinancial Statements
We have audited the accompanying consolidated balance sheets of Diebold Nixdorf, Incorporated and subsidiaries (the “Company”)Company) as of December 31, 20172022 and 2016,2021, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three‑yearthree-year period ended December 31, 2017,2022, and the related notes (collectively, the “consolidatedconsolidated financial statements”)statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172022 and 2016,2021, and the results of its operations and its cash flows for each of the years in the three‑yearthree-year period ended December 31, 2017,2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2018March 16, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 11 to the consolidated financial statements, the Company projects that it will not generate sufficient cash from operations to meet its obligations as they become due over the next twelve months. The Company is also required to raise equity capital to pay any outstanding principal amount of 8.50% Senior Notes due 2024 in excess of $20 million. These conditions raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Sufficiency of audit evidence over net sales
As discussed in Note 1 to the Company's consolidated financial statements, the Company recognizes net sales when it satisfies a performance obligation by transferring control over a product or service to a customer. The Company recorded $3,460.7 million of net sales in 2022.
We identified the evaluation of the sufficiency of audit evidence over net sales as a critical audit matter. Evaluating the sufficiency of audit evidence obtained required especially subjective auditor judgment because of the geographical dispersion of the Company’s net sales generating activities. This included determining the Company locations for which procedures were performed.
The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over net sales, including the determination of the Company locations for which those procedures were to be performed. At each Company location for which procedures were performed, we evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s net sales process, including controls over the accurate recording of net sales. We assessed the recorded net sales for each of these locations by selecting transactions and comparing the amounts recognized for consistency with underlying documentation, including contracts with customers, customer acceptance, and shipping documentation. We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed, including the appropriateness of the nature and extent of audit effort.
Assessment of goodwill impairment in the Eurasia Banking reporting unit
As discussed in Notes 8 and 24 to the consolidated financial statements, in the second quarter of 2022 the Company reorganized its reportable segments and reporting units. As a result of the reporting unit change, the Company performed an interim quantitative goodwill impairment test for both its old and new reporting units. As of March 31, 2022, prior to the reorganization, the Eurasia Banking reporting unit had $263.4 million of goodwill. The fair values of the reporting units were determined based on a combination of an income approach and a market approach. As of April 30, 2022, the Company determined that the fair value of all reporting units were in excess of their carrying values and therefore did not record any goodwill impairment. The estimated fair value of the Eurasia Banking reporting unit at that date exceeded its carrying value by approximately 10%.
We identified the April 30, 2022 assessment of goodwill impairment for the Eurasia Banking reporting unit as a critical audit matter. A high degree of subjective auditor judgment was required to evaluate the fair value of the reporting unit determined under the income approach. The key assumptions used in the income approach included revenue growth projections and the discount rate.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s goodwill impairment process, including controls over the revenue growth projections and the discount rate. We performed sensitivity analyses over the revenue growth projections and the discount rate to assess their impact on the Company’s fair value determination. We compared the Company’s revenue growth projections used in the valuation model against peer company projected revenue growth rates and the historical revenue growth rates of the Company. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:
•comparing the Company’s discount rate inputs to publicly-available market data and information for comparable entities to test the selected discount rate
•testing the estimate of fair value for the reporting unit using the Company’s key assumptions and comparing the result to the Company’s fair value estimate.
/s/ KPMG LLP
We or our predecessor firms have served as the Company’s auditor since 1965.
Cleveland, Ohio
February 28, 2018March 16, 2023
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Diebold Nixdorf, Incorporated:
Opinion on Internal Control Over Financial Reporting
We have audited Diebold Nixdorf, Incorporated and subsidiaries’subsidiaries' (the “Company”)Company) internal control over financial reporting as of December 31, 2017,2022, based on criteria established inInternal Control -– Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB), the consolidated balance sheets of the Company as of December 31, 20172022 and 2016,2021, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2017,2022, and the related notes (collectively, the "consolidatedconsolidated financial statements")statements), and our report dated February 28, 2018March 16, 2023 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’sManagement's Report on Internal Control over Financial Reporting appearing under item 9A(a) of the Diebold Nixdorf, Incorporated’s December 31, 2017 annual report on Form 10-K.Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Cleveland, Ohio
February 28, 2018
March 16, 2023
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| ASSETS | | | |
| Current assets | | | |
| Cash, cash equivalents and restricted cash | $ | 319.1 | | | $ | 388.9 | |
| Short-term investments | 24.6 | | | 34.3 | |
| Trade receivables, less allowances for doubtful accounts of $34.5 and $35.3, respectively | 612.2 | | | 595.2 | |
| Inventories | 588.1 | | | 544.2 | |
| Prepaid expenses | 50.5 | | | 48.2 | |
| | | |
| Current assets held for sale | 7.9 | | | 73.4 | |
| Other current assets | 168.5 | | | 203.1 | |
| Total current assets | 1,770.9 | | | 1,887.3 | |
| Securities and other investments | 7.6 | | | 11.0 | |
| Property, plant and equipment, net | 120.7 | | | 138.1 | |
| Deferred income taxes | — | | | 95.7 | |
| | | |
| Goodwill | 702.3 | | | 743.6 | |
| Customer relationships, net | 213.6 | | | 301.7 | |
| Other intangible assets, net | 44.0 | | | 45.8 | |
| Right-of-use operating lease assets | 108.5 | | | 152.4 | |
| Other assets | 97.4 | | | 131.6 | |
| Total assets | $ | 3,065.0 | | | $ | 3,507.2 | |
| | | |
| LIABILITIES AND EQUITY | | | |
| Current liabilities | | | |
| Notes payable | $ | 24.0 | | | $ | 47.1 | |
| Accounts payable | 611.6 | | | 706.3 | |
| Deferred revenue | 453.2 | | | 322.4 | |
| Payroll and other benefits liabilities | 107.9 | | | 186.5 | |
| Current liabilities held for sale | 6.8 | | | 20.3 | |
| Operating lease liabilities | 39.0 | | | 54.5 | |
| Other current liabilities | 362.4 | | | 412.3 | |
| Total current liabilities | 1,604.9 | | | 1,749.4 | |
| Long-term debt | 2,585.8 | | | 2,245.6 | |
| Pensions, post-retirement and other benefits | 40.6 | | | 104.2 | |
| Long-term operating lease liabilities | 76.7 | | | 103.0 | |
| Deferred income taxes | 96.6 | | | 105.5 | |
| Other liabilities | 31.5 | | | 36.5 | |
| | | |
| | | |
| 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, (95,779,719 and 94,599,742 issued shares, 79,103,450 and 78,352,333 outstanding shares, respectively) | 119.8 | | | 118.3 | |
| Additional capital | 831.5 | | | 819.6 | |
| Retained earnings (accumulated deficit) | (1,406.7) | | | (822.4) | |
| Treasury shares, at cost (16,676,269 and 16,247,409 shares, respectively) | (585.6) | | | (582.1) | |
| Accumulated other comprehensive loss | (360.0) | | | (378.5) | |
| Equity warrants | 20.1 | | | — | |
| Total Diebold Nixdorf, Incorporated shareholders' equity | (1,380.9) | | | (845.1) | |
| Noncontrolling interests | 9.8 | | | 8.1 | |
| Total equity | (1,371.1) | | | (837.0) | |
| Total liabilities and equity | $ | 3,065.0 | | | $ | 3,507.2 | |
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| ASSETS | | | |
| Current assets | | | |
| Cash and cash equivalents | $ | 535.2 |
| | $ | 652.7 |
|
| Short-term investments | 81.4 |
| | 64.1 |
|
| Trade receivables, less allowances for doubtful accounts of $71.7 and $50.4, respectively | 830.1 |
| | 835.9 |
|
| Inventories | 737.0 |
| | 737.7 |
|
| Prepaid expenses | 65.7 |
| | 60.7 |
|
| Income taxes | 73.4 |
| | 85.2 |
|
| Other current assets | 185.6 |
| | 183.3 |
|
| Total current assets | 2,508.4 |
| | 2,619.6 |
|
| Securities and other investments | 96.8 |
| | 94.7 |
|
| Property, plant and equipment, net | 364.5 |
| | 387.0 |
|
| Deferred income taxes | 293.8 |
| | 309.5 |
|
| Finance lease receivables | 14.4 |
| | 25.2 |
|
| Goodwill | 1,117.1 |
| | 998.3 |
|
| Customer relationships, net | 633.3 |
| | 596.3 |
|
| Other intangible assets, net | 140.5 |
| | 176.6 |
|
| Other assets | 81.4 |
| | 63.1 |
|
| Total assets | $ | 5,250.2 |
| | $ | 5,270.3 |
|
| | | | |
| LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | | | |
| Current liabilities | | | |
| Notes payable | $ | 66.7 |
| | $ | 106.9 |
|
| Accounts payable | 562.2 |
| | 560.5 |
|
| Deferred revenue | 437.5 |
| | 404.2 |
|
| Payroll and other benefits liabilities | 198.9 |
| | 172.5 |
|
| Other current liabilities | 534.1 |
| | 580.4 |
|
| Total current liabilities | 1,799.4 |
| | 1,824.5 |
|
| Long-term debt | 1,787.1 |
| | 1,691.4 |
|
| Pensions, post-retirement and other benefits | 266.4 |
| | 297.2 |
|
| Deferred income taxes | 287.1 |
| | 300.6 |
|
| Other liabilities | 111.3 |
| | 87.7 |
|
| Commitments and contingencies |
|
| |
|
|
| Redeemable noncontrolling interests | 492.1 |
| | 44.1 |
|
| Equity | | | |
| Diebold Nixdorf, Incorporated shareholders' equity | | | |
| Preferred shares, no par value, 1,000,000 authorized shares, none issued | — |
| | — |
|
| Common shares, $1.25 par value, 125,000,000 authorized shares, (90,524,360 and 89,924,378 issued shares, 75,558,544 and 75,144,784 outstanding shares, respectively) | 113.2 |
| | 112.4 |
|
| Additional capital | 721.5 |
| | 720.0 |
|
| Retained earnings | 399.0 |
| | 662.7 |
|
| Treasury shares, at cost (14,965,816 and 14,779,594 shares, respectively) | (567.4 | ) | | (562.4 | ) |
| Accumulated other comprehensive loss | (196.3 | ) | | (341.3 | ) |
| Total Diebold Nixdorf, Incorporated shareholders' equity | 470.0 |
| | 591.4 |
|
| Noncontrolling interests | 36.8 |
| | 433.4 |
|
| Total equity | 506.8 |
| | 1,024.8 |
|
| Total liabilities, redeemable noncontrolling interests and equity | $ | 5,250.2 |
| | $ | 5,270.3 |
|
See accompanying notes to consolidated financial statements.
5247
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2022 | | 2021 | | 2020 |
| Net sales | | | | | |
| Services | $ | 2,098.9 | | | $ | 2,303.6 | | | $ | 2,364.4 | |
| Products | 1,361.8 | | | 1,601.6 | | | 1,537.9 | |
| 3,460.7 | | | 3,905.2 | | | 3,902.3 | |
| Cost of sales | | | | | |
| Services | 1,480.8 | | | 1,577.3 | | | 1,666.2 | |
| Products | 1,222.6 | | | 1,284.5 | | | 1,201.1 | |
| 2,703.4 | | | 2,861.8 | | | 2,867.3 | |
| Gross profit | 757.3 | | | 1,043.4 | | | 1,035.0 | |
| Selling and administrative expense | 741.6 | | | 775.6 | | | 858.6 | |
| Research, development and engineering expense | 120.7 | | | 126.3 | | | 133.4 | |
| Impairment of assets | 111.8 | | | 1.3 | | | 7.5 | |
| Loss (gain) on sale of assets, net | (5.1) | | | 3.1 | | | 11.5 | |
| 969.0 | | | 906.3 | | | 1,011.0 | |
| Operating profit (loss) | (211.7) | | | 137.1 | | | 24.0 | |
| Other income (expense) | | | | | |
| Interest income | 10.0 | | | 6.1 | | | 6.8 | |
| Interest expense | (199.2) | | | (195.3) | | | (266.8) | |
| Foreign exchange loss, net | (7.8) | | | (2.0) | | | (14.4) | |
| Miscellaneous, net | 2.2 | | | 3.4 | | | 6.8 | |
| Loss on refinancing | (32.1) | | | — | | | (25.9) | |
| Loss before taxes | (438.6) | | | (50.7) | | | (269.5) | |
| Income tax expense (benefit) | 149.2 | | | 27.7 | | | (1.0) | |
| Equity in earnings (loss) of unconsolidated subsidiaries, net | 2.2 | | | 0.3 | | | 0.7 | |
| Net loss | (585.6) | | | (78.1) | | | (267.8) | |
| | | | | |
| | | | | |
| Net income (loss) income attributable to noncontrolling interests | (4.2) | | | 0.7 | | | 1.3 | |
| Net loss attributable to Diebold Nixdorf, Incorporated | $ | (581.4) | | | $ | (78.8) | | | $ | (269.1) | |
| | | | | |
| Basic and diluted weighted-average shares outstanding | 79.0 | | | 78.3 | | | 77.6 | |
| | | | | |
| | | | | |
| Net loss attributable to Diebold Nixdorf, Incorporated | | | | | |
| Basic and diluted loss per share | $ | (7.36) | | | $ | (1.01) | | | $ | (3.47) | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | |
| | Years ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Net sales | | | | | |
| Services and software | $ | 2,873.9 |
| | $ | 1,983.0 |
| | $ | 1,434.8 |
|
| Systems | 1,735.4 |
| | 1,333.3 |
| | 984.5 |
|
| | 4,609.3 |
| | 3,316.3 |
| | 2,419.3 |
|
| Cost of sales | | | | | |
| Services and software | 2,161.0 |
| | 1,402.2 |
| | 946.8 |
|
| Systems | 1,438.6 |
| | 1,192.4 |
| | 820.5 |
|
| | 3,599.6 |
| | 2,594.6 |
| | 1,767.3 |
|
| Gross profit | 1,009.7 |
| | 721.7 |
| | 652.0 |
|
| Selling and administrative expense | 933.7 |
| | 761.2 |
| | 488.2 |
|
| Research, development and engineering expense | 155.5 |
| | 110.2 |
| | 86.9 |
|
| Impairment of assets | 3.1 |
| | 9.8 |
| | 18.9 |
|
| (Gain) loss on sale of assets, net | 1.0 |
| | 0.3 |
| | (0.6 | ) |
| | 1,093.3 |
| | 881.5 |
| | 593.4 |
|
| Operating profit (loss) | (83.6 | ) |
| (159.8 | ) |
| 58.6 |
|
| Other income (expense) | | | | | |
| Interest income | 20.3 |
| | 21.5 |
| | 26.0 |
|
| Interest expense | (117.3 | ) | | (101.4 | ) | | (32.5 | ) |
| Foreign exchange gain (loss), net | (3.9 | ) | | (2.1 | ) | | (10.0 | ) |
| Miscellaneous, net | 8.8 |
| | 3.5 |
| | 3.7 |
|
| Income (loss) from continuing operations before taxes | (175.7 | ) | | (238.3 | ) | | 45.8 |
|
| Income tax (benefit) expense | 29.8 |
| | (67.6 | ) | | (13.7 | ) |
| Income (loss) from continuing operations, net of tax | (205.5 | ) | | (170.7 | ) | | 59.5 |
|
| Income from discontinued operations, net of tax | — |
| | 143.7 |
| | 15.9 |
|
| Net income (loss) | (205.5 | ) | | (27.0 | ) | | 75.4 |
|
| Net income attributable to noncontrolling interests, net of tax | 27.6 |
| | 6.0 |
| | 1.7 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (233.1 | ) | | $ | (33.0 | ) | | $ | 73.7 |
|
| | | | | | |
| Basic weighted-average shares outstanding | 75.5 |
| | 69.1 |
| | 64.9 |
|
| Diluted weighted-average shares outstanding | 75.5 |
| | 69.1 |
| | 65.6 |
|
| | | | | | |
| Basic earnings (loss) per share | | | | | |
| Income (loss) before discontinued operations, net of tax | $ | (3.09 | ) | | $ | (2.56 | ) | | $ | 0.89 |
|
| Income from discontinued operations, net of tax | — |
| | 2.08 |
| | 0.24 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (3.09 | ) | | $ | (0.48 | ) | | $ | 1.13 |
|
| | | |
| |
|
| Diluted earnings (loss) per share | | | | | |
| Income (loss) before discontinued operations, net of tax | $ | (3.09 | ) | | $ | (2.56 | ) | | $ | 0.88 |
|
| Income from discontinued operations, net of tax | — |
| | 2.08 |
| | 0.24 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (3.09 | ) | | $ | (0.48 | ) | | $ | 1.12 |
|
| | | |
| |
|
| Amounts attributable to Diebold Nixdorf, Incorporated | | | | | |
| Income (loss) before discontinued operations, net of tax | $ | (233.1 | ) | | $ | (176.7 | ) | | $ | 57.8 |
|
| Income from discontinued operations, net of tax | — |
| | 143.7 |
| | 15.9 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (233.1 | ) | | $ | (33.0 | ) | | $ | 73.7 |
|
| | | | | | |
| Cash dividends declared and paid per share | $ | 0.40 |
| | $ | 0.96 |
| | $ | 1.15 |
|
See accompanying notes to consolidated financial statements.
5348
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
| | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2022 | | 2021 | | 2020 |
| Net loss | $ | (585.6) | | | $ | (78.1) | | | $ | (267.8) | |
| Other comprehensive income (loss), net of tax: | | | | | |
| | | | | |
| Translation adjustment (net of tax of $(3.0), $(6.6) and $(10.2), respectively) | (35.3) | | | (53.6) | | | (26.8) | |
| Foreign currency hedges (net of tax of $0.0, $0.0 and $(0.3), respectively) | — | | | 0.7 | | | — | |
| Interest rate hedges: | | | | | |
| Net loss recognized in other comprehensive income (net of tax of $0.7, $3.4 and $(5.9), respectively) | 5.5 | | | 8.6 | | | (16.3) | |
| Less: reclassification adjustments for amounts recognized in net (loss) income (net of tax of $0.1, $0.8 and $(1.8), respectively) | 0.6 | | | 2.1 | | | (5.0) | |
| 4.9 | | | 6.5 | | | (11.3) | |
| Pension and other post-retirement benefits: | | | | | |
| Prior service credit (cost) recognized during the year (net of tax of $0.0, $0.0 and $0.2, respectively) | 2.4 | | | — | | | 0.5 | |
| Net actuarial gains recognized during the year (net of tax of $0.0, $23.2 and $1.5, respectively) | 38.5 | | | 76.0 | | | 6.1 | |
| | | | | |
| Net actuarial gains (losses) occurring during the year (net of tax of $0.0, $2.0 and $(3.9), respectively) | 2.3 | | | 7.5 | | | (9.7) | |
| Net actuarial gains (losses) recognized due to settlement (net of tax of $0.0, $(0.4) and $0.3, respectively) | 10.2 | | | (0.7) | | | 0.8 | |
| | | | | |
| | | | | |
| | | | | |
| Acquired benefit plans and other (net of tax of $0.0, $0.0 and $0.0, respectively) | — | | | 0.1 | | | 0.2 | |
| Currency impact (net of tax of $0.0, $(0.4) and $0.5, respectively) | (1.4) | | | (0.6) | | | 1.8 | |
| 52.0 | | | 82.3 | | | (0.3) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other | 2.8 | | | (0.9) | | | (0.8) | |
| Other comprehensive income (loss), net of tax | 24.4 | | | 35.0 | | | (39.2) | |
| Comprehensive loss | (561.2) | | | (43.1) | | | (307.0) | |
| Less: comprehensive income (loss) attributable to noncontrolling interests | 1.7 | | | 1.3 | | | (0.3) | |
| Comprehensive loss attributable to Diebold Nixdorf, Incorporated | $ | (562.9) | | | $ | (44.4) | | | $ | (306.7) | |
|
| | | | | | | | | | | |
| | Years ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Net income (loss) | $ | (205.5 | ) | | $ | (27.0 | ) | | $ | 75.4 |
|
| Other comprehensive income (loss), net of tax: | | | | | |
| Translation adjustment (net of tax of $8.4, $(0.6) and $5.3, respectively) | 140.3 |
| | (32.4 | ) | | (141.3 | ) |
| Foreign currency hedges (net of tax of $0.2, $6.2 and $(4.0), respectively) | 0.6 |
| | (10.7 | ) | | 6.4 |
|
| Interest rate hedges: | | | | | |
| Net income recognized in other comprehensive income (net of tax of $(1.7), $(3.0) and $(0.3), respectively) | 3.9 |
| | 4.9 |
| | 0.8 |
|
| Less: reclassification adjustments for amounts recognized in net income (net of tax of $(0.1), $0.0 and$(0.2), respectively) | 0.4 |
| | 0.2 |
| | 0.4 |
|
| | 3.5 |
| | 4.7 |
| | 0.4 |
|
| Pension and other post-retirement benefits: | | | | | |
| Prior service credit recognized during the year (net of tax of $0.0, $0.0 and $0.1, respectively) | — |
| | — |
| | (0.1 | ) |
| Net actuarial losses recognized during the year (net of tax of $(3.3), $(1.8) and $(2.7), respectively) | 2.2 |
| | 4.0 |
| | 4.2 |
|
| Prior service cost occurring during the year (net of tax of $(0.5), $0.0 and $0.0, respectively) | 0.4 |
| | — |
| | — |
|
| Net actuarial (gain) loss occurring during the year (net of tax of $(6.6), $(8.3) and $(1.3), respectively) | 4.5 |
| | 18.5 |
| | 2.1 |
|
| Net actuarial gains (losses) recognized due to settlement (net of tax of $0.4, $0.0 and $0.0, respectively) | (0.2 | ) | | — |
| | — |
|
| Net actuarial gain recognized due to curtailment (net of tax of $0.0, $1.5 and $0.0, respectively) | — |
| | (3.3 | ) | | — |
|
| Acquired benefit plans and other (net of tax of $1.5, $0.0 and $0.0, respectively) | (1.5 | ) | | — |
| | — |
|
| Currency impact (net of tax of $(1.9), $0.4 and $0.0, respectively) | 1.3 |
| | (0.7 | ) | | — |
|
| | 6.7 |
| | 18.5 |
| | 6.2 |
|
| Other | (0.2 | ) | | (0.1 | ) | | 0.1 |
|
| Other comprehensive income (loss), net of tax | 150.9 |
| | (20.0 | ) | | (128.2 | ) |
| Comprehensive income (loss) | (54.6 | ) | | (47.0 | ) | | (52.8 | ) |
| Less: comprehensive income attributable to noncontrolling interests | 33.5 |
| | 9.2 |
| | 3.2 |
|
| Comprehensive income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (88.1 | ) | | $ | (56.2 | ) | | $ | (56.0 | ) |
See accompanying notes to consolidated financial statements.
5449
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(in millions, except per share amounts)millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares | | | | | | | | Accumulated Other Comprehensive Income (Loss) | | | | Total Diebold Nixdorf, Incorporated Shareholders' Equity | | | | |
| Number | | $1.25 Par Value | | Additional
Capital | | Retained
Earnings | | Treasury
Shares | | | Equity Warrants | | | Non-controlling
Interests | | Total
Equity |
| Balance at January 1, 2020 | 92.2 | | | $ | 115.3 | | | $ | 773.9 | | | $ | (472.3) | | | $ | (571.9) | | | $ | (375.3) | | | $ | — | | | $ | (530.3) | | | $ | 24.0 | | | $ | (506.3) | |
| Net income (loss) | | | | | | | (269.1) | | | | | | | | | (269.1) | | | 1.3 | | | (267.8) | |
| Other comprehensive income | | | | | | | | | | | (37.6) | | | | | (37.6) | | | (1.6) | | | (39.2) | |
| | | | | | | | | | | | | | | | | | | |
| Share-based compensation issued | 1.3 | | | 1.6 | | | (1.6) | | | | | | | | | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Share-based compensation expense | | | | | 14.9 | | | | | | | | | | | 14.9 | | | | | 14.9 | |
| | | | | | | | | | | | | | | | | | | |
| Treasury shares (0.5 shares) | | | | | | | | | (4.8) | | | | | | | (4.8) | | | | | (4.8) | |
| Sale of equity interest | | | | | | | | | | | | | | | — | | | (28.3) | | | (28.3) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Reclassification to redeemable noncontrolling interest | | | | | 0.7 | | | | | | | | | | | 0.7 | | | — | | | 0.7 | |
| Distribution noncontrolling interest holders, net | | | | | | | (0.9) | | | | | | | | | (0.9) | | | — | | | (0.9) | |
| | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2020 | 93.5 | | | $ | 116.9 | | | $ | 787.9 | | | $ | (742.3) | | | $ | (576.7) | | | $ | (412.9) | | | $ | — | | | $ | (827.1) | | | $ | (4.6) | | | $ | (831.7) | |
| Net income (loss) | | | | | | | (78.8) | | | | | | | | | (78.8) | | | 0.7 | | | (78.1) | |
| Other comprehensive loss | | | | | | | | | | | 34.4 | | | | | 34.4 | | | 0.6 | | | 35.0 | |
| Share-based compensation issued | 1.1 | | | 1.4 | | | (1.3) | | | | | | | | | | | 0.1 | | | | | 0.1 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Share-based compensation expense | | | | | 13.8 | | | | | | | | | | | 13.8 | | | | | 13.8 | |
| | | | | | | | | | | | | | | | | | | |
| Treasury shares (0.4 shares) | | | | | | | | | (5.4) | | | | | | | (5.4) | | | | | (5.4) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Reclassification from redeemable noncontrolling interest and other | | | | | 19.2 | | | | | | | | | | | 19.2 | | | 12.7 | | | 31.9 | |
| Distribution to noncontrolling interest holders, net | | | | | | | (1.3) | | | | | | | | | (1.3) | | | (1.3) | | | (2.6) | |
| | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2021 | 94.6 | | | $ | 118.3 | | | $ | 819.6 | | | $ | (822.4) | | | $ | (582.1) | | | $ | (378.5) | | | $ | — | | | $ | (845.1) | | | $ | 8.1 | | | $ | (837.0) | |
| Net loss | | | | | | | (581.4) | | | | | | | | | (581.4) | | | (4.2) | | | (585.6) | |
| Other comprehensive loss | | | | | | | | | | | 18.5 | | | | | 18.5 | | | 5.9 | | | 24.4 | |
| Share-based compensation issued | 1.2 | | | 1.5 | | | (1.5) | | | | | | | | | | | — | | | | | — | |
| Share-based compensation expense | | | | | 13.4 | | | | | | | | | | | 13.4 | | | | | 13.4 | |
| | | | | | | | | | | | | | | | | | | |
| Treasury shares (0.4 shares) | | | | | | | | | (3.5) | | | | | | | (3.5) | | | | | (3.5) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Distributions to noncontrolling interest holders, net | | | | | | | (2.9) | | | | | | | | | (2.9) | | | — | | | (2.9) | |
| Equity warrants | | | | | | | | | | | | | 20.1 | | | 20.1 | | | | | 20.1 | |
| | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2022 | 95.8 | | | $ | 119.8 | | | $ | 831.5 | | | $ | (1,406.7) | | | $ | (585.6) | | | $ | (360.0) | | | $ | 20.1 | | | $ | (1,380.9) | | | $ | 9.8 | | | $ | (1,371.1) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Shares | | | | | | | | Accumulated Other Comprehensive Income (Loss) | | Total Diebold Nixdorf, Incorporated Shareholders' Equity | | | | |
| | Number | | $1.25 Par Value | | Additional Capital | | Retained Earnings | | Treasury Shares | | | | Non-controlling Interests | | Total Equity |
| Balance, January 1, 2015 | 79.2 |
| | $ | 99.0 |
| | $ | 418.0 |
| | $ | 762.2 |
| | $ | (557.2 | ) | | $ | (190.5 | ) | | $ | 531.5 |
| | $ | 23.3 |
| | $ | 554.8 |
|
| Net income (loss) | | | | | | | 73.7 |
| | | | | | 73.7 |
| | 1.7 |
| | 75.4 |
|
| Other comprehensive income (loss) | | | | | | | | | | | (127.6 | ) | | (127.6 | ) | | 1.5 |
| | (126.1 | ) |
| Stock options exercised | 0.1 |
| | 0.2 |
| | 3.3 |
| | | | | | | | 3.5 |
| | | | 3.5 |
|
| Share-based compensation issued | 0.4 |
| | 0.4 |
| | (0.4 | ) | | | | | | | | — |
| | | | — |
|
| Income tax detriment from share-based compensation | | | | | (2.5 | ) | | | | | | | | (2.5 | ) | | | | (2.5 | ) |
| Share-based compensation expense | | | | | 12.4 |
| | | | | | | | 12.4 |
| | | | 12.4 |
|
| Dividends paid | | | | | | | (75.6 | ) | | | | | | (75.6 | ) | | | | (75.6 | ) |
| Treasury shares (0.1 shares) | | | | | | | | | (3.0 | ) | | | | (3.0 | ) | | | | (3.0 | ) |
| Distributions to noncontrolling interest holders, net | | | | | | | | | | | | | — |
| | (3.4 | ) | | (3.4 | ) |
| Balance, December 31, 2015 | 79.7 |
| | $ | 99.6 |
| | $ | 430.8 |
| | $ | 760.3 |
| | $ | (560.2 | ) | | $ | (318.1 | ) | | $ | 412.4 |
| | $ | 23.1 |
| | $ | 435.5 |
|
| Net income (loss) | | | | | | | (33.0 | ) | | | | | | (33.0 | ) | | 6.0 |
| | (27.0 | ) |
| Other comprehensive income (loss) | | | | | | | | | | | (23.2 | ) | | (23.2 | ) | | 3.2 |
| | (20.0 | ) |
| Stock options exercised | — |
| | — |
| | 0.3 |
| | | | | | | | 0.3 |
| | | | 0.3 |
|
| Share-based compensation issued | 0.3 |
| | 0.4 |
| | (0.4 | ) | | | | | | | | — |
| | | | — |
|
| Income tax detriment from share-based compensation | | | | | (0.2 | ) | | | | | | | | (0.2 | ) | | | | (0.2 | ) |
| Share-based compensation expense | | | | | 22.2 |
| | | | | | | | 22.2 |
| | | | 22.2 |
|
| Dividends paid | | | | | | | (64.6 | ) | | | | | | (64.6 | ) | | | | (64.6 | ) |
| Treasury shares (0.1 shares) | | | | | | | | | (2.2 | ) | | | | (2.2 | ) | | | | (2.2 | ) |
| Sale of equity interest |
| |
| |
| |
| |
| |
| | — |
| | 7.1 |
| | 7.1 |
|
| Reclassification of guaranteed dividend to accrued liabilities |
| |
| |
| |
| |
| |
| | — |
| | (5.7 | ) | | (5.7 | ) |
| Distribution noncontrolling interest holders, net |
| |
| |
| |
| |
| |
| | — |
| | (8.2 | ) | | (8.2 | ) |
| Acquired fair value of noncontrolling interest |
| |
| |
| |
| |
| |
| | — |
| | 407.9 |
| | 407.9 |
|
| Acquisition of Diebold Nixdorf AG | 9.9 |
| | 12.4 |
| | 267.3 |
| |
| |
| |
| | 279.7 |
| | — |
| | 279.7 |
|
| Balance, December 31, 2016 | 89.9 |
| | $ | 112.4 |
| | $ | 720.0 |
| | $ | 662.7 |
| | $ | (562.4 | ) | | $ | (341.3 | ) | | $ | 591.4 |
| | $ | 433.4 |
| | $ | 1,024.8 |
|
| Net income (loss) | | | | | | | (233.1 | ) | | | | | | (233.1 | ) | | 27.6 |
| | (205.5 | ) |
| Other comprehensive income (loss) | | | | | | | | | | | 145.0 |
| | 145.0 |
| | 5.9 |
| | 150.9 |
|
| Stock options exercised | — |
| | — |
| | 0.3 |
| | | | | | | | 0.3 |
| | | | 0.3 |
|
| Share-based compensation issued | 0.6 |
| | 0.8 |
| | (0.7 | ) | | | | | | | | 0.1 |
| | | | 0.1 |
|
| Share-based compensation expense | | | | | 33.9 |
| | | | | | | | 33.9 |
| | | | 33.9 |
|
| Dividends paid | | | | | | | (30.6 | ) | | | | | | (30.6 | ) | | | | (30.6 | ) |
| Treasury shares (0.2 shares) | | | | | | | | | (5.0 | ) | | | | (5.0 | ) | | | | (5.0 | ) |
| Reclassification of guaranteed dividend to accrued liabilities | | | | | | | | | | | | | — |
| | (24.6 | ) | | (24.6 | ) |
| Reclassification to redeemable noncontrolling interest | | | | | (32.0 | ) | | | | | | | | (32.0 | ) | | (386.7 | ) | | (418.7 | ) |
| Distributions to noncontrolling interest holders, net | | | | | | |
| | | | | | — |
| | (18.8 | ) | | (18.8 | ) |
| Balance, December 31, 2017 | 90.5 |
| | $ | 113.2 |
| | $ | 721.5 |
| | $ | 399.0 |
| | $ | (567.4 | ) | | $ | (196.3 | ) | | $ | 470.0 |
| | $ | 36.8 |
| | $ | 506.8 |
|
Comprehensive income (loss) attributable to noncontrolling interests of $1.5 for the year ended December 31, 2015 is net of a $2.1 Venezuela noncontrolling interest adjustment for the year ended December 31, 2015 to reduce the carrying value to the estimated fair market value.
See accompanying notes to consolidated financial statements.
5550
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Cash flow from operating activities | | | | | |
| Net loss | $ | (585.6) | | | $ | (78.1) | | | $ | (267.8) | |
| Adjustments to reconcile net loss to cash provided (used) by operating activities: | | | | | |
| Depreciation | 29.8 | | | 46.4 | | | 73.7 | |
| Amortization | 26.6 | | | 24.5 | | | 23.8 | |
| Amortization of Wincor Nixdorf purchase accounting intangible assets | 69.6 | | | 78.2 | | | 82.9 | |
| Amortization of deferred financing costs into interest expense | 15.5 | | | 17.3 | | | 45.4 | |
| | | | | |
| Share-based compensation | 13.4 | | | 13.8 | | | 14.9 | |
| Net pension settlements | 10.1 | | | — | | | — | |
| Debt prepayment costs | — | | | — | | | 67.2 | |
| Other | 3.1 | | | — | | | (12.3) | |
| Loss (gain) on sale of assets, net | (5.1) | | | 3.1 | | | 11.5 | |
| Impairment of assets | 111.8 | | | 1.3 | | | 7.5 | |
| Deferred income taxes | 92.9 | | | (12.6) | | | (27.1) | |
| | | | | |
| | | | | |
| | | | | |
| Changes in certain assets and liabilities | | | | | |
| Trade receivables | (49.4) | | | 16.4 | | | (19.7) | |
| Inventories | (74.5) | | | (84.8) | | | (14.8) | |
| | | | | |
| Sales tax and net value added tax | 17.5 | | | (15.2) | | | 0.9 | |
| Income taxes | 2.0 | | | (5.3) | | | (23.1) | |
| | | | | |
| Accounts payable | (66.5) | | | 241.4 | | | 10.6 | |
| Deferred revenue | 140.6 | | | (9.1) | | | 20.2 | |
| Accrued salaries, wages and commissions | (72.5) | | | (19.4) | | | (1.3) | |
| Restructuring | 9.4 | | | (25.4) | | | 18.0 | |
| Warranty liability | (7.3) | | | 0.3 | | | (5.6) | |
| | | | | |
| Pension and other post-retirement benefits | (19.5) | | | (13.0) | | | (14.7) | |
| Certain other assets and liabilities | (49.8) | | | (56.5) | | | 27.8 | |
| Net cash provided (used) by operating activities | (387.9) | | | 123.3 | | | 18.0 | |
| Cash flow from investing activities | | | | | |
| | | | | |
| Proceeds from divestitures, net of cash divested | 10.5 | | | 1.1 | | | (37.0) | |
| Proceeds from settlement of corporate-owned life insurance policies | — | | | — | | | 15.6 | |
| | | | | |
| Proceeds from maturities of investments | 414.1 | | | 287.7 | | | 214.6 | |
| Payments for purchases of investments | (401.3) | | | (288.4) | | | (241.3) | |
| Proceeds from sale of assets | 6.0 | | | 1.7 | | | 10.2 | |
| Capital expenditures | (24.4) | | | (20.2) | | | (27.5) | |
| Capitalized software development | (28.7) | | | (31.1) | | | (17.2) | |
| | | | | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Cash flow from operating activities | | | | | |
| Net income (loss) | $ | (205.5 | ) | | $ | (27.0 | ) | | $ | 75.4 |
|
| Income from discontinued operations, net of tax | — |
| | 143.7 |
| | 15.9 |
|
| Income (loss) from continuing operations, net of tax | (205.5 | ) | | (170.7 | ) | | 59.5 |
|
| Adjustments to reconcile net income (loss) to cash provided by operating activities: | | | | | |
| Depreciation and amortization | 252.2 |
| | 134.8 |
| | 64.0 |
|
| Share-based compensation expense | 33.9 |
| | 22.2 |
| | 12.4 |
|
| Impairment of assets | 3.1 |
| | 9.8 |
| | 18.9 |
|
| Deferred income taxes | 16.6 |
| | (94.6 | ) | | (40.1 | ) |
| Other | 3.5 |
| | (13.6 | ) | | (0.1 | ) |
| Cash flow from changes in certain assets and liabilities, net of the effects of acquisitions | | | | | |
| Trade receivables | 23.2 |
| | 100.9 |
| | (56.4 | ) |
| Inventories | 17.7 |
| | 124.3 |
| | (51.2 | ) |
| Income taxes | (37.3 | ) | | (51.7 | ) | | (16.0 | ) |
| Accounts payable | (6.3 | ) | | (112.1 | ) | | 57.6 |
|
| Deferred revenue | 26.0 |
| | 61.6 |
| | (14.7 | ) |
| Restructuring accrual | (33.5 | ) | | 88.0 |
| | (3.5 | ) |
| Warranty liability | (34.2 | ) | | (42.2 | ) | | (13.8 | ) |
| Pension and other post-retirement benefits | (25.0 | ) | | (16.6 | ) | | (20.9 | ) |
| Certain other assets and liabilities | 2.7 |
| | (0.8 | ) | | 36.4 |
|
| Net cash provided (used) by operating activities - continuing operations | 37.1 |
| | 39.3 |
| | 32.1 |
|
| Net cash provided (used) by operating activities - discontinued operations | — |
| | (10.6 | ) | | 5.1 |
|
| Net cash provided (used) by operating activities | 37.1 |
| | 28.7 |
| | 37.2 |
|
| | | | | | |
| Cash flow from investing activities | | | | | |
| Payments for acquisitions, net of cash acquired | (5.6 | ) | | (884.6 | ) | | (59.4 | ) |
| Proceeds from maturities of investments | 296.2 |
| | 225.0 |
| | 176.1 |
|
| Payments for purchases of investments | (329.8 | ) | | (243.5 | ) | | (125.5 | ) |
| Proceeds from divestitures and the sale of assets | 20.9 |
| | 31.3 |
| | 5.0 |
|
| Capital expenditures | (69.4 | ) | | (39.5 | ) | | (52.3 | ) |
| Increase in certain other assets | (41.1 | ) | | (28.2 | ) | | (6.3 | ) |
| Proceeds from sale of foreign currency option and forward contracts, net | — |
| | 16.2 |
| | — |
|
| Net cash provided (used) by investing activities - continuing operations | (128.8 | ) | | (923.3 | ) | | (62.4 | ) |
| Net cash provided (used) by investing activities - discontinued operations | — |
| | 361.9 |
| | (2.5 | ) |
| Net cash provided (used) by investing activities | $ | (128.8 | ) | | $ | (561.4 | ) | | $ | (64.9 | ) |
See accompanying notes to consolidated financial statements.
5651
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| | | | | | | | | | | | | | | | | |
| Net cash provided (used) by investing activities | (23.8) | | | (49.2) | | | (82.6) | |
| Cash flow from financing activities | | | | | |
| | | | | |
| Debt issuance costs | (15.7) | | | — | | | (26.4) | |
| Debt prepayment costs | — | | | — | | | (67.2) | |
| Revolving credit facility borrowings (repayments), net | 121.0 | | | 0.9 | | | 60.1 | |
| Other debt borrowings | 386.1 | | | 11.2 | | | 1,107.8 | |
| Other debt repayments | (131.0) | | | (19.4) | | | (1,049.9) | |
| | | | | |
| (Distributions to) / Contributions from noncontrolling interest holders | (2.8) | | | 11.4 | | | (0.9) | |
| | | | | |
| Other | (7.8) | | | (7.7) | | | (6.6) | |
| Net cash provided (used) by financing activities | 349.8 | | | (3.6) | | | 16.9 | |
| Effect of exchange rate changes on cash and cash equivalents | (8.2) | | | (5.7) | | | (3.2) | |
| Change in cash, cash equivalents and restricted cash | (70.1) | | | 64.8 | | | (50.9) | |
| Add: Cash included in assets held for sale at beginning of year | 3.1 | | | 2.7 | | | 97.2 | |
| Less: Cash included in assets held for sale at end of year | 2.8 | | | 3.1 | | | 2.7 | |
| Cash, cash equivalents and restricted cash at the beginning of the year | 388.9 | | | 324.5 | | | 280.9 | |
| Cash, cash equivalents and restricted cash at the end of the year | $ | 319.1 | | | $ | 388.9 | | | $ | 324.5 | |
| Cash paid for | | | | | |
| Income taxes | 33.1 | | | 42.3 | | | 43.8 | |
| Interest | 231.6 | | | 175.1 | | | 138.1 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Cash flow from financing activities | | | | | |
| Dividends paid | $ | (30.6 | ) | | $ | (64.6 | ) | | $ | (75.6 | ) |
| Debt issuance costs | (1.1 | ) | | (39.2 | ) | | (6.0 | ) |
| Revolving debt borrowings (repayments), net | 75.0 |
| | (178.0 | ) | | 155.8 |
|
| Other debt borrowings | 374.1 |
| | 1,837.7 |
| | 135.8 |
|
| Other debt repayments | (458.8 | ) | | (662.5 | ) | | (168.7 | ) |
| Distributions to noncontrolling interest holders | (17.6 | ) | | (10.2 | ) | | (0.1 | ) |
| Issuance of common shares | 0.3 |
| | 0.3 |
| | 3.5 |
|
| Repurchase of common shares | (5.0 | ) | | (2.2 | ) | | (3.0 | ) |
| Net cash provided (used) by financing activities | (63.7 | ) | | 881.3 |
| | 41.7 |
|
| Effect of exchange rate changes on cash | 37.9 |
| | (8.0 | ) | | (23.9 | ) |
| Increase (decrease) in cash and cash equivalents | (117.5 | ) | | 340.6 |
| | (9.9 | ) |
| Add: Cash overdraft included in assets held for sale at beginning of year | — |
| | (1.5 | ) | | (4.1 | ) |
| Less: Cash overdraft included in assets held for sale at end of year | — |
| | — |
| | (1.5 | ) |
| Cash and cash equivalents at the beginning of the year | 652.7 |
| | 313.6 |
| | 326.1 |
|
| Cash and cash equivalents at the end of the year | $ | 535.2 |
| | $ | 652.7 |
| | $ | 313.6 |
|
| Cash paid for | | | | | |
| Income taxes | $ | 78.2 |
| | $ | 83.8 |
| | $ | 64.8 |
|
| Interest | $ | 99.9 |
| | $ | 85.4 |
| | $ | 32.6 |
|
See accompanying notes to consolidated financial statements.
5752
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of DecemberDECEMBER 31, 20172021
(in millions, except per share amounts)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include the accounts of Diebold Nixdorf, Incorporated and its wholly- and majority-owned subsidiaries (collectively, the Company). All significant intercompany accounts and transactions have been eliminated, including common control transfers among subsidiaries of the Company.
Use of Estimates in Preparation of Consolidated Financial Statements.The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include revenue recognition, the valuation of trade and financing receivables, inventories, goodwill, intangible assets, other long-lived assets, legal contingencies, guarantee obligations and assumptions used in the calculation of income taxes, pension and other post-retirement benefits and customer incentives, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors. Management monitors the economic condition and other factors and will adjust such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.
Reclassifications. The Company has reclassified the presentation of certain prior-year information to conform to the current presentation.
International Operations.The financial statements of the Company’s international operations are measured using local currencies as their functional currencies, with the exception of certain financial results from Venezuela, Mexico, Argentina, Singapore, El Salvador, and Switzerland, which have a functional currency other than local currency. These operations used either USDUnited States dollar (USD) or euro as their functional currency depending on the concentration of USD or euro transactions and distinct financial information. The Company translates the assets and liabilities of its non-U.S. subsidiaries at the exchange rates in effect at year end and the results of operations at the average rate throughout the year. The translation adjustments are recorded directly as a separate component of shareholders’ equity, while transaction gains (losses) are included in net income.income (loss).
Venezuelan Currency Devaluation. In 2015, the Company's Venezuelan operations consisted of a fifty-percent owned subsidiary, which was consolidated. Venezuela financial results were measured using the USD as its functional currency because its economy is considered highly inflationary. On March 24, 2014, the Venezuelan government announced a currency exchange mechanism, SICAD 2, which yielded an exchange rate significantly higher than the rates established through the other regulated exchange mechanisms. On February 10, 2015, the Venezuela government introduced a new foreign currency exchange platform called the Marginal Currency System, or SIMADI, which replaced the SICAD 2 mechanism, yielding a significant increase in the exchange rate. As of March 31, 2015, management determined it was unlikely that the Company would be able to convert bolivars under a currency exchange other than SIMADI and remeasured its Venezuela balance sheet using the SIMADI rate of 192.95 compared to the previous SICAD 2 rate of 50.86, which resulted in a loss of $7.5 recorded within foreign exchange gain (loss), net in the consolidated statements of operations in the first quarter of 2015.
As of March 31, 2015, the Company agreed to sell its equity interest in its Venezuela joint venture to its joint venture partner and recorded impairment charges of $18.6 and an additional $0.4 related to uncollectible accounts receivable which is included in selling and administrative expenses on the consolidated statements of operations during 2015.
Acquisitions and Divestitures. Acquisitions are accounted for using the purchase method of accounting. This method requires the Company to record assets and liabilities of the business acquired at their estimated fair market values as of the acquisition date. Any excess cost of the acquisition over the fair value of the net assets acquired is recorded as goodwill. The Company generally uses valuation specialists to perform appraisals and assist in the determination of the fair values of the assets acquired and liabilities assumed. These valuations require management to make estimates and assumptions that are critical in determining the fair values of the assets and liabilities.
For all divestitures, the Company considers assets to be held for sale when management approves and commits to a formal plan to actively market the assets for sale at a price reasonable in relation to their estimated fair value, the assets are available for immediate sale in their present condition, an active program to locate a buyer and other actions required to complete the sale have been initiated, the sale of the assets is probable and expected to be completed within one year (or, if it is expected that others will impose conditions on the sale of the assets that will extend the period required to complete the sale, that a firm purchase commitment is probable within one year) and it is unlikely that significant changes will be made to the plan. Upon designation as held for sale, the Company records the assets at the lower of their carrying value or their estimated fair value, reduced for the cost to dispose of the assets, and ceases to record depreciation expense on the assets.
The Company reports financial results for discontinued operations separately from continuing operations to distinguish the financial impact of a divestiture from ongoing operations. Discontinued operations reporting occurs only when the disposal of a component
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
or a group of components of the Company represents a strategic shift that will have a major effect on the Company's operations and financial results. During the year ended December 31, 2015, management of the Company, through receipt in October 2015 of the required authorization from its Board of Directors after a potential buyer had been identified, committed to a plan to divest its NA ES business. As such, all of the criteria required for held for sale and discontinued operations classification were met during the fourth quarter of 2015. The divestiture of its NA ES business closed on February 1, 2016. Accordingly, the assets and liabilities, operating results and operating and investing cash flows for are presented as discontinued operations separate from the Company’s continuing operations for all periods presented. All assets and liabilities classified as held for sale are included in total current assets based on the cash conversion of these assets and liabilities within one year (refer to note 23).
Assets and liabilities of a discontinued operation are reclassified as held for sale for all comparative periods presented in the consolidated balance sheet. The results of operations of a discontinued operation are reclassified to income from discontinued operations, net of tax, for all periods presented. For assets that meet the held for sale criteria but do not meet the definition of a discontinued operation, the Company reclassifies the assets and liabilities in the period in which the held for sale criteria are met, but does not reclassify prior period amounts.met.
Realignment. In August 2016, in connection with the business combination agreement related to the Acquisition, the Company announced the realignment of its lines of business to drive greater efficiency and further improve customer service. During the first quarter of 2017, the Company reorganized the management team reporting to the CODM and evaluated and assessed the LOB reporting structure. The Company's reportable operating segments are based on the following three LOBs: Services, Systems, and Software. As a result, the Company reclassified comparative periods for consistency. The presentation of comparative periods also reflects the reclassification of certain global manufacturing administration expenses from corporate charges not allocated to segments to segment operating profit.
Reclassification. The Company has reclassified the presentation of certain prior-year information to conform to the current presentation. The Company adopted FASB Accounting Standards Update (ASU) 2016-09, Compensation, - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, at the beginning of 2017 and accordingly, retrospectively reclassified excess tax benefits from share-based compensation from financing activities to operating activities included in the consolidated statements of cash flows all comparable periods presented.
Revenue Recognition. The Company’s revenue recognition policy is consistent with the requirements of ASC 605. In general, the Company records revenue when it is realized, or realizable and earned. The Company considers revenue to be realized, or realizable and earned when, persuasive evidence of an arrangement exists, the products or services have been approved by the customer after delivery and/or installation acceptance or performance of services; the sales price is fixed or determinable within the contract; and collectability is reasonably assured. The Company's products include both hardware and the software required for the equipment to operate as intended, and for product sales, the Company determines the earnings process is complete when title, risk of loss and the right to use the product has transferred to the customer. Generally, the earnings process is completed upon customer acceptance. Where the Company is contractually responsible for installation, customer acceptance occurs upon completion of the installation of all equipment at a job site and the Company’s demonstration that the equipment is in operable condition. Where the Company is not contractually responsible for installation, customer acceptance occurs upon shipment or delivery to a customer location depending on the terms within the contract. Internationally, customer acceptance is upon delivery or completion of the installation depending on the terms in the contract with the customer.
The application of ASC 605 to the Company's customer contracts requires judgment, including the determination of whether an arrangement includes multiple deliverables such as hardware, software, maintenance and/or other services. For contracts that contain multiple deliverables, total arrangement consideration is allocated at the inception of the arrangement to each deliverable based on the relative selling price method. The relative selling price method is based on a hierarchy consisting of VSOE (price when sold on a stand-alone basis), if available, or TPE, if VSOE is not available, or ESP if neither VSOE nor TPE is available. The Company's ESP is consistent with the objective of determining VSOE, which is the price at which we would expect to transact on a stand-alone sale of the deliverable. The determination of ESP is based on applying significant judgment to weigh a variety of company-specific factors including our pricing practices, customer volume, geography, internal costs and gross margin objectives, information gathered from experience in customer negotiations, recent technological trends, and competitive landscape. In contracts that involve multiple deliverables with separately priced extended warranty and product maintenance, these services are typically accounted for under FASB ASC 605-20, Separately Priced Extended Warranty and Product Maintenance Contracts where stated price is recognized ratably over the period.
The Company recognizes financing lease income on the interest method to produce a level yield on funds not yet recovered. Estimated unguaranteed residual values are based upon management’s best estimate and value of the leased asset at the end of the lease term. We use various sources of data in determining this estimate, including information obtained from third parties which is adjusted for the attributes of the specific asset under lease.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022, the Company had $7.9 and $6.8 of current assets and liabilities held for sale, respectively, related to a non-core retail business in Europe. As of December 31, 2021, the Company had $73.4 and $20.3 of current assets and liabilities held for sale, respectively, primarily related to non-core businesses in Europe.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Revenue from certain long-term contracts is accounted for under the percentage of completion method, and recognizes revenue and gross profit as work on certain long-term contracts progresses, which relies on estimates of total expected contract revenues and costs. The Company follows this method since reasonably dependable estimatesRecognition. Refer to Note 21 of the revenue and costs applicable to various stagesconsolidated financial statements.
Cost of a contract can be made. Since the financial reporting of these contracts depends on estimates, which are assessed continually during the term of the contract, recognized revenues and profit are subject to revisions as the contract progresses toward completion. Revisions in profit estimates are reflected in the period in which the facts that give rise to the revision become known. Accordingly, favorable changes in estimates result in additional profit recognition, and unfavorable changes will result in the reversal of previously recognized revenue and profits. When estimates indicate a loss is expected to be incurred under a contract, costSales. Cost of sales is charged with a provision for the full loss immediately. As work progresses under a loss contract, revenueservices primarily consists of fuel, parts and cost of sales continue to be recognized in equal amounts, and the excess of costs over revenues is charged to the contract loss reserve. Change orders resulting in additional revenue and profit are recognized upon approval by the customer based on the percentage that incurred costs to date bear to total estimated costs at completion. Pre-contract costs relate primarily to salarieslabor and benefits incurred to support the selling effort and, accordingly, are expensed as incurred. Certain contracts include incentive-fee arrangements clearly defined in the agreement and are not recognized until earned. The percentage of completion method of accounting is primarily used in software arrangements that include professional services. The total amount of revenue accounted for by the percentage of completion method is de minimus.
For software sales, excluding software required for the equipment to operate as intended, the Company applies the software revenue recognition principles within FASB ASC 985-605, Software - Revenue Recognition. For software and software-related deliverables (software elements), the Company allocates revenue based upon the relative fair value of these software elements as determined by VSOE. If the Company cannot obtain VSOE for any undelivered software element, revenue is deferred until all deliverables have been delivered or until VSOE can be determined for any remaining undelivered software elements. When the fair value of a delivered element cannot be established, but fair value evidence exists for the undelivered software elements, the Company uses the residual method to recognize revenue. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement consideration is allocated to the delivered elements and recognized as revenue.
The Company has the following revenue streamscosts related to sales to its customers:
ServicesProduct-related services provided by the Company include proactive monitoringinstallation of products and rapid resolution of incidents through remote service capabilities or an on-site visit. First and second line maintenance preventive maintenance and on-demand services keep the distributed assets of the Company's customers up and running through a standardized incident management process. Managed services and outsourcing consists of the end-to-end business processes, solution management, upgrades and transaction processing. The global service supply chain optimizes the process for obtaining replacement parts, making repairs, and implementing new features and functionality. The Company also provides a full array of cash management services, which optimizes the availability and cost of physical currency across the enterprise through efficient forecasting, inventory and replenishment processes.
SoftwareThe Company provides front end applications for consumer connection points and back end platforms that manage channel transactions, operations and integration. The Company’s hardware-agnostic software applications facilitate millions of transactions via ATMs, POS terminals, kiosks and a host of other self-service devices. The Company’s platform software facilitates omni-channel transactions, endpoint monitoring, remote asset management, marketing, merchandise management and analytics.
The professional services team provides systems integration, customization, consulting and project management. The Company’s advisory services team collaborates with its customers to help define optimal user experience, improve business processes, refine existing staffing models and deploy technology to meet branch automation objectives.
SystemsThe systems portfolio consists of cash recyclers and dispensers, intelligent deposit terminals, teller automation tools, physical security devices, integrated and mobile POS systems. Supplementing the POS system is a broad range of peripherals,contracts, including printers, scales and mobile scanners,call center costs 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.
costs for service parts repair centers. Cost of Sales. Cost ofsales for products sales is primarily comprised of direct materials and supplies consumed in the manufacturing and distribution of products, as well as related labor, depreciation expense and direct overhead expense necessary to acquire and convert the purchased materials and supplies into finished products. Cost of sales for products sales also includes the cost to distribute products to customers, inbound freight costs, internal transfer costs, warehousing costs and other shipping and handling activity. Cost of services sold is primarily consists of fuel, parts
Property, plant and laborequipment and benefits costs related to installation of productslong-lived assets. Property, plant and service maintenance contracts, including call center costs as well as costs for service parts repair centers.
equipment and long-lived assets are recorded at
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Property, plant and equipment and long-lived assets. Property, plant and equipment and long-lived assets are recorded at historical cost, including interest where applicable.
Impairment of property, plant and equipment and long-lived assets is recognized when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the expected future undiscounted cash flows are less than the carrying amount of the asset, an impairment loss is recognized at that time to reduce the asset to the lower of its fair value or its net book value. The Company tests all existing indefinite-lived intangibles at least annually for impairment as of October 31.
Depreciation and Amortization. Depreciation of property, plant and equipment is computed using the straight-line method based on the estimated useful life for each asset class. Amortization of leasehold improvements is based upon the shorter of original terms of the lease or life of the improvement. Repairs and maintenance are expensed as incurred. Generally.Generally, amortization of the Company’s other long-term assets, such as intangible assets and capitalized computer software development, is computed using the straight-line method over the life of the asset. Certain technology assets related to the Acquisition utilize a double-declining method.
Fully depreciated assets are retained until disposal. Upon disposal, assets and related accumulated depreciation or amortization are removed from the accounts and the net amount, less proceeds from disposal, is charged or credited to operations.
Advertising Costs. Advertising costs are expensed as incurred and were $11.0, $14.0$8.5, $7.1 and $11.6$7.2 in 2017, 20162022, 2021 and 2015,2020, respectively.
Research, Development and Engineering. Research, development and engineering costs are expensed as incurred and were $155.5, $110.2$120.7, $126.3 and $86.9$133.4 for the years ended December 31, 2022, 2021 and 2020, respectively. This excludes certain software development costs of $28.7, $31.1, and $17.2 in 2017, 20162022, 2021 and 2015, respectively.2020, respectively, which are capitalized after technological feasibility of the software is established.
Shipping and Handling Costs. The Company recognizes shipping and handling fees billed when products are shipped or delivered to a customer and includes such amounts in net sales. Third-party freight payments are recorded in cost of sales.
Taxes on Income. Deferred taxes are provided on an asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences, operating loss carry-forwards and tax credits. Deferred tax liabilities are recognized for taxable temporary differences and undistributed earnings in certain tax jurisdictions. Deferred tax assets are reduced by a valuation allowance when, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Determination of a valuation allowance involves estimates regarding the timing and amount of the reversal of taxable temporary differences, expected future taxable income and the impact of tax planning strategies. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The Company regularly assesses its position with regard to tax exposures and records liabilities for these uncertain tax positions and related interest and penalties, if any, when the tax benefit is not more likely than not realizable. The Company has recorded an accrual that reflects the recognition and measurement process for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. Additional future income tax expense or benefit may be recognized once the positions are effectively settled.
Sales Tax. The Company collects sales taxes from customers and accounts for sales taxes on a net basis.
Cash, Equivalents.Cash Equivalents and Restricted Cash.The Company considers highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. As of December 31, 2017, theThe Company had $8.0$9.1 and $0.0 of restricted cash in connection with the realigning its operations in China which has been included in other current assets.at December 31, 2022 and 2021, respectively.
Financial Instruments. The carrying amount of cash and cash equivalents, short termshort-term investments, trade receivables and accounts payable approximated their fair value because of the relatively short maturity of these instruments. The Company’s risk-management strategy usesallows for derivative financial instruments such as forwards to hedge certain foreign currency exposures and interest rate swaps to manage interest rate risk. The intent is to offset gains and losses that occur on the underlying exposures, with gains and losses on the derivative contracts hedging these exposures. The Company does not enter into derivatives for trading purposes. The Company recognizes all derivatives on the balance sheet at fair value. Changes in the fair values of derivatives that are not designated as hedges are recognized in earnings. If the derivative is designated and qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives are either offset against the change in the hedged assets or liabilities through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Fair Value. The Company measures its financial assets and liabilities using one or more of the following three valuation techniques:
|
| | | | | | | |
| Valuation technique | | Description |
| Market approach | | Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. |
| Cost approach | | Amount that would be required to replace the service capacity of an asset (replacement cost). |
| Income approach | | Techniques to convert future amounts to a single present amount based upon market expectations. |
The hierarchy that prioritizes the inputs to valuation techniques used to measure fair value is divided into three levels:
|
| | | | | | | |
| Fair value level | | Description |
| Level 1 | | Unadjusted quoted prices in active markets for identical assets or liabilities.
Fair value of investments categorized as level 1 are determined based on period end closing prices in active markets. Mutual funds are valued at their net asset value (NAV) on the last day of the period. |
| Level 2 | | Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or inputs, other than quoted prices in active markets, that are observable either directly or indirectly.
Fair value of investments categorized as level 2 are determined based on the latest available ask price or latest trade price if listed. The fair value of unlisted securities is established by fund managers using the latest reported information for comparable securities and financial analysis. If the manager believes the fund is not capable of immediately realizing the fair value otherwise determined, the manager has the discretion to determine an appropriate value. Common collective trusts are valued at NAV on the last day of the period. |
| Level 3 | | Unobservable inputs for which there is little or no market data. |
| Net asset value | | Fair value of investments categorized as NAV represent the plan’s interest in private equity, hedge and property funds. The fair value for these assets is determined based on the NAV as reported by the underlying investment managers. |
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company uses the end of the period when determining the timing of transfers between levels.
Short-Term Investments The Company has investments in certificates of deposit that are recorded at cost, which approximates fair value.
Assets Held in Rabbi Trusts / Deferred CompensationThe fair value of the assets held in rabbi trusts (refer to note 8 and 15)Note 7 of the consolidated financial statements) is derived from investments in a mix of money market, fixed income and equity funds managed by Bank of America/Merrill Lynch.funds. The related deferred compensation liability is also recorded at fair value.
Foreign Exchange Contracts The valuation of foreign exchange forward and option contracts is determined using valuation techniques, including option models tailored for currency derivatives. These contracts are valued using the market approach based on observable market inputs. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including spot rates, foreign currency forward rates, the interest rate curve of the domestic currency, and foreign currency volatility for the given currency pair.
Forward Contracts A substantial portion of the Company’s operations and revenues are international. As a result, changes in foreign exchange rates can create substantial foreign exchange gains and losses from the revaluation of non-functional currency monetary assets and liabilities.
Option Contracts A put option gives the purchaser of the option the right to sell, and the writer of the option the obligation to buy, the underlying security at any time during the option period. A call option gives the purchaser of the option the right to buy, and the writer of the option the obligation to sell, the underlying security at any time during the option period. These foreign exchange option contracts are non-designated and are included in other current assets or other current liabilities based on the net asset or net liability position, respectively, in our consolidated balance sheets. The gain or loss on these non-designated derivative instruments is reflected in other income (expense) miscellaneous, net in our consolidated statements of operations. Changes in foreign exchange rates between the U.S dollar and euro can create substantial gains and losses from the revaluation of the derivative instrument.
Interest Rate Swaps 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.
Assets and Liabilities Not Measured at Fair Value on a Recurring BasisIn additionRefer to Note 19 of the consolidated financial statements for further details of assets and liabilities that are measured atsubject to fair value on a recurring basis, the Company also measures certain assets and liabilities at fair value on a nonrecurring basis. Our non-financial assets, including goodwill, intangible assets and property, plant and equipment, are measured at fair value when there is an indication of impairment. These assets are recorded at fair value, determined using level 3 inputs, only when an impairment charge is recognized. Further details regarding the Company's goodwill impairment review appear in note 13.
measurement.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Assets and Liabilities Recorded at Carrying Value The fair value of the Company’s cash and cash equivalents, trade receivables and accounts payable, approximates the carrying value due to the relative short maturity of these instruments.
Refer to note 20 for further details of assets and liabilities subject to fair value measurement.
Trade Receivables.The Company evaluatesrecords the collectability oflifetime expected loss on uncollectible trade receivables based on historical loss experience as a percentage of sales related to historical loss experience and makes adjustments as necessary based on current trends. The Company will also record periodic adjustments for known events such as specific customer circumstances and changes in the aging of accounts receivable balances. After all efforts at collection have been unsuccessful, the account is deemed uncollectible and is written off.
The following table summarizes the Company’s allowances for doubtful accounts:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Balance at January 1 | $ | 35.3 | | | $ | 37.5 | | | $ | 42.2 | |
| Charged to costs and expenses | 14.0 | | | 9.8 | | | 10.1 | |
Charged to other accounts (1) | (0.1) | | | — | | | (1.2) | |
Deductions (2) | (14.7) | | | (12.0) | | | (13.6) | |
| Balance at December 31 | $ | 34.5 | | | $ | 35.3 | | | $ | 37.5 | |
(1) Includes net effects of foreign currency translation
(2)Uncollectible accounts written-off, net of recoveries.
Financing Receivables. The Company evaluatesrecords the collectability oflifetime expected loss on uncollectible notes and finance lease receivables (collectively, financing receivables) on a customer-by-customer basis and evaluates specific customer circumstances, aging of invoices, credit risk changes, and payment patterns and historical loss experience. When the collectability is determinedexperience with consideration given to be at risk based on the above criteria, the Company records the allowance for credit losses which represents the Company’s current exposure less estimated reimbursement from insurance claims.trends. After all efforts at collection have been unsuccessful, the account is deemed uncollectible and is written off.
Inventories. The Company primarily values inventories using average or standard costing utilizing lower of cost or net realizable value. The standard costs approximate costs determined on a first in, first out basis. The Company identifies and writes down its excess and obsolete inventories to net realizable value based on usage forecasts, order volume and inventory aging. With the development of new products, the Company also rationalizes its product offerings and will write-down discontinued productproducts to the lower of cost or net realizable value.
Deferred Revenue. Deferred revenue is 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, deferred revenue is recorded for products and other deliverables that are billed to and collected from customers prior to revenue being recognizable.
Split-Dollar Life Insurance. The Company recognizes a liability for the post-retirement obligation associated with a collateral assignment arrangement if, based on an agreement with an employee, the Company has agreed to maintain a life insurance policy during the post-retirement period or to provide a death benefit. In addition, the Company recognizes a liability and related compensation costs for future benefits that extend to post-retirement periods.
Goodwill. Goodwill is the cost in excess of the net assets of acquired businesses (refer to note 13).businesses. The Company tests all existing goodwill at least annually for impairment on a reporting unit basis. In 2017 and 2016, theThe annual goodwill impairment test was performed as of October 31.31 for all periods presented.
The Company tests for interim impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the carrying value of a reporting unit below its reported amount. Beginning with the first quarter of 2017, the Company’s reportable operating segments are based on the conclusion of the assessment on the following LOBs: Software, Systems, and Services with comparative period reclassified for consistency. Each year, the Company may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company considers the following events and circumstances, among others, if applicable: (a) macroeconomic conditions such as general economic conditions, limitations on accessing capital or other developments in equity and credit markets; (b) industry and market considerations such as competition, multiples or metrics and changes in the market for the Company's products and services or regulatory and political environments; (c) cost factors such as raw materials, labor or other costs; (d) overall financial performance such as cash flows, actual and planned revenue and earnings compared with actual and projected results of relevant prior periods; (e) other relevant events such as changes in key personnel, strategy or customers; (f) changes in the composition of a reporting unit's assets or expected sales of all or a portion of a reporting unit; and (g) any sustained decrease in share price.
If the Company's qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying value, or if management elects to perform a quantitative assessment of goodwill, a two-stepan impairment test is used to identify potential goodwill impairment and measure the amount of any impairment loss to be recognized. In the first step, theThe Company compares the fair value of each reporting unit with its carrying value and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The fair value of the reporting units is determined based upon a combination of the income valuation and market approach in valuation methodology. The income approach uses discounted estimated future cash flows, whereas the market approach or guideline public company method utilizes market data of similar publicly traded companies. The Company’s Step 1 impairment test of goodwill of a reporting unit is based upon the fair value of the reporting unit is defined as the price that would be received to sell the net assets or transfer the net liabilities in an orderly transaction between market participants at the assessment date. In the event that the net carrying amount exceeds the fair value, a Step 2 test must be performed whereby the fair value of the reporting unit’s goodwill must be estimated to determine if it is less than its net carrying amount. In its two-step test, the Company uses the discounted cash flow method and the guideline
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
company method for determining the fair value of its reporting units. Under these methods, the determination of implied fair value of the goodwill for a particular reporting unit is the excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities in the same manner as the allocation in a business combination.
The techniques used in the Company's qualitativequantitative assessment and, if necessary, two-step impairment test incorporate a number of assumptions that the Company believes to be reasonable and to reflect market conditions forecast at the assessment date. Assumptions in estimating future cash flows are subject to a high degree of judgment. The Company makes all efforts to forecast future cash flows as accurately as possible with the information available at the time the forecast is made. To this end, the Company evaluates the appropriateness of its assumptions as well as its overall forecasts by comparing projected results of upcoming years with actual results of preceding years and validating that differences therein are reasonable. Key assumptions, all ofAssumptions, which areinclude Level 3 inputs, relate to price trends,revenue growth, material and operating costs, and discount rate, customer demand and the long-term growth and foreign exchange rates. A number of benchmarks from independent industry and other economic publications were also used.rate. Changes in assumptions and estimates after the assessment date may lead to an outcome where impairment charges would be required in future periods. Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions.
Contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Legal costs incurred in connection with loss contingencies are expensed as incurred.
Pensions and Other Post-retirement Benefits. Annual net periodic expense and benefit liabilities under the Company’s defined benefit plans are determined on an actuarial basis. Assumptions used in the actuarial calculations have a significant impact on plan obligations and expense. Members of the management investment committeeThe Company periodically review thereviews actual experience compared with the more significant assumptions used and make adjustments to the assumptions, if warranted. The healthcare trend rates are reviewed based upon the results of actual claims experience. The discount rate is determined by analyzing the average return of high-quality (i.e., AA-rated) fixed-income investments and the year-over-year comparison of certain widely used benchmark indices as of the measurement date. The expected long-term rate of return on plan assets is determined using the plans’ current asset allocation and their expected rates of return based on a geometric averaging over 20 years. The rate of compensation increase assumptions reflects the Company’s long-term actual experience and future and near-term outlook. Pension benefits are funded through deposits with trustees or directly by the plan administrator. Other post-retirement benefits are not funded and the Company’s policy is to pay these benefits as they become due.
The Company recognizes the funded status of each of its plans in the consolidated balance sheets. Amortization of unrecognized net gain or loss resulting from experience different from that assumed and from changes in assumptions (excluding asset gains and losses not yet reflected in market-related value) is included as a component of net periodic benefit cost for a year if, as of the beginning of the year, that unrecognized net gain or loss exceeds five percent of the greater of the projected benefit obligation or the market-related value of plan assets. If amortization is required, the amortization is that excess divided by the average remaining service period of participating employees expected to receive benefits under the plan.
The Company records a curtailment when an event occurs that significantly reduces the expected years of future service or eliminates the accrual of defined benefits for the future services of a significant number of employees. A curtailment gain is recorded when the employees who are entitled to the benefits terminate their employment; a curtailment loss is recorded when it becomes probable a loss will occur. Upon a settlement, we recognizethe Company recognizes the proportionate amount of the unamortized gains and losses if the cost of all settlements during the year exceeds the interest component of net periodic cost for the affected plan. Expense from curtailments and settlements is recorded in selling and administrative expense on the consolidated statements of operations.
Noncontrolling Interests and Redeemable Noncontrolling Interests.. Noncontrolling interests represent the portion of profit or loss, net assets and comprehensive income that is not allocable to the Company. During 2017 and 2016, net income attributable to noncontrolling interests primarily represents guaranteed dividends that the Company is obligated to pay to the noncontrolling shareholders of Diebold Nixdorf AG.
Noncontrolling interests with redemption features, such as put rights, that are not solely within the Company’s control are considered redeemable noncontrolling interests. Redeemable noncontrolling interests are presented outside of equity on ourthe Company's consolidated balance sheets. The balance of redeemable noncontrolling interests is reported at the greater of its carrying value or its maximum redemption value at each reporting date. Refer to note 3Note 12 of the consolidated financial statements for more information.
Related Party Transactions. The Company has certain strategic alliances that are not consolidated. The Company's strategic alliances are not significant subsidiaries and are accounted for under the equity method of investments. The Company owns 48.1 percent of Inspur (Suzhou) Financial Information Technology Co., Ltd (Inspur JV) and 49.0 percent of Aisino-Wincor Retail & Banking Systems (Shanghai) Co., Ltd (Aisino JV) as of December 31, 2022. The Company engages in transactions with these entities in the ordinary course of business. As of December 31, 2022, the Company had accounts receivable and accounts payable balances with these affiliates of $18.9 and $25.7, respectively, which is included in trade receivables, less allowances for doubtful accounts and accounts payable, respectively, on the consolidated balance sheets.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Recently Adopted Accounting Guidance
In August 2018, the Financial Accounting Standards Board (FASB) issued guidance on a company's accounting for implementation fees paid in a cloud computing service contract arrangement that addresses which implementation costs to capitalize as an asset and which costs to expense. Capitalized implementation fees are to be expensed over the term of the cloud computing arrangement, and the expense is required to be recognized in the same line item in the income statement as the associated hosting service expenses. The entity is also required to present the capitalized implementation fees on the balance sheet in the same line item as it would present a prepayment for hosting service fees associated with the cloud computing arrangement. Cash payments for cloud computing arrangements (CCA) implementation costs are classified as cash outflows from operating activities.
The effects of the adoption of the ASUs listed below did not significantly impact the Company's financial statements:
|
| | | | | | | | | | | | | |
| Standards Adopted | | Description | | Effective
Date
|
ASU 2015-11, Simplifying2021-05 Leases (Topic 842) Lessors - Certain Leases with Variable Lease Payments | | This Accounting Standard Update (ASU) modifies a lessor's lease classification requirements for leases with variable lease payments. The adoption of this ASU did not have a significant impact on the Measurement of Inventory
Company's consolidated financial statements. | | The standard requires the measurement of inventory at the lower of cost or net realizable value rather than at the lower of cost or market. | | January 1, 2017
2022 |
ASU 2016-05, Effects2021-04 Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity
(Subtopic 815-40) Issuer’s Accounting for Certain Modifications or
Exchanges of Derivative Contract Novations on Existing Hedge Accounting Relationships and ASU 2016-06, Contingent Put andFreestanding Equity-Classified
Written Call Options in Debt Instruments.
| | The standardsThis ASU was designed to provide clarification when there ison accounting for the modification or exchanges of freestanding equity-classified call options that remain equity classified after modification or exchange.The adoption of this ASU did not have a change in a counterparty to a derivative hedging instrument andsignificant impact on the steps required when assessing the economic characteristics of embedded put or call options.Company's consolidated financial statements. | | January 1, 2017
2022 |
ASU 2016-07, Simplifying the Transition2021-08 Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers | | The ASU is designed improve consistency related to Equity Method of Accounting
| | The standard eliminates the requirement to retroactively apply the equity method of accounting as a result of an increase in the level of ownership or degree of influence. | | January 1,
2017
|
ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory
| | This standard requires the recognition of contract assets and liabilities from revenue contracts in a business combination. The adoption of this ASU did not have a significant impact on the income tax effects of intercompany sales and transfers of assets, other than inventory, in the period in which the transfer occurs rather than deferring recognition until the asset is sold to an external party.Company's consolidated financial statements. | | January 1, 20172022 |
ASU 2016-17, Interests Held through Related Parties that Are under Common Control
2021-10 Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance | | This guidance improves the transparency of financial reporting by adding requirements for disclosures related to government assistance. The standard changesadoption of this ASU did not have a significant impact on the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity in certain instances involving entities under common control.Company's consolidated financial statements. | | January 1, 2017
2022 |
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Recently Issued Accounting Guidance
The Company has considered the recentfollowing ASUs were recently issued by the FASB, summarized below, which could significantly impact itsthe Company's financial statements:
| | | | | | | | | | | | | | | | | | | | |
| Standards Pending Adoption | | Description | | Effective/Adoption Date | | Anticipated Impact |
| | | | | | |
| | | | | | |
Standards Pending AdoptionASU 2020-04 Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting | | Description | | Effective/Adoption Date | | Anticipated Impact |
ASU 2014-09, Revenue from Contracts with Customers
| | The standard will replace most existing revenue recognition guidance in U.S.provides optional expedients and exceptions for applying GAAP when it becomes effectiveto contracts, hedges and requires additional financial statement disclosures. The standard requires revenue to be recognized when it expects to be entitled for the transfer of promised goods or services to customers. The standard can be adopted using either a full retrospective or a modified retrospective approach. 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.
| | January 1,
2018
| | The Company has drafted its accounting policy with respect to the standard based on a detailed review of its business and contracts. While the Company continues to assess all potential impacts of the standard, including business processes, systems and controls, it does not currently expectother transaction that the adoption will have a material impact on its recognition of revenues, results of operations or financial position. As required by the standard, the Company expects to make additional disclosures related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company will adopt the standard using the modified retrospective transition method, pursuant to which the cumulative effect of adoption will be reflected in the opening balance of retained earnings. |
ASU 2016-02, Leases
impacted by reference rate reform. | | 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.
March 12, 2020 through December 31, 2024 | | January 1,
2019
| | The Company is currently evaluatingassessing the impact of that the standardthis ASU 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 significant balance sheet gross-up for the right-of-use assets and corresponding liabilities, with no anticipated impact to debt covenants. For additional information on the Company’s operating lease commitments, see Note 16, Leases.
|
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. Early adoption is permitted. | | January 1,
2020 | | The Company is currently evaluating the impact of that the standard will have on its financial statements, related disclosures and whether or not we will early adopt the standard. For additional information on the Company’s goodwill, see Note 13, Goodwill and Other Assets. |
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.
| | January 1,
2018
| | The update will result in the retrospective reclassification of the non-service cost components of net benefit cost from cost of sales, selling, general and administrative, and research and development expenses to other (income) expense, net. There will be no impact on consolidated net income. |
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. | | January 1,
2019 /
January 1,
2018
| | ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. While the Company continues to assess all potential impacts of the standard, we currently expect adoption to have an immaterial impact on our consolidated financial statements.
The ASU allows for early adoption in any year end after issuance of the update. |
| ASU 2022-06 Reference Rate Reform (Topic 848) - Deferral of the Sunset Date of Topic 848 | | The standard defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. | | December 31, 2024 | | The Company does not expect this ASU will have a significant impact on its consolidated financial statements. |
| ASU 2022-04 Liabilities-Supplier Finance Programs | | The standard improves the transparency of financial reporting by adding requirements for disclosures related supplier finance programs. | | January 1, 2023 | | The Company does not expect this ASU will have a significant impact on its consolidated financial statements. |
NOTE 2: ACQUISITIONS
During 2017, the Company acquired all the capital stock of Moxx Group B.V. (Moxx) and certain assets and liabilities of Visio Objekt GmbH (Visio) for $5.6 in the aggregate, net of cash acquired, which are included in the Services 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.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Diebold Nixdorf AG
Diebold Nixdorf AG is one of the world's leading providers of IT solutions and services to retail banks and the retail industry. The Acquisition is consistent with the Company's transformation into a world-class, services-led and software-enabled company, supported by innovative hardware. Diebold Nixdorf AG complements and extends our existing capabilities. The Company considered a number of factors in connection with its evaluation of the transaction, including significant strategic opportunities and potential synergies, as generally supporting its decision to enter into the business combination agreement with Diebold Nixdorf AG. The Acquisition expands the Company's presence substantially, especially in EMEA. The Diebold Nixdorf AG business enhances the Company's existing portfolio.
In the fourth quarter of 2015, the Company announced its intention to acquire all 29.8 Diebold Nixdorf AG (formerly Wincor Nixdorf Aktiengesellschaft) ordinary shares outstanding (33.1 total Diebold Nixdorf AG ordinary shares issued inclusive of 3.3 treasury shares) through a voluntary tender offer for €38.98 in cash and 0.434 common shares of the Company per Diebold Nixdorf AG ordinary share outstanding.
On August 15, 2016, the Company acquired through Diebold Holding Germany Inc. & Co. KGaA (Diebold KGaA), a German partnership limited by shares and a wholly-owned subsidiary of the Company, 22.9 Diebold Nixdorf AG ordinary shares representing 69.2 percent of total number of Diebold Nixdorf AG ordinary shares inclusive of treasury shares (76.7 percent of all Diebold Nixdorf AG ordinary shares outstanding) in exchange for an aggregate purchase price consideration of $1,265.7, which included the issuance of 9.9 common shares of the Company. The Company financed the cash portion of the Acquisition as well as the repayment of Diebold Nixdorf AG debt outstanding with funds available under the Company’s Credit Agreement (as defined in note 14) and proceeds from the issuance and sale of $400.0 aggregate principal amount of the 2024 Senior Notes.
Pursuant to the DPLTA, subject to certain limitations pursuant to applicable law, (i) Diebold KGaA has the ability to issue binding instructions to the management board of Diebold Nixdorf AG, (ii) Diebold Nixdorf AG will transfer all of its annual profits to Diebold KGaA, and (iii) Diebold KGaA will generally absorb all annual losses incurred by Diebold Nixdorf AG. In addition, the DPLTA offers the Diebold Nixdorf AG minority shareholders, at their election, (i) the ability to put their Diebold Nixdorf AG ordinary shares to Diebold KGaA in exchange for cash compensation of €55.02 per Diebold Nixdorf AG ordinary share, or (ii) to remain Diebold Nixdorf AG minority shareholders and receive a recurring compensation in cash of €3.13 (€2.82 net under the current taxation regime) per Diebold Nixdorf AG ordinary share for each full fiscal year of Diebold Nixdorf AG. The ultimate timing and amount of any future cash payments related to the DPLTA are uncertain.
The information included herein has been prepared based on the allocation of the purchase price using estimates of the fair value and useful lives of assets acquired and liabilities assumed which were determined with the assistance of independent valuations using discounted cash flow and comparative market multiple approaches, quoted market prices and estimates made by management.
The aggregate consideration, excluding $110.7 of cash acquired, for the Acquisition was $1,265.7, which consisted of the following:
|
| | | | |
| Cash paid | | $ | 995.3 |
|
| Less: cash acquired | | (110.7 | ) |
| Payments for acquisition, net of cash acquired | | 884.6 |
|
| Common shares issued to Diebold Nixdorf AG shareholders | | 279.7 |
|
| Other consideration | | (9.3 | ) |
| Total consideration, net of cash acquired | | $ | 1,155.0 |
|
Other consideration of $(9.3) represents the preexisting net trade balances the Company owed to Diebold Nixdorf AG, which were deemed settled as of the acquisition date.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
The following table presents the estimated fair value of the assets acquired and liabilities assumed from the Acquisition as of the date of acquisition, August 15, 2016, based on the allocation of the total consideration, net of cash acquired for the periods reported below:
|
| | | | | | | | | | | |
| | Amounts recognized as of: |
| | December 31, | | Measurement | | September 30, |
| | 2016 | | Period | | 2017 |
| Trade receivables | $ | 474.1 |
| | $ | (4.5 | ) | | $ | 469.6 |
|
| Inventories | 487.2 |
| | 10.9 |
| | 498.1 |
|
| Prepaid expenses | 39.3 |
| | (0.3 | ) | | 39.0 |
|
| Current assets held for sale | 106.6 |
| | — |
| | 106.6 |
|
| Other current assets | 79.9 |
| | (0.3 | ) | | 79.6 |
|
| Property, plant and equipment | 247.1 |
| | (10.5 | ) | | 236.6 |
|
| Deferred income taxes | 109.7 |
| | 5.8 |
| | 115.5 |
|
| Customer relationships | 658.5 |
| | 29.0 |
| | 687.5 |
|
| Other intangible assets | 143.6 |
| | — |
| | 143.6 |
|
| Other assets | 27.0 |
| | — |
| | 27.0 |
|
| Total assets acquired | 2,373.0 |
| | 30.1 |
| | 2,403.1 |
|
| | |
| | |
| | |
|
| Notes payable | 159.8 |
| | — |
| | 159.8 |
|
| Accounts payable | 321.5 |
| | — |
| | 321.5 |
|
| Deferred revenue | 158.0 |
| | 19.6 |
| | 177.6 |
|
| Payroll and other benefits liabilities | 191.6 |
| | (7.3 | ) | | 184.3 |
|
| Current liabilities held for sale | 56.6 |
| | — |
| | 56.6 |
|
| Other current liabilities | 196.3 |
| | 5.9 |
| | 202.2 |
|
| Pensions and other benefits | 103.2 |
| | — |
| | 103.2 |
|
| Other noncurrent liabilities | 458.9 |
| | 9.0 |
| | 467.9 |
|
| Total liabilities assumed | 1,645.9 |
| | 27.2 |
| | 1,673.1 |
|
| | | | | | |
| Redeemable noncontrolling interest | (46.8 | ) | | — |
| | (46.8 | ) |
| Fair value of noncontrolling interest | (407.9 | ) | | — |
| | (407.9 | ) |
| Total identifiable net assets acquired, including noncontrolling interest | 272.4 |
| | 2.9 |
| | 275.3 |
|
| Total consideration, net of cash acquired | 1,155.0 |
| | — |
| | 1,155.0 |
|
| Goodwill | $ | 882.6 |
| | $ | (2.9 | ) | | $ | 879.7 |
|
During the third quarter of 2017, the Company finalized the acquisition accounting for Diebold Nixdorf AG. The measurement period adjustments outlined above primarily related to changes in the fair value measurement of certain assets and liabilities. The trade receivables measurement period adjustment related to a reduction of $4.5 to certain customer accounts offset by certain deferred revenue adjustments primarily in the U.K. The inventories measurement period adjustment of $10.9 related to updated fair value measurement adjustments of certain inventory items along with certain deferred revenue adjustments, which resulted in an unfavorable impact of $1.9 to cost of sales-systems for 2017. The measurement period adjustments for prepaid expenses and other current assets relate to certain advances to suppliers and other miscellaneous receivables, respectively. The measurement period adjustment for property, plant and equipment of $10.5 related to the final fair value measurement of an acquired building which resulted in an unfavorable impact of $4.9 to cost of sales-systems and a favorable impact of $0.2 to selling and administrative expense related finalization of depreciation expense 2017. The measurement period adjustment to intangible assets for $29.0 related to a change in the underlying valuation assumptions used in the fair value measurement of acquired customer relationships which resulted in an unfavorable impact of $0.8 in selling and administrative expense for 2017. The deferred income tax measurement period adjustment of $5.8 related to the tax effects of adjustments. The deferred revenue measurement period adjustment of $19.6 primarily related to an adjustment to the inputs used in the fair value measurement primarily in the U.K. along with certain onerous contracts, which resulted in an unfavorable impact of $3.9 for 2017 which split near evenly between net sales-service and software and net sales-systems. The payroll and other benefits liabilities measurement period adjustment of $7.3 primarily related to the reduction of $8.2 related to the Delta Program restructuring accrual offset by certain bonus compensation
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
accruals. The other current liabilities measurement period adjustment of $5.9 related primarily to certain onerous contracts and accrued taxes. The other noncurrent liabilities measurement period adjustment of $9.0 primarily relates to deferred income tax liabilities calculated in connection with the measurement period adjustments along with certain onerous contracts.
Included in the purchase price allocation are acquired identifiable intangibles of $831.1, the fair value of which was primarily determined by applying the income approach, using several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered Level 3 inputs under the fair value measurements and disclosure guidance.
The Company recorded acquired intangible assets in the following table as of the acquisition date:
|
| | | | | | | |
| | Classification on consolidated statements of operations | | Weighted-average useful lives | | August 15, 2016 |
| Trade name | Selling and administrative expense | | 3.0 years | | $ | 30.1 |
|
| Technologies | Cost of sales | | 4.0 years | | 107.2 |
|
| Customer relationships | Selling and administrative expense | | 9.5 years | | 687.5 |
|
| Other | various | | various | | 6.3 |
|
| Intangible assets | | | | | $ | 831.1 |
|
Noncontrolling interest reflects a fair value adjustment of $407.9 consisting of $386.7 related to the Diebold Nixdorf AG ordinary shares the Company did not acquire and $21.2 for the pre-existing noncontrolling interests. Noncontrolling interests with certain redemption features, such as put rights that are not within the control of the issuer and are considered redeemable noncontrolling interests.
Goodwill is calculated as the excess of the purchase price over the estimated fair values of the assets acquired and the liabilities assumed from the Acquisition, and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The Company has allocated goodwill to its Services, Software and Systems reportable operating segments (refer to note 13).
Net sales, income (loss) from continuing operations before taxes and net income (loss) attributable to Diebold Nixdorf, Incorporated from the Acquisition included in the Company’s results for the year ended December 31, 2017 and from August 15, 2016, the date of the Acquisition to December 31, 2016, are as follows:
|
| | | | | | | |
| | August 15, 2016 to December 31, 2016 | | December 31, 2017 |
| Net sales | $ | 1,054.8 |
| | $ | 2,467.6 |
|
| Income (loss) from continuing operations before taxes | $ | (67.9 | ) | | $ | 10.5 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (51.3 | ) | | $ | 10.5 |
|
The Acquisition's income (loss) from continuing operations before taxes subsequent to the acquisition date includes purchase accounting pretax charges related to deferred revenue of $30.4, inventory valuation adjustment of $1.9, amortization of acquired intangibles of $128.4 and $6.7 depreciation expense related to the change in useful lives.
The Company incurred deal-related costs in connection with the Acquisition, of $97.2, which are included in selling, general and administrative expenses in the Company's consolidated statements of operations for the year ended December 31, 2016. No Acquisition-related deal costs have been incurred in 2017.
Unaudited pro forma Information The unaudited pro forma information is presented for illustrative purposes only. It is not necessarily indicative of the results of operations of future periods, or the results of operations that actually would have been realized had the entities been a single company during the periods presented or the results that the combined company will experience after the Acquisition. The unaudited pro forma information does not give effect to the potential impact of current financial conditions, regulatory matters or any anticipated synergies, operating efficiencies or cost savings that may be associated with the Acquisition. The unaudited pro forma information also does not include any integration costs or remaining future transaction costs that the companies may incur related to the Acquisition as part of combining the operations of the companies. The Company's fiscal year ends on December 31 while Diebold Nixdorf AG's fiscal year ends on September 30.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
The pro forma information in the table below for the year ended December 31, 2016 includes unaudited pro forma information that represents the consolidated results of the Company as if the Acquisition occurred as of January 1, 2015:
|
| | | |
| Net sales | $ | 4,996.2 |
|
| Gross profit | $ | 1,176.4 |
|
| Operating profit | $ | 72.9 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | 39.6 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated per share - basic | $ | 0.53 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated per share - diluted | $ | 0.52 |
|
| Basic weighted-average shares outstanding | 75.1 |
|
| Diluted weighted-average shares outstanding | 75.7 |
|
The unaudited pro forma information has been adjusted with respect to certain aspects of the Acquisition to reflect the following:
Additional depreciation and amortization expenses that would have been recognized assuming fair value adjustments to the existing Diebold Nixdorf AG assets acquired and liabilities assumed, including intangible assets, fixed assets and expense associated with the valuation of inventory acquired.
Increased interest expense due to additional borrowings to fund the Acquisition.
The pro forma results do not include any anticipated cost reductions and synergies or other effects of the planned integration of the acquired business. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the Acquisition been completed as of January 1, 2015, nor are they indicative of the future operating results of the Company.
NOTE 3: REDEEMABLE NONCONTROLLING INTERESTS
Changes in redeemable noncontrolling interests were as follows:
|
| | | |
| | Redeemable Noncontrolling Interests |
| Balance at December 31, 2015 | $ | — |
|
| Purchase of noncontrolling interests | 44.1 |
|
| Balance at December 31, 2016 | 44.1 |
|
| Other comprehensive income (loss) | 32.8 |
|
| Redemption value adjustment | 32.0 |
|
| Redemption of shares | (3.5 | ) |
| Reclassification of noncontrolling interest | 386.7 |
|
| Balance at December 31, 2017 | $ | 492.1 |
|
Subsequent to the closing of the Acquisition, the board of directors of the Company and the supervisory and management boards of Diebold Nixdorf AG, as well as the shareholders of Diebold KGaA and Diebold Nixdorf AG, on September 26, 2016 each approved the proposed the DPLTA. The DPLTA became effective by entry in the commercial register at the local court of Paderborn (Germany) on February 14, 2017. As a result, the carrying value of the noncontrolling interest related to the Diebold Nixdorf AG ordinary shares the Company did not acquire of $386.7, which was presented as a component of total equity as of December 31, 2016, was reclassified to redeemable noncontrolling interest during the first quarter of 2017. For the period of time that the DPLTA is effective, the noncontrolling interest related to the Diebold Nixdorf AG ordinary shares the Company did not acquire will remain in redeemable noncontrolling interest and presented outside of equity in the consolidated balance sheets of the Company.
Pursuant to the DPLTA, subject to certain limitations pursuant to applicable law, (i) Diebold KGaA has the ability to issue binding instructions to the management board of Diebold Nixdorf AG, (ii) Diebold Nixdorf AG will transfer all of its annual profits to Diebold KGaA, and (iii) Diebold KGaA will generally absorb all annual losses incurred by Diebold Nixdorf AG. In addition, the DPLTA offers the Diebold Nixdorf AG minority shareholders, at their election, (i) the ability to put their Diebold Nixdorf AG ordinary shares to Diebold KGaA in exchange for cash compensation of €55.02 per Diebold Nixdorf AG ordinary share or (ii) to remain Diebold Nixdorf AG minority shareholders and receive a recurring compensation in cash of €3.13 (€2.82 net under the current taxation regime) per Diebold Nixdorf AG ordinary share for each full fiscal year of Diebold Nixdorf AG. The redemption value adjustment includes the updated cash compensation pursuant to the DPLTA. During 2017, the Company paid $3.5 in cash compensation to
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
redeem Diebold Nixdorf AG ordinary shares in connection with the DPLTA. The ultimate timing and amount of any future cash payments related to the DPLTA are uncertain.
In connection with the Acquisition, the Company assumed pre-existing noncontrolling interests with certain redemption features, such as put rights that are not within the control of the issuer, which are considered redeemable noncontrolling interests. The redeemable noncontrolling interests were recorded at fair value as of the Acquisition date and subsequent reporting periods 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 4: EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is based on the weighted-average number of common shares outstanding. Diluted earnings (loss) per share includes the dilutive effect of potential common shares outstanding. Under the two-class method of computing earnings (loss) per share, non-vested share-based payment awards that contain rights to receive non-forfeitable dividends are considered participating securities. The Company’s participating securities include restricted stock units (RSUs), 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 using the two methods. Accordingly, the treasury stock method is disclosed below.below; however, because the Company is in a net loss position, dilutive shares of 1.5, 1.2 and 1.2 for the years ended December 31, 2022, 2021 and 2020, respectively, are excluded from the shares used in the computation of diluted earnings (loss) per share.
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 for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Numerator | | | | | |
| Income (loss) used in basic and diluted loss per share | | | | | |
| Net loss | $ | (585.6) | | | $ | (78.1) | | | $ | (267.8) | |
| Net income (loss) income attributable to noncontrolling interests | (4.2) | | | 0.7 | | | 1.3 | |
| Net loss attributable to Diebold Nixdorf, Incorporated | $ | (581.4) | | | $ | (78.8) | | | $ | (269.1) | |
| Denominator | | | | | |
Weighted-average number of common shares used in basic and diluted earnings (loss) per share (1) | 79.0 | | | 78.3 | | | 77.6 | |
| | | | | |
| | | | | |
| Net loss per share attributable to Diebold Nixdorf, Incorporated | | | | | |
| Basic and diluted loss per share | $ | (7.36) | | | $ | (1.01) | | | $ | (3.47) | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Numerator | | | | | |
| Income (loss) used in basic and diluted earnings (loss) per share | | | | | |
| Income (loss) from continuing operations, net of tax | $ | (205.5 | ) | | $ | (170.7 | ) | | $ | 59.5 |
|
| Net income attributable to noncontrolling interests, net of tax | 27.6 |
| | 6.0 |
| | 1.7 |
|
| Income (loss) before discontinued operations, net of tax | (233.1 | ) | | (176.7 | ) | | 57.8 |
|
| Income from discontinued operations, net of tax | — |
| | 143.7 |
| | 15.9 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (233.1 | ) | | $ | (33.0 | ) | | $ | 73.7 |
|
| Denominator | | | | | |
| Weighted-average number of common shares used in basic earnings (loss) per share | 75.5 |
| | 69.1 |
| | 64.9 |
|
Effect of dilutive shares (1) | — |
| | — |
| | 0.7 |
|
| Weighted-average number of shares used in diluted earnings (loss) per share | 75.5 |
| | 69.1 |
| | 65.6 |
|
| Basic earnings (loss) per share | | | | | |
| Income (loss) before discontinued operations, net of tax | $ | (3.09 | ) | | $ | (2.56 | ) | | $ | 0.89 |
|
| Income from discontinued operations, net of tax | — |
| | 2.08 |
| | 0.24 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (3.09 | ) | | $ | (0.48 | ) | | $ | 1.13 |
|
| Diluted earnings (loss) per share | | | | | |
| Income (loss) before discontinued operations, net of tax | $ | (3.09 | ) | | $ | (2.56 | ) | | $ | 0.88 |
|
| Income from discontinued operations, net of tax | — |
| | 2.08 |
| | 0.24 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (3.09 | ) | | $ | (0.48 | ) | | $ | 1.12 |
|
| | | | | | |
| Anti-dilutive shares | | | | | |
| Anti-dilutive shares not used in calculating diluted weighted-average shares | 3.4 |
| | 2.1 |
| | 1.5 |
|
| |
(1)
| Incremental shares of 0.7 and 0.6 were excluded from the computation of diluted loss per share for the years ended December 31, 2017 and 2016, respectively, because their effect is anti-dilutive due to the loss from continuing operations.
|
The first quarterly dividend(1)Shares of 2018 is $0.104.2, 3.9 and 2.4 for the years ended December 31, 2022, 2021 and 2020, respectively, are excluded from the computation of diluted earnings (loss) per share payable March 16, 2018 to shareholdersbecause the effects are anti-dilutive, irrespective of record on February 26, 2018.the net loss position.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
NOTE 3: SHARE-BASED COMPENSATION AND EQUITY
Dividends. In May 2018, the Company announced the decision of its Board of Directors to reallocate future dividend funds towards debt reduction and other capital resource needs. Accordingly, the Company has not paid a dividend since 2018.
Share-Based Compensation Cost. The Company recognizes costs resulting from all share-based payment transactions based on the fair value of the award as of the grant date. Awards are valued at fair value and compensation cost is recognized on a straight-line basis over the requisite periods of each award. To cover the exercise and/or vesting of its share-based payments, the Company uses a combination of new shares from its authorized, unissued share pool and its treasury shares. The number of common shares that may be issued pursuant to the 2017 Equity and Performance Incentive Plan (the 2017 Plan) was 15.9, of which 7.1 shares were available for issuance at December 31, 2022.
The following table summarizes the components of the Company’s employee and non-employee directors share-based compensation programs recognized as selling and administrative expense for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Stock options | | | | | |
| Pre-tax compensation expense | $ | 0.3 | | | $ | 1.5 | | | $ | 1.7 | |
| Tax benefit | — | | | (0.4) | | | (0.5) | |
| Stock option expense, net of tax | $ | 0.3 | | | $ | 1.1 | | | $ | 1.2 | |
| | | | | |
| RSU's | | | | | |
| Pre-tax compensation expense | $ | 13.6 | | | $ | 8.7 | | | $ | 8.9 | |
| Tax benefit | (1.6) | | | (2.2) | | | (2.2) | |
| RSU expense, net of tax | $ | 12.0 | | | $ | 6.5 | | | $ | 6.7 | |
| | | | | |
| Performance shares | | | | | |
| Pre-tax compensation expense | $ | (0.5) | | | $ | 3.6 | | | $ | 4.3 | |
| Tax benefit | — | | | (1.0) | | | (1.0) | |
| Performance share expense, net of tax | $ | (0.5) | | | $ | 2.6 | | | $ | 3.3 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Total share-based compensation | | | | | |
| Pre-tax compensation expense | $ | 13.4 | | | $ | 13.8 | | | $ | 14.9 | |
| Tax benefit | (1.6) | | | (3.6) | | | (3.7) | |
| Total share-based compensation, net of tax | $ | 11.8 | | | $ | 10.2 | | | $ | 11.2 | |
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
The following table summarizes information related to unrecognized share-based compensation costs as of December 31, 2022:
| | | | | | | | | | | |
| Unrecognized
Cost | | Weighted-Average Period |
| | | (years) |
| Stock options | $ | — | | | 0.1 |
| RSUs | 6.4 | | | 1.2 |
| Performance shares | 0.1 | | | 0.8 |
| | | |
| $ | 6.5 | | | |
SHARE-BASED COMPENSATION AWARDS
Stock options, RSUs and performance shares have been issued to officers and other management employees under the Company’s Amended and Restated 1991 Equity and Performance Incentive Plan (as amended and restated as of February 12, 2014) (the 1991 Plan) and the 2017 Plan. Certain awards have accelerated vesting clauses upon retirement, which results in either immediate or accelerated expense.
Stock Options
In previous years, stock options were granted to employees that generally vest after a period of one year to three years and have a term of ten years from the issuance date. No stock options were granted in 2022 or 2021. Option exercise prices typically equal the closing price of the Company’s common shares on the date of grant. The estimated fair value of the options granted was calculated using a Black-Scholes option pricing model using the following assumptions:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Expected life (in years) | 0 | | 0 | | 5 |
| Weighted-average volatility | — | % | | — | % | | 64 | % |
| Risk-free interest rate | — | % | | — | % | | 0.49-1.47% |
| Expected dividend yield | — | % | | — | % | | — | % |
The Company uses historical data to estimate the expected life within the valuation model. Expected volatility is based on historical volatility of the price of the Company’s common shares over the expected life of the equity instrument. The risk-free rate of interest is based on a zero-coupon U.S. government instrument over the expected life of the equity instrument. The expected dividend yield is based on actual dividends paid per share and the price of the Company’s common shares.
Options outstanding and exercisable as of December 31, 2022 and changes during the year ended 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, 2022 | 2.6 | | | $ | 13.45 | | | | | |
| Expired or forfeited | (1.1) | | | $ | 8.79 | | | | | |
| | | | | | | |
| Granted | — | | | $ | — | | | | | |
| Outstanding at December 31, 2022 | 1.5 | | | $ | 16.81 | | | 5 | | $ | — | |
| Options exercisable at December 31, 2022 | 1.5 | | | $ | 16.91 | | | 5 | | $ | — | |
(1)The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company’s closing share price on the last trading day of the year in 2022 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 December 31, 2022. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common shares.
The aggregate intrinsic value of options exercised was minimal for the years ended December 31, 2022, 2021 and 2020. The weighted-average, grant-date fair value of stock options granted for the year ended December 31, 2020 was $6.05.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Restricted Stock Units
Each RSU provides for the issuance of one common share of the Company at no cost to the holder and are granted to both employees and non-employee directors. RSUs either cliff vest after one year or vest per annum over a three-year period. Non-vested employee RSUs are forfeited upon termination unless the Board of Directors determines otherwise.
Non-vested RSUs outstanding as of December 31, 2022 and changes during the year ended were as follows:
| | | | | | | | | | | |
| Number of
Shares | | Weighted-Average
Grant-Date
Fair Value |
| Non-vested at January 1, 2022 | 1.6 | | | $ | 10.87 | |
| Forfeited | (0.5) | | | $ | 9.78 | |
| Vested | (1.2) | | | $ | 9.36 | |
| Granted | 2.3 | | | $ | 6.57 | |
| Non-vested at December 31, 2022 | 2.2 | | | $ | 7.53 | |
The weighted-average grant-date fair value of RSUs granted for the years ended December 31, 2022, 2021 and 2020 was $6.57, $13.71 and $10.64, respectively. The total fair value of RSUs vested during the years ended December 31, 2022, 2021 and 2020 was $11.0, $10.3 and $12.7, respectively.
Performance Shares
Performance shares are granted to employees and vest based on the achievement of certain performance objectives, as determined by the Board of Directors. 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 period of four years as well as performance objectives that are assessed annually over a period of four years. No shares are vested unless certain performance threshold objectives are met.
Non-vested performance shares outstanding as of December 31, 2022 and changes during the year ended were as follows:
| | | | | | | | | | | |
| Number of
Shares | | Weighted-Average
Grant-Date
Fair Value |
Non-vested at January 1, 2022 (1) | 2.2 | | | $ | 10.57 | |
| Forfeited | (1.5) | | | $ | 17.75 | |
| Vested | (0.2) | | | $ | 13.45 | |
| | | |
| Granted | 0.9 | | | $ | 7.28 | |
| Non-vested at December 31, 2022 | 1.4 | | | $ | 0.30 | |
(1)Non-vested performance shares are based on a maximum potential payout. Actual shares vested at the end of the performance period may be less than the maximum potential payout level depending on achievement of the performance objectives, as determined by the Board of Directors.
The weighted-average grant-date fair value of performance shares granted for the years ended December 31, 2022 and 2021 was $7.28 and $13.73, respectively. No performance shares were granted in 2020. The total fair value of performance shares vested during the years ended December 31, 2022, 2021 and 2020 was $2.0, $0.0 and $1.2, respectively.
Liability Awards
In addition to the equity awards described above, the Company has certain performance and service based awards that will be settled in cash and are accounted for as liabilities. The total compensation expense for these awards was $(4.7), $7.1 and $21.4 for the years ended December 31, 2022, 2021 and 2020, respectively. These awards vest ratably over a three-year period.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
NOTE 4: INCOME TAXES
The following table presents components of loss from operations before taxes for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Domestic | $ | (413.2) | | | $ | (168.3) | | | $ | (293.8) | |
| Foreign | (25.4) | | | 117.6 | | | 24.3 | |
| Total | $ | (438.6) | | | $ | (50.7) | | | $ | (269.5) | |
The following table presents the components of income tax expense (benefit) for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Current | | | | | |
| U.S. federal | $ | 8.5 | | | $ | 3.5 | | | $ | 3.5 | |
| Foreign | 43.3 | | | 38.2 | | | 14.6 | |
| State and local | 4.0 | | | (1.2) | | | 0.4 | |
| Total current | 55.8 | | | 40.5 | | | 18.5 | |
| Deferred | | | | | |
| U.S. federal | 62.5 | | | (1.7) | | | 7.1 | |
| Foreign | 22.4 | | | (11.4) | | | (22.6) | |
| State and local | 8.5 | | | 0.3 | | | (4.0) | |
| Total deferred | 93.4 | | | (12.8) | | | (19.5) | |
| Income tax expense (benefit) | $ | 149.2 | | | $ | 27.7 | | | $ | (1.0) | |
Income tax expense (benefit) attributable to loss from operations before taxes differed from the amounts computed by applying the U.S. federal income tax rate of 21 percent to pre-tax loss from operations. The following table presents these differences for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Statutory tax benefit | $ | (92.1) | | | $ | (10.6) | | | $ | (56.6) | |
| State and local taxes (net of federal tax benefit) | (17.6) | | | (0.6) | | | (3.6) | |
| Brazil non-taxable incentive | (4.6) | | | (4.3) | | | (5.2) | |
| Valuation allowances | 209.8 | | | 33.8 | | | 32.5 | |
| | | | | |
| | | | | |
| Goodwill impairment | 9.3 | | | — | | | — | |
| Foreign tax rate differential | (4.6) | | | 2.2 | | | (6.1) | |
| Tax on unremitted foreign earnings | 4.2 | | | 0.7 | | | 1.8 | |
| Change to uncertain tax positions | 1.8 | | | (9.2) | | | (23.9) | |
| | | | | |
| | | | | |
| | | | | |
| U.S. taxed foreign income | 17.1 | | | 6.9 | | | 8.7 | |
| | | | | |
| Non-deductible (non-taxable) items | 15.5 | | | 0.7 | | | 12.2 | |
| Termination of company owned life insurance | — | | | — | | | 35.1 | |
| | | | | |
| Return to provision | 3.3 | | | (0.8) | | | (9.6) | |
| Withholding tax and other taxes | 5.4 | | | 8.7 | | | 4.6 | |
| Other | 1.7 | | | 0.2 | | | 9.1 | |
| Income tax expense (benefit) | $ | 149.2 | | | $ | 27.7 | | | $ | (1.0) | |
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
The effective tax rate for 2022 was (34.0) percent. Tax expense items contributing to the difference from the U.S. federal income tax rate included valuation allowances, U.S. tax on foreign income, non-deductible expenses, goodwill impairments, withholding taxes, changes to uncertain tax position accruals and other items. These items were partially offset by benefits of utilization of U.S. foreign tax credits, nontaxable incentives, and foreign rate differential.
The effective tax rate for 2021 was (54.6) percent. Tax expense items contributing to the difference from the U.S. federal income tax rate included valuation allowances related to certain foreign and U.S. tax attributes for which realization does not meet the more likely than not criteria, U.S. tax on foreign income, withholding taxes, non-deductible expenses and other items. These items were partially offset by benefits related to settling certain open tax years in Germany and the U.S. and other changes to uncertain tax position accruals, non-taxable incentives, and other items.
The effective tax rate for 2020 was 0.4 percent. Tax expense items contributing to the difference from the U.S. federal income tax rate included U.S. tax on foreign income, valuation allowances related to certain foreign and U.S. tax attributes for which realization does not meet the more likely than not criteria, non-deductible expenses, and the tax effects of terminating certain company-owned life insurance policies. These items were partially offset by tax credits, benefits related to settling certain open tax years in Germany and the U.S., changes to uncertain tax position accruals, and benefit related to regulations issued in 2020 related to US tax reform.
The Company recognizes the benefit of tax positions taken or expected to be taken in its tax returns in the consolidated financial statements when it is more likely than not that the position will be sustained upon examination by authorities. Recognized tax positions are measured at the largest amount of benefit that is more likely than not of being realized upon settlement.
Details of the unrecognized tax benefits are as follows:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Balance at January 1 | $ | 55.1 | | | $ | 36.8 | | | $ | 50.9 | |
| Increases (decreases) related to prior year tax positions, net | (1.7) | | | 42.1 | | | 0.9 | |
| Increases related to current year tax positions | — | | | — | | | — | |
| Settlements | (0.7) | | | (23.3) | | | (7.7) | |
| Reductions due to lapse of applicable statute of limitations | (0.6) | | | (0.5) | | | (7.3) | |
| Balance at December 31 | $ | 52.1 | | | $ | 55.1 | | | $ | 36.8 | |
Of the Company's $52.1 unrecognized tax benefits, if recognized, $12.1 would affect the Company's effective tax rate. The remaining $40.0 relates to a prior year tax return position, which if recognized, would be offset by changes in valuation allowances and have no effect on the Company's effective tax rate.
The Company classifies interest expense and penalties related to the underpayment of income taxes in the consolidated financial statements as income tax expense. As of December 31, 2022 and 2021, accrued interest and penalties related to unrecognized tax benefits totaled $1.3 and $1.7, respectively.
Within the next 12 months, no material changes to our unrecognized tax benefits are expected for currently reserved positions. Tax years prior to 2018 are closed by statute for U.S. federal tax purposes. The Company is subject to tax examination in various U.S. state jurisdictions for tax years 2012 to the present. In addition, the Company is subject to a German tax audit for tax years 2018-2019, and other various foreign jurisdictions for tax years 2013 to the present.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at December 31 are as follows:
| | | | | | | | | | | |
| 2022 | | 2021 |
| Deferred tax assets | | | |
| Accrued expenses | $ | 51.9 | | | $ | 50.8 | |
| Warranty accrual | 12.3 | | | 12.4 | |
| Deferred compensation | 3.0 | | | 3.9 | |
| Allowances for doubtful accounts | 5.0 | | | 8.0 | |
| Inventories | 18.5 | | | 19.6 | |
| Deferred revenue | 28.1 | | | 19.8 | |
| Pensions, post-retirement and other benefits | 48.6 | | | 48.8 | |
| Deferred finance charges | 108.3 | | | — | |
| Tax credits | — | | | 67.2 | |
| Net operating loss carryforwards | 179.4 | | | 150.7 | |
| Capital loss carryforwards | 1.3 | | | 1.1 | |
| State deferred taxes | 28.0 | | | 8.6 | |
| Lease liability | 28.9 | | | 34.5 | |
| Other | 22.8 | | | 18.8 | |
| 536.1 | | | 444.2 | |
| Valuation allowances | (468.3) | | | (261.8) | |
| Net deferred tax assets | $ | 67.8 | | | $ | 182.4 | |
| | | |
| Deferred tax liabilities | | | |
| Property, plant and equipment, net | $ | 10.3 | | | $ | 12.9 | |
| Goodwill and intangible assets | 88.2 | | | 112.6 | |
| Undistributed earnings | 34.4 | | | 32.2 | |
| Right-of-use assets | 31.5 | | | 34.5 | |
| Net deferred tax liabilities | 164.4 | | | 192.2 | |
| Net deferred tax (liability) asset | $ | (96.6) | | | $ | (9.8) | |
Deferred income taxes reported in the consolidated balance sheets as of December 31 are as follows:
| | | | | | | | | | | |
| 2022 | | 2021 |
| Deferred income taxes - assets | $ | — | | | $ | 95.7 | |
| Deferred income taxes - liabilities | (96.6) | | | (105.5) | |
| | | |
| Net deferred tax (liabilities) assets | $ | (96.6) | | | $ | (9.8) | |
As of December 31, 2022, the Company had domestic and international net operating loss (NOL) carryforwards of $918.0, resulting in an NOL deferred tax asset of $179.4. Of these NOL carryforwards, $454.9 expire at various times between 2023 and 2043 and $463.2 does not expire.
The Company recorded a valuation allowance to reflect the estimated amount of certain U.S., foreign and state deferred tax assets that, more likely than not, will not be realized. The net change in total valuation allowance for the years ended December 31, 2022 and 2021 was an increase of $206.5 and $32.3, respectively. The 2022 valuation allowance increase was driven primarily by the Company's going concern assessment. Of the total 2022 net increase of $206.5, the Company recorded $209.8 to tax expense, approximately ($3.3) was recorded to shareholder’s equity.
For the years ended December 31, 2022 and 2021, provisions were made for foreign withholding taxes and estimated foreign income taxes which may be incurred upon the remittance of certain undistributed earnings in foreign subsidiaries and foreign unconsolidated affiliates. Provisions have not been made for income taxes on $994.9 of undistributed earnings at December 31,
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
2022 in foreign subsidiaries and corporate joint ventures that were deemed permanently reinvested. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, depends on certain circumstances existing if and when remittance occurs. A deferred tax liability will be recognized if and when the Company no longer plans to permanently reinvest these undistributed earnings.
The Company’s undistributed earnings in foreign subsidiaries that are deemed permanently reinvested increased compared to the prior-year amount and was primarily impacted by current year income.
NOTE 5: INVENTORIES
Major classes of inventories are summarized as follows:
| | | | | | | | | | | |
| 2022 | | 2021 |
| Raw materials and work in process | $ | 200.6 | | | $ | 194.1 | |
| Finished goods | 229.4 | | | 180.3 | |
| Total product inventories | 430.0 | | | 374.4 | |
| | | |
| Service parts | 158.1 | | | 169.8 | |
| Total inventories | $ | 588.1 | | | $ | 544.2 | |
NOTE 5: ACCUMULATED OTHER COMPREHENSIVE LOSS6: PROPERTY, PLANT AND EQUIPMENT
The following table summarizes the changes in the Company’s AOCI, netis a summary of tax, by component for the years endedproperty, plant and equipment, at cost less accumulated depreciation and amortization as of December 31:
| | | | | | | | | | | | | | | | | |
| Estimated Useful Life
(years) | | 2022 | | 2021 |
| Land and land improvements | (1) | | $ | 10.0 | | | $ | 10.6 | |
| Buildings and building improvements | 15-30 | | 68.3 | | | 69.1 | |
| Machinery, tools and equipment | 5-12 | | 81.8 | | | 85.2 | |
Leasehold improvements (2) | 10 | | 17.1 | | | 24.2 | |
| Computer equipment | 3 | | 101.1 | | | 105.6 | |
| Computer software | 5-10 | | 127.8 | | | 129.0 | |
| Furniture and fixtures | 5-8 | | 54.6 | | | 59.7 | |
| Tooling | 3-5 | | 134.7 | | | 141.2 | |
| Construction in progress | | | 4.6 | | | 7.8 | |
| Total property plant and equipment, at cost | | | $ | 600.1 | | | $ | 632.4 | |
| Less accumulated depreciation and amortization | | | 479.4 | | | 494.3 | |
| Total property plant and equipment, net | | | $ | 120.7 | | | $ | 138.1 | |
(1)Estimated useful life for land and land improvements is perpetual and 15 years, respectively.
(2)The estimated useful life for leasehold improvements is the lesser of 10 years or the term of the lease.
During 2022, 2021 and 2020, depreciation expense, computed on a straight-line basis over the estimated useful lives of the related assets, was $29.8, $46.4 and $73.7, respectively.
In the second quarter of 2021, the Company sold assets located at the Hamilton, Ohio facility for proceeds of approximately $1.7, which resulted in a gain on sale of $0.4.
In the fourth quarter of 2020, the Company sold its former headquarters building in North Canton, Ohio for proceeds of $7.2, which resulted in a gain on sale of $0.6.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Translation | | Foreign Currency Hedges | | Interest Rate Hedges | | Pension and Other Post-Retirement Benefits | | Other | | Accumulated Other Comprehensive Loss |
| Balance at December 31, 2015 | $ | (215.6 | ) | | $ | 5.0 |
| | $ | (0.1 | ) | | $ | (107.8 | ) | | $ | 0.4 |
| | $ | (318.1 | ) |
Other comprehensive income (loss) before reclassifications (1) | (35.6 | ) | | (10.7 | ) | | 4.9 |
| | 18.5 |
| | (0.1 | ) | | (23.0 | ) |
| Amounts reclassified from AOCI | — |
| | — |
| | (0.2 | ) | | — |
| | — |
| | (0.2 | ) |
| Net current period other comprehensive income (loss) | (35.6 | ) | | (10.7 | ) | | 4.7 |
| | 18.5 |
| | (0.1 | ) | | (23.2 | ) |
| Balance at December 31, 2016 | $ | (251.2 | ) | | $ | (5.7 | ) | | $ | 4.6 |
| | $ | (89.3 | ) | | $ | 0.3 |
| | $ | (341.3 | ) |
Other comprehensive income (loss) before reclassifications (1) | 134.4 |
| | 0.6 |
| | 3.9 |
| | 3.4 |
| | (0.2 | ) | | 142.1 |
|
| Amounts reclassified from AOCI | — |
| | — |
| | (0.4 | ) | | 3.3 |
| | — |
| | 2.9 |
|
| Net current period other comprehensive income (loss) | 134.4 |
| | 0.6 |
| | 3.5 |
| | 6.7 |
| | (0.2 | ) | | 145.0 |
|
| Balance at December 31, 2017 | $ | (116.8 | ) | | $ | (5.1 | ) | | $ | 8.1 |
| | $ | (82.6 | ) | | $ | 0.1 |
| | $ | (196.3 | ) |
| |
(1)
| Other comprehensive income (loss) before reclassifications within the translation component excludes (gains)/losses of $(5.9) and $(3.2) and translation attributable to noncontrolling interests for December 31, 2017 and 2016, respectively. |
The following table summarizes the details about amounts reclassified from AOCI for the years ended December 31:
|
| | | | | | | | | | |
| | 2017 | | 2016 | | |
| | Amount Reclassified from AOCI | | Amount Reclassified from AOCI | | Affected Line Item in the Statement of Operations |
| Interest rate hedges (net of tax of $(0.1) and $0.0, respectively) | $ | (0.4 | ) | | $ | (0.2 | ) | | Interest expense |
| Pension and post-retirement benefits: | | | | | |
| Net actuarial losses recognized during the year (net of tax of $(3.3) and $(1.8), respectively) | 2.2 |
| | 4.0 |
| | (1) |
| Net actuarial gains (losses) recognized due to settlement (net of tax of $0.4 and $0.0, respectively) | (0.2 | ) | | — |
| — |
| (1) |
| Prior service cost recognized during the curtailment (net of tax of $0.0 and $1.5, respectively) | — |
| | (3.3 | ) | | (1) |
| Currency impact (net of tax of $(1.9) and $0.4, respectively) | 1.3 |
| | (0.7 | ) | | (1) |
| | 3.3 |
| | — |
| | |
| Total reclassifications for the period | $ | 2.9 |
| | $ | (0.2 | ) | | |
| |
(1)
| Pension and other post-retirement benefits AOCI components are included in the computation of net periodic benefit cost (refer to note 15 to the consolidated financial statements). |
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
NOTE 6: SHARE-BASED COMPENSATION AND EQUITY
Dividends. On the basis of amounts declared and paid quarterly, the annualized dividends per share were $0.40, $0.96 and $1.15 for the years ended December 31, 2017, 2016 and 2015, respectively.
Share-Based Compensation Cost. The Company recognizes costs resulting from all share-based payment transactions based on the fair market value of the award as of the grant date. Awards are valued at fair value and compensation cost is recognized on a straight-line basis over the requisite periods of each award. The Company estimated forfeiture rates are based on historical experience. To cover the exercise and/or vesting of its share-based payments, the Company generally issues new shares from its authorized, unissued share pool. The number of common shares that may be issued pursuant to the 2017 Equity and Performance Incentive Plan (the 2017 Plan) was 4.9, of which 4.8 shares were available for issuance at December 31, 2017. Previous grants were issued pursuant to the Amended and Restated 1991 Equity and Performance Incentive Plan (as amended and restated as of February 12, 2014) (the 1991 Plan). When the 2017 plan was approved, the 1991 Plan was closed for any further grants.
The following table summarizes the components of the Company’s employee and non-employee directors share-based compensation programs recognized as selling and administrative expense for the years ended December 31:
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Stock options | | | | | |
| Pre-tax compensation expense | $ | 4.6 |
| | $ | 2.7 |
| | $ | 3.6 |
|
| Tax benefit | (1.3 | ) | | (0.9 | ) | | (1.3 | ) |
| Stock option expense, net of tax | $ | 3.3 |
| | $ | 1.8 |
| | $ | 2.3 |
|
| | | | | | |
| Restricted stock units | | | | | |
| Pre-tax compensation expense | $ | 16.4 |
| | $ | 10.7 |
| | $ | 8.6 |
|
| Tax benefit | (4.0 | ) | | (3.1 | ) | | (2.4 | ) |
| RSU expense, net of tax | $ | 12.4 |
| | $ | 7.6 |
| | $ | 6.2 |
|
| | | | | | |
| Performance shares | | | | | |
| Pre-tax compensation expense | $ | 12.9 |
| | $ | 8.8 |
| | $ | 0.2 |
|
| Tax benefit | (3.0 | ) | | (3.0 | ) | | (0.1 | ) |
| Performance share expense, net of tax | $ | 9.9 |
| | $ | 5.8 |
| | $ | 0.1 |
|
| | | | | | |
| Total share-based compensation | | | | | |
| Pre-tax compensation expense | $ | 33.9 |
| | $ | 22.2 |
| | $ | 12.4 |
|
| Tax benefit | (8.3 | ) | | (7.0 | ) | | (3.8 | ) |
| Total share-based compensation, net of tax | $ | 25.6 |
| | $ | 15.2 |
| | $ | 8.6 |
|
The following table summarizes information related to unrecognized share-based compensation costs as of December 31, 2017:
|
| | | | | |
| | Unrecognized
Cost | | Weighted-Average Period |
| | | | (years) |
| Stock options | $ | 1.7 |
| | 1.2 |
| RSUs | 13.7 |
| | 1.1 |
| Performance shares | 20.0 |
| | 1.9 |
| | $ | 35.4 |
| | |
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
SHARE-BASED COMPENSATION AWARDS
Stock options, RSUs, restricted shares and performance shares have been issued to officers and other management employees under the Company’s 1991 Plan and 2017 Plan. Certain awards have accelerated vesting clauses that result in a non-substantive vesting requirement, which results in either immediate or accelerated expense.
Stock Options
Stock options generally vest after a one- to five-year period and have a maturity of ten years from the issuance date. Option exercise prices equal the closing price of the Company’s common shares on the date of grant. The estimated fair value of the options granted was calculated using a Black-Scholes option pricing model using the following assumptions:
|
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Expected life (in years) | 3 |
| | 6 |
| | 6 |
|
| Weighted-average volatility | 31 | % | | 28 | % | | 31 | % |
| Risk-free interest rate | 1.28 | % | | 1.50 | % | | 1.50 | % |
| Expected dividend yield | 1.65 | % | | 3.10 | % | | 3.12 | % |
The Company uses historical data to estimate option exercise timing within the valuation model. Employees with similar historical exercise behavior with regard to timing and forfeiture rates are considered separately for valuation and attribution purposes. Expected volatility is based on historical volatility of the price of the Company’s common shares over the expected life of the equity instrument. The risk-free rate of interest is based on a zero-coupon U.S. government instrument over the expected life of the equity instrument. The expected dividend yield is based on actual dividends paid per share and the price of the Company’s common shares.
Options outstanding and exercisable as of December 31, 2017 and changes during the year ended were as follows:
|
| | | | | | | | | | | | |
| | Number of Shares | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Term | | Aggregate Intrinsic Value (1) |
| |
| | (per share) | | (in years) | | |
| Outstanding at January 1, 2017 | 1.7 |
| | $ | 31.98 |
| | | | |
| Expired or forfeited | (0.2 | ) | | $ | 39.31 |
| | | | |
| Granted | 0.8 |
| | $ | 26.57 |
| | | | |
| Outstanding at December 31, 2017 | 2.3 |
| | $ | 29.68 |
| | 7 | | $ | — |
|
| Options exercisable at December 31, 2017 | 1.1 |
| | $ | 32.15 |
| | 6 | | $ | — |
|
Options vested and expected to vest (2) at December 31, 2017 | 2.2 |
| | $ | 29.79 |
| | 7 | | $ | — |
|
| |
(1)
| The aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between the Company’s closing share price on the last trading day of the year in 2017 and the exercise price, multiplied by the number of “in-the-money” options) that would have been received by the option holders had all option holders exercised their options on December 31, 2017. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common shares.
|
| |
(2)
| The expected to vest options are the result of applying the pre-vesting forfeiture rate assumption to total outstanding non-vested options. |
The aggregate intrinsic value of options exercised was minimal for the years ended December 31, 2017 and 2016, and $0.7 for 2015. The weighted-average grant-date fair value of stock options granted for the years ended December 31, 2017, 2016 and 2015 was $4.57, $5.37 and $7.04, respectively. Total fair value of stock options vested during the years ended December 31, 2017, 2016 and 2015 was $2.4, $2.6 and $2.7, respectively. Exercise of options during the years ended December 31, 2017, 2016 and 2015 resulted in cash receipts of $0.3, $0.3 and $3.5, respectively.
Restricted Stock Units
Each RSU provides for the issuance of one common share of the Company at no cost to the holder and are granted to both employees and non-employee directors. RSUs granted to employees prior to 2016 vest after a three- or seven-year period. RSUs granted to employees after 2016 ratably vest per annum over a three-year period and for non-employee directors cliff vest after one year. During the vesting period, employees and non-employee directors are paid the cash equivalent of dividends on RSUs. Non-vested employee RSUs are forfeited upon termination unless the Board of Directors determines otherwise.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Non-vested RSUs outstanding as of December 31, 2017 and changes during the year ended were as follows:
|
| | | | | | |
| | Number of
Shares | | Weighted-Average
Grant-Date
Fair Value |
| Non-vested at January 1, 2017 | 1.2 |
| | $ | 29.50 |
|
| Forfeited | (0.1 | ) | | $ | 28.72 |
|
| Vested | (0.5 | ) | | $ | 30.37 |
|
Granted (1) | 0.7 |
| | $ | 26.81 |
|
| Non-vested at December 31, 2017 | 1.3 |
| | $ | 27.76 |
|
| |
(1)
| The RSUs granted during the year ended December 31, 2017 include 57 thousandone-year RSUs to non-employee directors under the 1991 Plan. These RSUs have a weighted-average grant-date fair value of $28.80.
|
The weighted-average grant-date fair value of RSUs granted for the years ended December 31, 2017, 2016 and 2015 was $26.81, $26.77 and $32.74, respectively. The total fair value of RSUs vested during the years ended December 31, 2017, 2016 and 2015 was $13.9, $7.2 and $6.4, respectively.
Performance Shares
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. The estimated fair value of certain performance shares granted was calculated using the Monte Carlo simulation method. 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.
Non-vested performance shares outstanding as of December 31, 2017 and changes during the year ended were as follows:
|
| | | | | | |
| | Number of
Shares | | Weighted-Average
Grant-Date
Fair Value |
Non-vested at January 1, 2017 (1) | 1.2 |
| | $ | 31.77 |
|
| Forfeited | (0.3 | ) | | $ | 37.09 |
|
| Vested | (0.2 | ) | | $ | 23.64 |
|
| Granted | 1.8 |
| | $ | 31.31 |
|
| Non-vested at December 31, 2017 | 2.5 |
| | $ | 31.37 |
|
| |
(1)
| Non-vested performance shares are based on a maximum potential payout. Actual shares vested at the end of the performance period may be less than the maximum potential payout level depending on achievement of the performance objectives, as determined by the Board of Directors. |
The weighted-average grant-date fair value of performance shares granted for the years ended December 31, 2017, 2016 and 2015 was $31.31, $26.99 and $32.50, respectively. The total fair value of performance shares vested during the years ended December 31, 2017, 2016 and 2015 was $3.6, $3.1 and $5.1, respectively.
Director Deferred Shares
Deferred shares have been issued to non-employee directors under the 1991 Plan. Deferred shares provide for the issuance of one common share of the Company at no cost to the holder. Deferred shares vest in either a six- or twelve-month period and are issued at the end of the deferral period. During the vesting period and until the common shares are issued, non-employee directors are paid the cash equivalent of dividends on deferred shares.
As of December 31, 2017, there were 0.1 non-employee director deferred shares vested and outstanding. There were no deferred shares granted in 2017, 2016, or 2015. There was no aggregate intrinsic fair value for the year ended December 31, 2017. For the years ended December 31, 2016 and 2015, the aggregate intrinsic values was $0.2. Total fair value of deferred shares vested for the years ended December 31, 2016 was $0.2.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
NOTE 7: INCOME TAXES
The following table presents components of income (loss) from continuing operations before taxes for the years ended December 31:
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Domestic | $ | (208.5 | ) | | $ | (215.2 | ) | | $ | (56.6 | ) |
| Foreign | 32.8 |
| | (23.1 | ) | | 102.4 |
|
| Total | $ | (175.7 | ) | | $ | (238.3 | ) | | $ | 45.8 |
|
The following table presents the components of income tax (benefit) expense for the years ended December 31:
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Current | | | | | |
| U.S. federal | $ | (4.4 | ) | | $ | (67.2 | ) | | $ | (2.0 | ) |
| Foreign | 72.9 |
| | 54.0 |
| | 38.2 |
|
| State and local | 1.7 |
| | (10.6 | ) | | (0.6 | ) |
| Total current | 70.2 |
| | (23.8 | ) | | 35.6 |
|
| Deferred | | | | | |
| U.S. federal | 7.6 |
| | 3.6 |
| | (38.3 | ) |
| Foreign | (44.9 | ) | | (50.2 | ) | | (11.1 | ) |
| State and local | (3.1 | ) | | 2.8 |
| | 0.1 |
|
| Total deferred | (40.4 | ) | | (43.8 | ) | | (49.3 | ) |
| Income tax (benefit) expense | $ | 29.8 |
| | $ | (67.6 | ) | | $ | (13.7 | ) |
In addition to the income tax (benefit) expense listed above for the years ended December 31, 2017, 2016 and 2015, income tax (benefit) expense allocated directly to shareholders equity for the same periods was $7.2, $(1.8) and $5.4, respectively, in addition it also includes (benefit) expense of $9.9, $7.7 and $(20.4), respectively, related to current year movement in valuation allowance. Income tax (benefit) expense allocated to discontinued operations for the years ended December 31, 2016 and 2015 was $93.9 and $9.6, respectively.
Income tax (benefit) expense attributable to income (loss) from continuing operations before taxes differed from the amounts computed by applying the U.S. federal income tax rate of 35 percent to pre-tax income (loss) from continuing operations. The following table presents these differences for the years ended December 31:
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Statutory tax (benefit) expense | $ | (61.5 | ) | | $ | (83.4 | ) | | $ | 16.0 |
|
| Brazil non-taxable incentive | (3.9 | ) | | (5.8 | ) | | (4.2 | ) |
| Valuation allowance | 10.5 |
| | 14.9 |
| | (0.7 | ) |
| Foreign tax rate differential | (31.5 | ) | | (10.0 | ) | | (19.4 | ) |
| Foreign subsidiary earnings | 14.4 |
| | 13.7 |
| | (9.1 | ) |
| Accrual adjustments | 4.1 |
| | 1.1 |
| | 1.5 |
|
| U.S. tax reform - rate impact on deferred tax balance | 45.1 |
| | — |
| | — |
|
| U.S. tax reform - deemed repatriation tax | 36.6 |
| | — |
| | — |
|
| Business tax credits | (0.6 | ) | | (0.7 | ) | | (1.4 | ) |
| Non-deductible (non-taxable) items | 17.9 |
| | 2.3 |
| | 4.2 |
|
| Other | (1.3 | ) | | 0.3 |
| | (0.6 | ) |
| Income tax (benefit) expense | $ | 29.8 |
| | $ | (67.6 | ) | | $ | (13.7 | ) |
The effective tax rate for 2017 was (17.0) percent and is primarily driven by the Tax Act, which was enacted on December 22, 2017. The Tax Act, among other things, lowered the U.S. corporate income tax rate from 35 percent to 21 percent effective January 1, 2018, while also imposing a deemed repatriation tax on deferred foreign earnings. The resulting impact to the Company is an estimated $45.1 reduction to deferred income taxes for the income tax rate change and an estimated one-time non-cash charge
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
of $36.6 related to deferred foreign earnings. The Company continues to make and refine its provisional calculations as additional analysis is completed, and consequently, these provisional estimates may be affected as additional regulatory guidance is issued. Adjustments to the provisional amounts will be recognized as a component of the income tax (benefit) expense in the period in which the adjustments are determined, but in any event, no later than the fourth quarter of 2018. In addition to the impact of the Tax Act, the overall effective tax rate is impacted by the jurisdictional income (loss) and varying respective statutory rates and is reflected in the foreign tax rate differential caption of the rate reconciliation.
The effective tax rate for 2016 of 28.4 percent on the overall loss from continued operations. The benefit on the overall loss was negatively impacted by the Acquisition including a valuation allowance for certain post-acquisition losses and non-deductible acquisition related expenses. The overall effective tax rate was decreased further by the jurisdictional income (loss) and varying respective statutory rates within the acquired entities.
The Company recognizes the benefit of tax positions taken or expected to be taken in its tax returns in its consolidated financial statements when it is more likely than not that the position will be sustained upon examination by authorities. Recognized tax positions are measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement.
Details of the unrecognized tax benefits are as follows:
|
| | | | | | | |
| | 2017 | | 2016 |
| Balance at January 1 | $ | 43.2 |
| | $ | 13.1 |
|
| Acquired uncertain tax positions | — |
| | 28.5 |
|
| Increases related to prior year tax positions, net | 6.1 |
| | 6.3 |
|
| Increases related to current year tax positions | 7.5 |
| | 2.5 |
|
| Settlements | (1.8 | ) | | (3.4 | ) |
| Reductions due to lapse of applicable statute of limitations | (6.6 | ) | | (3.8 | ) |
| Balance at December 31 | $ | 48.4 |
| | $ | 43.2 |
|
The entire amount of unrecognized tax benefits, if recognized, would affect the Company’s effective tax rate.
The Company classifies interest expense and penalties related to the underpayment of income taxes as income tax (benefit) expense in the consolidated financial statements. The Company accrues interest income on overpayments of income taxes where applicable and classifies interest income as a reduction of income tax (benefit) expense in the consolidated financial statements. As of December 31, 2017 and 2016, accrued interest and penalties related to unrecognized tax benefits totaled $5.5 and $7.6, respectively.
It is reasonably possible that the total amount of unrecognized tax benefits will change during the next 12 months. The Company does not expect those changes to have a significant impact on its consolidated financial statements. The expected timing of payments cannot be determined with any degree of certainty.
During 2017, the IRS completed its examination of the Company's U.S federal income tax return for years ended December 31, 2013, 2012 and 2011 and issued a Revenue Agent’s Report (RAR). The Company agreed to the findings in the RAR with no net tax deficiency for 2012 and 2011 tax years. The Company initially appealed the findings for the 2013 tax year, reaching an agreement and receiving a draft RAR with no net tax deficiency, effectively settling the findings and has accrued all amounts. There are no other outstanding audits by the IRS and all U.S. federal tax years prior to 2013 are closed by statute. The Company is subject to tax examinations in various U.S state jurisdictions for tax years 2012 to the present, as well as various foreign jurisdictions for tax years 2010 to the present.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at December 31 are as follows:
|
| | | | | | | |
| | 2017 | | 2016 |
| Deferred tax assets | | | |
| Accrued expenses | $ | 43.0 |
| | $ | 74.5 |
|
| Warranty accrual | 13.5 |
| | 19.7 |
|
| Deferred compensation | 10.6 |
| | 16.2 |
|
| Allowances for doubtful accounts | 3.8 |
| | 10.3 |
|
| Inventories | 14.4 |
| | 26.1 |
|
| Deferred revenue | 38.1 |
| | 19.1 |
|
| Pensions, post-retirement and other benefits | 82.6 |
| | 92.3 |
|
| Tax credits | 81.9 |
| | 52.1 |
|
| Net operating loss carryforwards | 125.9 |
| | 88.4 |
|
| Capital loss carryforwards | 2.6 |
| | 1.8 |
|
| State deferred taxes | 17.4 |
| | 17.1 |
|
| Other | 0.8 |
| | 0.5 |
|
| | 434.6 |
| | 418.1 |
|
| Valuation allowance | (105.6 | ) | | (87.8 | ) |
| Net deferred tax assets | $ | 329.0 |
| | $ | 330.3 |
|
| | | | |
| Deferred tax liabilities | | | |
| Property, plant and equipment, net | $ | 1.2 |
| | $ | 39.7 |
|
| Goodwill and intangible assets | 302.8 |
| | 271.5 |
|
| Partnership interest | — |
| | 3.7 |
|
| Undistributed earnings | 16.0 |
| | 6.5 |
|
| Other | 2.3 |
| | — |
|
| Net deferred tax liabilities | 322.3 |
| | 321.4 |
|
| Net deferred tax asset | $ | 6.7 |
| | $ | 8.9 |
|
Deferred income taxes reported in the consolidated balance sheets as of December 31 are as follows:
|
| | | | | | | |
| | 2017 | | 2016 |
| Deferred income taxes - assets | $ | 293.8 |
| | $ | 309.5 |
|
| Deferred income taxes - liabilities | (287.1 | ) | | (300.6 | ) |
| Net deferred tax asset | $ | 6.7 |
| | $ | 8.9 |
|
As of December 31, 2017, the Company had domestic and international net operating loss (NOL) carryforwards of $730.9, resulting in an NOL deferred tax asset of $125.9. Of these NOL carryforwards, $484.5 expire at various times between 2018 and 2038 and $246.4 does not expire. At December 31, 2017, the Company had a domestic foreign tax credit carryforward resulting in a deferred tax asset of $77.3 that will expire between 2020 and 2028 and a general business credit carryforward resulting in a deferred tax asset of $4.6 that will expire between 2035 and 2038.
The Company recorded a valuation allowance to reflect the estimated amount of certain foreign and state deferred tax assets that, more likely than not, will not be realized. The net change in total valuation allowance for the years ended December 31, 2017 and 2016 was an increase of $17.8 and $23.9, respectively. The 2016 valuation allowance increase is currency driven relating mostly to the strengthening of the Brazil real compared to the previous year. In addition, $9.1 of the valuation allowance increase relates to the Acquisition.
For the years ended December 31, 2017 and 2016, provisions were made for foreign withholding taxes and estimated foreign taxes which may be incurred upon the remittance of certain undistributed earnings in foreign subsidiaries and foreign unconsolidated affiliates. Additionally, in 2016, provisions were made for estimated U.S. income taxes, less available tax credits. Provisions have
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
not been made for income taxes on $604.1 of undistributed earnings at December 31, 2017 in foreign subsidiaries and corporate joint ventures that are deemed permanently reinvested. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, depends on certain circumstances existing if and when remittance occurs. A deferred tax liability will be recognized if and when the Company no longer plans to permanently reinvest these undistributed earnings.
NOTE 8: INVESTMENTS
The Company’s investments, primarily in Brazil, consist of certificates of deposit that are classified as available-for-sale and statedrecorded at fair value based upon quoted market prices. Unrealized gains and losses are recordedChanges in AOCI. Realized gains and lossesfair value are recognized in investmentinterest income, and are determined using the specific identification method.method, and were minimal. There were no realized gains from the sale of securities or proceeds from the sale of available-for-sale securities prior to the maturity date for the yearsyear ended December 31, 2017 and 2016.2022.
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 enable 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 15)Note 19 of the consolidated financial statements), 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 respectively,subject to fair value measurement consist of the following:
| | | | | | | | | | | | | | | | | |
| Cost Basis | | Unrealized Gain | | Fair Value |
| As of December 31, 2022 | | | | | |
| Short-term investments | | | | | |
| Certificates of deposit | $ | 24.6 | | | $ | — | | | $ | 24.6 | |
| Long-term investments | | | | | |
| Assets held in a rabbi trust | $ | 4.3 | | | $ | 0.1 | | | $ | 4.4 | |
| | | | | |
| As of December 31, 2021 | | | | | |
| Short-term investments | | | | | |
| Certificates of deposit | $ | 34.3 | | | $ | — | | | $ | 34.3 | |
| Long-term investments: | | | | | |
| Assets held in a rabbi trust | $ | 5.4 | | | $ | 1.6 | | | $ | 7.0 | |
|
| | | | | | | | | | | |
| | Cost Basis | | Unrealized Gain | | Fair Value |
| 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 |
|
| | | | | | |
| As of December 31, 2016 | | | | | |
| Short-term investments | | | | | |
| Certificates of deposit | $ | 64.1 |
| | $ | — |
| | $ | 64.1 |
|
| Long-term investments: | | | | | |
| Assets held in a rabbi trust | $ | 7.9 |
| | $ | 0.6 |
| | $ | 8.5 |
|
Securities and other investments also includes cash surrender value of insurance contracts of $3.2 and $4.0 as of December 31, 2022 and 2021, respectively.
The Company has certain strategic alliancesnon-consolidated joint ventures that are not consolidated. The Company tests these strategic alliances annually, individuallysignificant subsidiaries and in aggregate, to determine materiality.are accounted for under the equity method of accounting. The Company owns 40.048.1 percent of Inspur (Suzhou) Financial Technology ServiceInformation System Co., LtdLtd. (Inspur JV) and 43.649.0 percent of Aisino-Wincor Retail & Banking Systems (Shanghai) Co.,Ltd; Ltd. (Aisino JV). The Company engages in transactions in the ordinary course of business with the respective joint ventures. As of December 31, 2022, the Company had accounts receivable and accounts payable balances with these joint ventures of $18.9 and $25.7, respectively, which are included in trade receivables, less allowances for doubtful accounts and accounts payable on the condensed consolidated balance sheets.
NOTE 8: GOODWILL AND INTANGIBLE ASSETS
In the second quarter of 2022, the Company reorganized its reportable segments in connection with the new and simplified operating model implemented by the recently appointed Chief Executive Officer. This organizational change is described in further detail in Note 19 of the consolidated financial statements, and is consistent with how the Chief Executive Officer, the chief operating decision maker (CODM), makes key operating decisions, allocates resources, and assesses the performance of the business.
Prior to reorganization, the Company had four reporting units: Eurasia Banking, Americas Banking, EMEA Retail, and Rest of World Retail. The Company's strategic alliancesnew reporting units, determined in accordance with ASC 350, "Intangibles - goodwill and other", are the same as the operating and reportable segments, which are global Banking and global Retail. The Banking reporting unit is the summation of the legacy Eurasia Banking and Americas Banking reporting units and Retail is the summation of the legacy EMEA Retail and Rest of World Retail reporting units.
The new segmentation aligns with the Company's focus on standard and centralized global product and service offerings that support our customer base, which is largely comprised of global financial institutions and retailers. Further the simplified
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
organization does not have regional leaders reporting to the CODM, and operating metrics other than net sales will not be allocated or analyzed on a regional basis largely due to the centralization of our manufacturing and procurement functions.
As of April 30, 2022 and as a result of the reporting unit change, we performed an interim quantitative goodwill impairment test for both our old and new reporting units using a combination of the income valuation and market approach methodology. The determination of the fair value of the reporting unit requires significant subsidiariesestimates and assumptions, including significant unobservable inputs. The key inputs included, but were not limited to, discount rates, terminal growth rates, market multiple data from selected guideline public companies, management’s internal forecasts which include numerous assumptions such as projected net sales, gross profit, sales mix, operating and capital expenditures and earnings before interest and taxes margins, among others. No impairment resulted from the quantitative interim goodwill impairment test under either the legacy or new reporting unit structure.
Management determined that the fair value of Eurasia Banking had a cushion of approximately 10 percent when compared to its carrying amounts prior to the change. The other legacy reporting units had significant excess fair value or cushion when compared to its carrying amount. Under the new reporting unit structure, Banking had a cushion of approximately 130 percent and Retail had a cushion of approximately 110 percent.
Changes in certain assumptions or the Company's failure to execute on the current plan could have a significant impact to the estimated fair value of the reporting units.
In addition to the quantitative goodwill impairment test, the Company also performed a reassignment of the goodwill to the new reporting units using a relative fair value allocation approach required by Accounting Standards Codification (ASC) 350. The results of that reassignment are included in the summary below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Legacy Reporting Units | | New Reporting Unit | | | | |
| Eurasia Banking | | Americas Banking | | Banking | | Retail | | Total |
| Goodwill | $ | 590.4 | | | $ | 444.7 | | | $ | — | | | $ | 236.2 | | | $ | 1,271.3 | |
| Accumulated impairment losses | (291.7) | | | (122.0) | | | — | | | (57.2) | | | (470.9) | |
| Balance at January 1, 2021 | $ | 298.7 | | | $ | 322.7 | | | $ | — | | | $ | 179.0 | | | $ | 800.4 | |
| Divestitures | — | | | — | | | — | | | (3.3) | | | (3.3) | |
| | | | | | | | | |
| Currency translation adjustment | (29.0) | | | (4.6) | | | — | | | (19.9) | | | (53.5) | |
| Goodwill | $ | 561.4 | | | $ | 440.1 | | | $ | — | | | $ | 213.0 | | | $ | 1,214.5 | |
| Impairment | — | | | — | | | — | | | — | | | — | |
| Accumulated impairment losses | (291.7) | | | (122.0) | | | — | | | (57.2) | | | (470.9) | |
| Balance at December 31, 2021 | $ | 269.7 | | | $ | 318.1 | | | $ | — | | | $ | 155.8 | | | $ | 743.6 | |
| Currency translation adjustment | (6.3) | | | (1.0) | | | — | | | (4.4) | | | (11.7) | |
| Goodwill | $ | 555.1 | | | $ | 439.1 | | | $ | — | | | $ | 208.6 | | | $ | 1,202.8 | |
| Currency translation adjustment | — | | | — | | | (18.6) | | | (11.0) | | | (29.6) | |
| Goodwill reassignment | (555.1) | | | (439.1) | | | 922.2 | | | 72.0 | | | — | |
| Goodwill | — | | | — | | | 903.6 | | | 269.6 | | | 1,173.2 | |
| Accumulated impairment reassignment | 291.7 | | | 122.0 | | | (413.7) | | | | | — | |
| Accumulated impairment losses | — | | | — | | | (413.7) | | | (57.2) | | | (470.9) | |
| Balance at December 31, 2022 | $ | — | | | $ | — | | | $ | 489.9 | | | $ | 212.4 | | | $ | 702.3 | |
Goodwill.In the fourth quarter of 2022 and in connection with the annual goodwill impairment test, the Company performed a quantitative assessment prescribed by ASC 350 using a combination of the income valuation and market approach methodology. The determination of the fair value of the reporting unit requires significant estimates and assumptions, including significant unobservable inputs. The key inputs included, but were not limited to, discount rates, terminal growth rates, market multiple data from selected guideline public companies, management’s internal forecasts which include numerous assumptions such as projected net sales, gross profit, sales mix, operating and capital expenditures and earnings before interest and taxes margins, among others. No impairment resulted from the quantitative annual goodwill impairment test as both reporting units had substantial excess of fair value over carrying value.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Intangible Assets. Intangible assets consists of net capitalized software development costs, patents, trademarks and other intangible assets. Where applicable, intangible assets are stated at cost and, if applicable, are amortized ratably over the relevant contract period or the estimated life of the assets. Fees to renew or extend the term of the Company’s intangible assets are expensed when incurred.
The following summarizes information on intangible assets by major category:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2022 | | December 31, 2021 |
| Weighted-average remaining useful lives | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Carrying
Amount | | Gross
Carrying Amount | | Accumulated
Amortization | | Net
Carrying
Amount |
| Customer relationships, net | 3.2 years | | $ | 662.3 | | | $ | (448.7) | | | $ | 213.6 | | | $ | 703.3 | | | $ | (401.6) | | | $ | 301.7 | |
| | | | | | | | | | | | | |
| Capitalized software development | 2.1 years | | 245.2 | | | (202.7) | | | 42.5 | | | 228.1 | | | (184.9) | | | 43.2 | |
| Development costs non-software | 0.7 years | | 48.7 | | | (48.7) | | | — | | | 51.8 | | | (51.6) | | | 0.2 | |
| Other | 5.0 years | | 48.7 | | | (47.2) | | | 1.5 | | | 50.8 | | | (48.4) | | | 2.4 | |
| Other intangible assets, net | | | 342.6 | | | (298.6) | | | 44.0 | | | 330.7 | | | (284.9) | | | 45.8 | |
| Total | | | $ | 1,004.9 | | | $ | (747.3) | | | $ | 257.6 | | | $ | 1,034.0 | | | $ | (686.5) | | | $ | 347.5 | |
Costs incurred for the development of external-use software that will be sold, leased or otherwise marketed are capitalized when technological feasibility has been established. These costs are included within other intangible assets and are accountedtypically amortized on a straight-line basis over the estimated useful lives, which typically do not exceed three years. Amortization begins when the product is available for undergeneral release. Costs capitalized include third-party labor, direct labor and related overhead costs. Costs incurred prior to technological feasibility or after general release are expensed as incurred. The Company performs at least annual reviews to ensure that unamortized program costs remain recoverable from future revenue. If future revenue does not support the equity methodunamortized program costs, the amount by which the unamortized capitalized cost of investments. a software product exceeds the net realizable value is written off.
The following table identifies the activity relating to total capitalized software development:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Beginning balance as of January 1 | | $ | 43.2 | | | $ | 38.0 | | | $ | 46.0 | |
| Capitalization | | 28.7 | | | 31.1 | | | 17.2 | |
| Amortization | | (14.1) | | | (23.3) | | | (27.2) | |
| Impairment | | (9.8) | | | — | | | — | |
| | | | | | |
| CTA, transferred to held-for-sale, other | | (5.5) | | | (2.6) | | | 2.0 | |
| Ending balance as of December 31 | | $ | 42.5 | | | $ | 43.2 | | | $ | 38.0 | |
The Company's total amortization expense, excluding deferred financing costs, was $96.2, $102.7 and $106.7 for the years ended December 31, 2022, 2021 and 2020, respectively. The expected annual amortization expense is as follows:
| | | | | |
| Estimated amortization |
| 2023 | $ | 88.4 | |
| 2024 | 84.2 | |
| 2025 | 60.5 | |
| 2026 | 19.8 | |
| 2027 | 0.3 | |
| $ | 253.2 | |
NOTE 9: PRODUCT WARRANTIES
The Company provides its customers a standard 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.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Changes in the Company’s warranty liability balance are illustrated in the following table:
| | | | | | | | | | | |
| 2022 | | 2021 |
| Balance at January 1 | $ | 36.3 | | | $ | 38.6 | |
| Current period accruals | 19.5 | | | 24.4 | |
| Current period settlements | (26.4) | | | (24.4) | |
| | | |
| Currency translation | (1.1) | | | (2.3) | |
| Balance at December 31 | $ | 28.3 | | | $ | 36.3 | |
NOTE 10: RESTRUCTURING
In May 2017,the fourth quarter of 2021, the Company completed the execution of a multi-year restructuring and transformation program
called DN Now. On a cumulative basis, $218.9 of expenses were incurred through December 31, 2021. These costs consisted
of $200.2 of severance charges with the remainder related to costs of personnel transitioning out of the organization, and consulting fees paid to third-party organizations who assisted with our transition to a shared service model.
In the second quarter of 2022, the Company announced a strategic partnershipnew initiative to streamline operations, drive efficiencies and digitize
processes, targeting annualized cost savings of more than $150.0 by the end of 2023. Throughout 2022, the Company incurred $124.2 of restructuring and transformation costs. The most significant of these costs was $54.9 and $7.6, recorded in the second and fourth quarters of 2022, respectively, that was accrued for severance payments under an ongoing severance benefit program. Consistent with Kony,DN Now, other than severance, the remainder of the expenses incurred primarily relate to transitioning personnel and consultant fees in relation to the transformation process.
In connection with the latest restructuring initiative, several facilities have been identified for closure, which resulted in a $5.4
impairment of right-of-use assets and related leasehold improvements and furniture and fixtures recorded during the second
quarter of 2022. In connection with the organizational simplification and related portfolio optimization, $4.1 of German
capitalized software was impaired in the third quarter of 2022.
The following table summarizes the impact of the Company’s restructuring and transformation charges, excluding the aforementioned impairments, on the consolidated statements of operations for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Cost of sales - services | $ | 7.7 | | | $ | 13.0 | | | $ | 14.1 | |
| Cost of sales - products | 13.1 | | | 2.4 | | | 8.2 | |
| Selling and administrative expense | 94.4 | | | 13.1 | | | 52.9 | |
| Research, development and engineering expense | 9.0 | | | (0.3) | | | 6.4 | |
| Total | $ | 124.2 | | | $ | 28.2 | | | $ | 81.6 | |
The following table summarizes the Company’s restructuring severance accrual balance and related activity:
| | | | | |
| Balance at January 1, 2020 | $ | 42.6 | |
| Liabilities incurred | 81.6 | |
| Liabilities paid/settled | (61.3) | |
| Balance at December 31, 2020 | $ | 62.9 | |
| Liabilities incurred | 15.4 | |
| Liabilities paid/settled | (43.0) | |
| Balance at December 31, 2021 | $ | 35.3 | |
| Liabilities incurred | 62.5 | |
| Liabilities paid/settled | (53.6) | |
| Balance at December 31, 2022 | $ | 44.2 | |
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
NOTE 11: DEBT
Outstanding debt balances were as follows:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Notes payable – current | | | |
| Uncommitted lines of credit | $ | 0.9 | | | $ | 1.6 | |
| Revolving Facility | — | | | 35.9 | |
| 2023 Term Loan B Facility - USD | 12.9 | | | 4.8 | |
| 2023 Term Loan B Facility - Euro | 5.1 | | | 4.7 | |
| 2025 Extended Term Loan B Facility - USD | 5.3 | | | — | |
| 2025 Extended Term Loan B Facility - EUR | 1.1 | | | — | |
| Other | 1.7 | | | 0.3 | |
| 27.0 | | | 47.3 | |
| Short-term deferred financing fees | (3.0) | | | (0.2) | |
| $ | 24.0 | | | $ | 47.1 | |
| | | |
| Long-term debt | | | |
| Revolving Facility | $ | — | | | $ | 25.0 | |
| 2023 Term Loan B Facility - USD | — | | | $ | 381.0 | |
| 2023 Term Loan B Facility - EUR | — | | | 375.6 | |
| 2024 Senior Notes | 72.1 | | | 400.0 | |
| 2025 Senior Secured Notes - USD | 2.7 | | | 700.0 | |
| 2025 Senior Secured Notes - EUR | 4.7 | | | 396.4 | |
| 2026 Asset Backed Loan (ABL) | 182.0 | | | — | |
| 2025 Extended Term Loan B Facility - USD | 529.5 | | | — | |
| 2025 Extended Term Loan B Facility - EUR | 95.5 | | | — | |
| 2026 2L Notes | 333.6 | | | — | |
| 2025 Exchanged Senior Secured Notes - USD | 718.1 | | | — | |
| 2025 Exchanged Senior Secured Notes - EUR | 379.7 | | | — | |
| 2025 Superpriority Term Loans | 400.6 | | | — | |
| Other | 6.3 | | | 4.2 | |
| 2,724.8 | | | 2,282.2 | |
| Long-term deferred financing fees | (139.0) | | | (36.6) | |
| $ | 2,585.8 | | | $ | 2,245.6 | |
On March 11, 2022, the Company entered into the eleventh and most recent amendment to its Existing Credit Agreement, to amend the financial covenants with respect to its "Total Net Leverage Ratio".
On December 29, 2022 (the “Settlement Date”), the Company completed a series of transactions with certain key financial
stakeholders to refinance certain debt with near-term maturities and provide the Company with new capital. The transactions and related material definitive agreements entered into by the Company are described below.
2024 Senior Notes
On the Settlement Date, the Company completed a private exchange offer and consent solicitation with respect to the outstanding 8.50% Senior Notes due 2024, which included (i) a private offer to certain eligible holders to exchange any and all 2024 Senior Notes for units (the “Units”) consisting of (a) new 8.50%/12.50% Senior Secured PIK Toggle Notes due 2026 issued by the Company (the “2L Notes”) and (b) a number of warrants (the “New Warrants” and, together with the Units and the New Notes, the “New Securities”) to purchase common shares, par value $1.25 per share, of the Company (“Common Shares”) and
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
(ii) a related consent solicitation to adopt certain proposed amendments to the indenture governing the 2024 Senior Notes (the “2024 Senior Notes Indenture”) to eliminate certain of the covenants, restrictive provisions and events of default intended to protect holders, among other things, from such indenture (collectively, the “2024 Exchange Offer and Consent Solicitation”).
Pursuant to the 2024 Exchange Offer and Consent Solicitation, the Company accepted $327.9 in aggregate principal amount of the 2024 Senior Notes (representing 81.97% of the aggregate principal amount outstanding of the 2024 Senior Notes) tendered for exchange and issued $333.6 in aggregate principal amount of Units consisting of $333.6 in aggregate principal amount of 2L Notes and 15,813,847 New Warrants to purchase up to 15,813,847 Common Shares.
Each New Warrant will initially represent the right to purchase one Common Share, at an exercise price of $0.01 per share. The New Warrants will, in the aggregate and upon exercise, be exercisable for up to 15,813,847 Common Shares (representing 19.99% of the Common Shares outstanding on the business day immediately preceding the Settlement Date), subject to adjustment. Unless earlier cancelled in accordance with their terms, New Warrants can be exercised at any time on and after April 1, 2024 and prior to December 30, 2027 (or, if such day is locatednot a business day, the next succeeding day that is a business day). No cash will be payable by a warrantholder in Texas,respect of the exercise price for a leading enterprise mobilityNew Warrant upon exercise.
If a Termination Event (as defined in the agreement governing the Units) occurs with respect to any Units prior to April 1, 2024, the New Warrants forming part of such Units will automatically terminate and application company,become void without further legal effect and will be cancelled for no further consideration.
The 2L Notes are the Company’s senior secured obligations and are guaranteed by the Company’s material subsidiaries in the United States, Belgium, Canada, Germany, France, Italy, the Netherlands, Poland, Spain, Sweden and the United Kingdom (the “Specified Jurisdictions”), in each case, subject to agreed guaranty and security principles and certain exclusions. The obligations of the Company and the guarantors are secured (i) on a second-priority basis by certain Non-ABL Priority Collateral (as defined below) held by the Company and those guarantors that are organized in the United States, (ii) on a third-priority basis by certain other Non-ABL Priority Collateral held by the Company and the guarantors and (iii) on a fourth-priority basis by the ABL Priority Collateral (as defined below).
The 2L Notes will mature on October 15, 2026 and bear interest at a fixed rate of 8.50% per annum through July 15, 2025, after which interest will accrue at the rate of 8.50% (if paid in cash) or 12.50% (if paid in the form of PIK Interest (as defined in the New indenture governing the 2L Notes (the “2L Notes Indenture”)), subject to the applicable interest period determination election made for each applicable interest period after such date.
Interest on the 2L Notes will be payable on January 15 and July 15 of each year, commencing on July 15, 2023. Interest will accrue from the Settlement Date.
The 2L Notes will be redeemable at the Company’s option, in whole or in part, at any time at 100% of their principal amount, together with accrued and unpaid interest, subject to certain restrictions.
Upon the occurrence of specific kinds of changes of control, the Company will be required to make an offer white label mobile application solutions for financial institutionsto repurchase some or all of the 2L Notes at 101% of their principal amount, plus accrued and retailers. unpaid interest to, but excluding, the repurchase date, subject to certain restrictions. Further, if the Company or its subsidiaries sell assets, under certain circumstances, the Company will be required to use the net proceeds from such sales to make an offer to purchase New Notes at an offer price in cash in an amount equal to 100% of the principal amount of the New Notes plus accrued and unpaid interest to, but excluding, the repurchase date, subject to certain restrictions.
The 2L Notes Indenture contains covenants that, among other things, restrict the ability of the Company and its subsidiaries to incur additional indebtedness and guarantee indebtedness, pay dividends, prepay, redeem or repurchase certain debt, incur liens and to merge, consolidate or sell assets.
The Company acquiredis required to raise equity capital prior to the maturity date of the 2024 Senior Notes in an amount necessary to
repurchase, redeem, prepay or pay in full the Excess Stub Notes.
2025 Senior Secured Notes
On the Settlement Date, the Company also completed the private exchange offers and consent solicitations with respect to the outstanding 9.375% Senior Secured Notes due 2025 issued by the Company (the “2025 USD Senior Notes”) and the outstanding 9.000% Senior Secured Notes due 2025 issued by Diebold Nixdorf Dutch Holding B.V. (the “Dutch Issuer”), a minoritydirect and wholly owned subsidiary of the Company (the “2025 EUR Senior Notes”, and together with the 2025 USD Senior Notes, the “2025 Senior Notes”), which included (i) private offers to certain eligible holders to exchange (a) any and all 2025 USD Senior Notes for new senior secured notes (the “New 2025 USD Senior Notes”) having the same terms as the 2025 USD Senior Notes, other than the issue date, the first interest payment date, the first date from which interest will accrue and other
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
than with respect to CUSIP and ISIN numbers and (b) any and all 2025 EUR Senior Notes for new senior secured notes (the “New 2025 EUR Senior Notes” and, together with the New 2025 USD Senior Notes, the “New 2025 Notes”) having the same terms as the 2025 EUR Senior Notes, other than the issue date, the first interest payment date, the first date from which interest will accrue and other than with respect to ISIN numbers and common codes and (ii) related consent solicitations to enter into supplemental indentures with respect to (a) the indenture governing the 2025 USD Senior Notes, dated as of July 20, 2020 (the “2025 USD Senior Notes Indenture”), and (b) the indenture governing the 2025 EUR Senior Notes, dated as of July 20, 2020 (the “2025 EUR Senior Notes Indenture” and, together with the 2025 USD Senior Notes Indenture, the “2025 Senior Notes Indentures”), in order to amend certain provisions of the 2025 Senior Notes Indentures to, among other things, permit the refinancing transactions set forth in the Transaction Support Agreement, dated as of October 20, 2022 (as amended, the “Transaction Support Agreement”), among the Company, certain of its subsidiaries and certain creditors (collectively, the “2025 Exchange Offers and Consent Solicitations” and, together with the 2024 Exchange Offer and Consent Solicitation, the “Exchange Offers and Consent Solicitations”).
The 2025 Exchange Offers and Consent Solicitations were completed on the terms and subject to the conditions set forth in the Offering Memorandum and Consent Solicitation Statement, dated as of November 28, 2022 (as amended, the “2025 Offering Memorandum”), and the related eligibility letter. Pursuant to the 2025 Exchange Offers and Consent Solicitations, the Company accepted $697.3 in aggregate principal amount of the 2025 USD Senior Notes (representing 99.61% of the aggregate principal amount of the outstanding 2025 USD Senior Notes) tendered for exchange and issued $718.1 in aggregate principal amount of the New 2025 USD Senior Notes. The Dutch Issuer accepted €345.6 in aggregate principal amount of the 2025 EUR Senior Notes (representing 98.75% of the aggregate principal amount of the outstanding 2025 EUR Senior Notes) tendered for exchange and issued €356.0 aggregate principal amount of the New 2025 EUR Senior Notes. In addition, eligible holders received payment in cash for accrued and unpaid interest on the 2025 Senior Notes that were accepted for exchange.
The New 2025 USD Senior Notes are the Company’s senior secured obligations. The New 2025 USD Senior Notes and the 2025 USD Senior Notes that remain outstanding are guaranteed by the Company’s material subsidiaries in the Specified Jurisdictions, in each case, subject to agreed guaranty and security principles and certain exclusions. The obligations of the Company and the guarantors are secured (i) on a first-priority basis, ranking pari passu with the Superpriority Facility (as defined below), the 2025 EUR Senior Notes, the New 2025 EUR Senior Notes and the Existing Term Loans (as defined below) (excluding released liens), by certain Non-ABL Priority Collateral held by the Company and those guarantors that are organized in the United States, (ii) on a second-priority basis by certain other Non-ABL Priority Collateral held by the Company and the guarantors and (iii) on a third-priority basis by the ABL Priority Collateral.
The New 2025 USD Senior Notes will mature on July 15, 2025 and bear interest at a rate of 9.375% per year from the Settlement Date.
Interest on the New 2025 USD Senior Notes will be payable on January 15 and July 15 of each year, commencing on January 15, 2023.
The New 2025 USD Senior Notes will be redeemable at the Company’s option, in whole or in part, upon not less than 15 nor more than 60 days’ notice mailed or otherwise sent to each holder, at 104.688% of their principal amount prior to July 15, 2023, 102.344% prior to July 15, 2024 and 100% thereafter, together with accrued and unpaid interest, if any, to, but excluding, the date of redemption, subject to certain restrictions.
Upon the occurrence of specific kinds of changes of control, the Company will be required to make an offer to repurchase some or all of the New 2025 USD Senior Notes at 101% of their principal amount, plus accrued and unpaid interest to, but excluding, the repurchase date, subject to certain restrictions. Further, if the Company or its subsidiaries sell assets, under certain circumstances, the Company will be required to use the net proceeds from such sales to make an offer to purchase the New 2025 USD Senior Notes at an offer price in cash in an amount equal to 100% of the principal amount of the New 2025 USD Senior Notes plus accrued and unpaid interest to, but excluding, the repurchase date, subject to certain restrictions.
The New 2025 EUR Senior Notes are the Dutch Issuer’s senior secured obligations. The New 2025 EUR Senior Notes and the 2025 EUR Senior Notes that remain outstanding are guaranteed by the Company and the Company’s material subsidiaries (other than the Dutch Issuer) in the Specified Jurisdictions, in each case, subject to agreed guaranty and security principles and certain exclusions. The obligations of the Dutch Issuer and the guarantors are secured (i) on a first-priority basis, ranking pari passu with the Superpriority Facility, the 2025 USD Senior Notes, the New 2025 USD Senior Notes and the Existing Term Loans (excluding released liens), by certain Non-ABL Priority Collateral held by the Company and those guarantors that are organized in the United States, (ii) on a second-priority basis by certain other Non-ABL Priority Collateral held by the Company and the guarantors and (iii) on a third-priority basis by the ABL Priority Collateral.
The New 2025 EUR Senior Notes will mature on July 15, 2025 and bear interest at a rate of 9.000% per year from the Settlement Date.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Interest on the New 2025 EUR Senior Notes will be payable on January 15 and July 15 of each year, commencing on January 15, 2023.
The New 2025 EUR Senior Notes will be redeemable at the Dutch Issuer’s option, in whole or in part, upon not less than 15 nor more than 60 days’ notice mailed or otherwise sent to each holder, at 104.500% of their principal amount prior to July 15, 2023, 102.250% prior to July 15, 2024 and 100% thereafter, together with accrued and unpaid interest, if any, to, but excluding, the date of redemption, subject to certain restrictions.
Upon the occurrence of specific kinds of changes of control, the Dutch Issuer will be required to make an offer to repurchase some or all of the New 2025 EUR Senior Notes at 101% of their principal amount, plus accrued and unpaid interest to, but excluding, the repurchase date, subject to certain restrictions. Further, if the Dutch Issuer or its subsidiaries sell assets, under certain circumstances, the Dutch Issuer will be required to use the net proceeds from such sales to make an offer to purchase the New 2025 EUR Senior Notes at an offer price in cash in an amount equal to 100% of the principal amount of the New 2025 EUR Senior Notes plus accrued and unpaid interest to, but excluding, the repurchase date, subject to certain restrictions.
The Twelfth Amendment to the Existing Credit Agreement
On the Settlement Date, the Company entered into a twelfth amendment (the “Twelfth Amendment”) to the Credit Agreement, dated as of November 23, 2015 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Existing Credit Agreement”).
The Twelfth Amendment, among other things, (i) permits the Exchange Offers and Consent Solicitations, the Term Loan Exchange (as defined below), the Superpriority Facility (as defined below), the ABL Facility and certain other related transactions (together, the “Refinancing Transactions”), (ii) removes substantially all negative covenants and mandatory prepayment provisions from the Existing Credit Agreement and (iii) directs the collateral agent under the Existing Credit Agreement to release the liens on certain current-asset collateral securing the ABL Facility on a first-priority basis (the “ABL Priority Collateral”) and certain other collateral securing the Company’s obligations under the Existing Credit Agreement and the Company’s existing subsidiary guarantors’ obligations under the related guarantees (in each case, to the extent permitted, including under applicable law).
Superpriority Facility
On the Settlement Date, the Company and Diebold Nixdorf Holding Germany GmbH (the “Superpriority Borrower”) entered into a Credit Agreement (the “Superpriority Credit Agreement”), providing for a superpriority secured term loan facility of $400 (the “Superpriority Facility”). On the Settlement Date, the Superpriority Borrower borrowed the full $400 of term loans available (the "Superpriority Term Loans").
The proceeds of the borrowing under the Superpriority Facility were or will be used, respectively, (i) on the Settlement Date, to repay the New Term Loans (as defined below) in an amount equal to 15% of the principal amount of Existing Term Loans (as defined below) that participated in the Term Loan Exchange (the “Initial New Term Loan Paydown”), (ii) on December 31, 2023, to repay the New Term Loans in an amount equal to 5% of the principal amount (at the time of the Term Loan Exchange) of Existing Term Loans that participated in the Term Loan Exchange, subject to satisfaction of certain liquidity conditions, (iii) solely in the event that the repayment in (ii) is not made as a result of such liquidity conditions not being satisfied, on December 31, 2024, to repay the New Term Loans in an amount equal to 5% of the principal amount (at the time of the Term Loan Exchange) of Existing Term Loans that participated in the Term Loan Exchange, subject to satisfaction of the same liquidity condition measured on a pro forma basis on December 31, 2024 and (iv) for general corporate purposes (excluding making payments on any other funded indebtedness).
The Superpriority Term Loans will mature on July 15, 2025. The Superpriority Term Loans bear interest equal to (i) in the case of Term Benchmark Loans (as defined in the Superpriority Credit Agreement), the Adjusted Term SOFR Rate (as defined in the Superpriority Credit Agreement and subject to a 4.0% floor) plus a 0.10% credit spread adjustment plus an applicable margin of 6.40% and (ii) in the case of Floating Rate Loans (as defined in the Superpriority Credit Agreement), the Alternate Base Rate (as defined in the Superpriority Credit Agreement and subject to a 5.0% floor) plus an applicable margin of 5.40%. Interest accrued on the Superpriority Loans is payable (i) in the case of Term Benchmark Loans, on the last day of the applicable Interest Period (as defined in the Superpriority Credit Agreement) (provided that, if the Interest Period is longer than three months, interest is also payable on the last day of each three-month interval during such Interest Period), on any date on which the Term Benchmark Loans are repaid, and at maturity, and (ii) in the case of Floating Rate Loans, on the last business day of each March, June, September and December occurring after the Settlement Date, beginning with March 31, 2023, and at maturity.
Pursuant to the Transaction Support Agreement, the Superpriority Borrower paid a fee to the lenders under the Superpriority Facility in an amount equal to 6.40% per annum of such lenders’ commitments (the “Ticking Fee”), which began accruing on
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
December 20, 2022 until the Settlement Date. The total amount of the Ticking Fee paid to all lenders was $0.6, and was paid in the form of additional Superpriority Term Loans on the Settlement Date.
The obligations of the Superpriority Borrower under the Superpriority Facility are guaranteed, subject to certain exclusions and agreed guaranty and security principles, by the Company and the Company’s material subsidiaries in the Specified Jurisdictions and secured (i) on a first-priority basis by substantially all assets (subject to agreed guaranty and security principles and certain exclusions) other than the ABL Priority Collateral (the “Non-ABL Priority Collateral”) held by the Superpriority Borrower and those guarantors that are organized outside the United States and certain Non-ABL Priority Collateral held by the Company and those guarantors that are organized in the United States, (ii) on a first-priority basis, ranking pari passu with the New Term Loans, the 2025 Senior Notes, the New 2025 Notes and the Existing Term Loans (excluding released liens), by certain Non-ABL Priority Collateral held by the Company and those guarantors that are organized in the United States and (iii) on a second-priority basis by the ABL Priority Collateral.
The Superpriority Borrower may prepay the Superpriority Term Loans at any time; provided that voluntary prepayments and certain mandatory prepayments made (i) prior to December 29, 2024 must be accompanied by a customary make-whole premium and (ii) on or after December 29, 2024 must be accompanied by a premium of 5.00% of the aggregate principal amount of the Superpriority Term Loans being prepaid. The Superpriority Credit Agreement additionally provides that the Superpriority Borrower is required to prepay the Superpriority Term Loans in certain circumstances, including (i) in connection with asset sales, where mandatory prepayments must be made with the proceeds of such asset sales and accompanied by a premium of 1.00% of the aggregate principal amount of the loans being prepaid, and (ii) in connection with change of control and certain other transformative transactions, where prepayments must be accompanied by a premium of 5.00% of the aggregate principal amount of the loans being prepaid. Amounts borrowed and repaid under the Superpriority Facility may not be reborrowed.
The Superpriority Credit Agreement contains affirmative and negative covenants customary for facilities of its type, including, but not limited to, delivery of financial information, limitations on mergers, consolidations and fundamental changes, limitations on sales of assets, limitations on investments and acquisitions, limitations on liens, limitations on transactions with affiliates, limitations on indebtedness, limitations on negative pledge clauses, limitations on restrictions on subsidiary distributions, limitations on restricted payments and limitations on certain payments of indebtedness. The Superpriority Credit Agreement contains restrictions on making repayments of certain junior indebtedness prior to their maturity, subject to certain specified repayment conditions.
The Superpriority Credit Agreement provides for certain customary events of default, including, but not limited to, nonpayment of principal, interest, fees or other amounts, breach of covenants, cross default and cross acceleration to material indebtedness, voluntary and involuntary bankruptcy or insolvency proceedings, unpaid material judgments and change of control.
Term Loans
On December 16, 2022, the Company made an offer to (i) each of the lenders (collectively, the “Existing Dollar Term Lenders”) holding certain dollar term loans (the “Existing Dollar Term Loans”) under the Existing Credit Agreement providing for the opportunity to exchange all (but not less than all) of the principal amount of its Existing Dollar Term Loans for the same principal amount of Dollar Term Loans (the “New Dollar Term Loans”) as defined in and made pursuant to the New Term Loan Credit Agreement (as defined below), plus the Transaction Premium (as defined in the Twelfth Amendment), and (ii) each of the lenders (collectively, the “Existing Euro Term Lenders” and together with the Existing Dollar Term Lenders, the “Existing Term Lenders”) holding certain euro term loans (the “Existing Euro Term Loans” and together with the Existing Dollar Term Loans, the “Existing Term Loans”; the loan facility for the Existing Term Loans, the “Existing Term Loan Facility”) providing for the opportunity to exchange all (but not less than all) of the principal amount of its Existing Euro Term Loans for either (a) the same principal amount of Euro Term Loans (the “New Euro Term Loans” and together with the New Dollar Term Loans, the “New Term Loans”; the loan facility for the New Term Loans, the “New Term Loan Facility”) as defined in and made pursuant to the New Term Loan Credit Agreement or (b) the same principal amount of New Dollar Term Loans (with the exchange rate used for such conversion of the existing principal amount denominated in euros to the equivalent new principal amount denominated in dollars determined by reference to the WMR 4pm London Mid Spot Rate published by Refinitiv at 4:00 p.m. (London Time) on the date that was two business days prior to the Settlement Date), in each case, plus the Transaction Premium (collectively, clauses (i) and (ii), the “Term Loan Exchange Offer” and the exchange pursuant to the Term Loan Exchange Offer, the “Term Loan Exchange”).
On the Settlement Date, the Company completed the Term Loan Exchange whereby approximately 96.6% of the aggregate principal amount of Existing Dollar Term Loans and approximately 98.6% of the aggregate principal amount of Existing Euro Term Loans, were exchanged into $626.0 (including a transaction premium of $18.2) in aggregate principal amount of New Dollar Term Loans, and €106.0 (including a transaction premium of € 3.1) in aggregate principal amount of New Euro Term Loans.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Substantially concurrently with the completion of the Term Loan Exchange Offer, the Company prepaid $91.2 in aggregate principal amount of New Dollar Term Loans and €15.4 in aggregate principal amount of New Euro Term Loans, pursuant to the Initial New Term Loan Paydown and consistent with the Transaction Support Agreement. On December 31, 2023, the Company will prepay $30.4 in aggregate principal amount of the New Dollar Term Loans and €5.1 in aggregate principal amount of the New Euro Term Loans, subject to satisfaction of certain liquidity conditions.
As a result of the Term Loan Exchange, the Company’s obligations in respect of the Existing Term Loans of each lender who participated in the Term Loan Exchange were discharged and deemed satisfied in full, and each such lender’s commitments with respect to the Existing Term Loans were canceled.
The terms of the New Term Loans are governed by a Credit Agreement (the "New Term Loan Credit Agreement"), dated as of the Settlement Date, among the Company the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and GLAS America LLC, as collateral agent, which provides that the New Term Loans will mature on July 15, 2025.
The New Term Loans bear interest at a rate equal to (i) in the case of Term Benchmark Loans (as defined in the New Term Loan Credit Agreement), (a) for New Dollar Term Loans, the Adjusted Term SOFR Rate (as defined in the New Term Loan Credit Agreement and subject to a 1.50% floor) plus a 0.10% credit spread adjustment plus an applicable margin of 5.25% and (b) for New Euro Term Loans, the Adjusted EURIBOR Rate (as defined in the New Term Loan Credit Agreement and subject to a 0.50% floor) plus an applicable margin of 5.50% and (ii) in the case of Floating Rate Loans (as defined in the New Term Loan Credit Agreement), the Alternate Base Rate (as defined in the New Term Loan Credit Agreement and subject to a 2.50% floor) plus an applicable margin of 4.25%. Interest accrued on the New Term Loans is payable (i) in the case of Term Benchmark Loans, on the last day of the applicable Interest Period (as defined in the New Term Loan Credit Agreement) (provided that, if the Interest Period is longer than three months, interest is also payable on the last day of each three month interval during such Interest Period), on any date on which the Term Benchmark Loans are repaid and at maturity, (ii) in the case of Floating Rate Loans, on the last business day of each March, June, September and December occurring after the Settlement Date, beginning with March 31, 2023, and at maturity.
The obligations of the Company under the New Term Loan Credit Agreement are guaranteed, subject to certain exclusions and agreed guaranty and security principles, by the Company’s material subsidiaries in the Specified Jurisdictions and secured (i) on a first-priority basis, ranking pari passu with the Superpriority Facility, the 2025 Senior Notes, the New 2025 Notes and the Existing Term Loans (excluding released liens), by certain Non-ABL Priority Collateral held by the Company and those guarantors that are organized in the United States, (ii) on a second-priority basis by certain other Non-ABL Priority Collateral held by the guarantors that are organized outside the United States and (iii) on a third-priority basis by the ABL Priority Collateral.
The New Term Loan Credit Agreement contains affirmative and negative covenants customary for facilities of its type, including, but not limited to, delivery of financial information, limitations on mergers, consolidations and fundamental changes, limitations on sales of assets, limitations on investments and acquisitions, limitations on liens, limitations on transactions with affiliates, limitations on indebtedness, limitations on negative pledge clauses, limitations on restrictions on subsidiary distributions, limitations on restricted payments and limitations on certain payments of indebtedness.
The New Term Loan Credit Agreement provides that the Company may prepay the New Term Loans at any time without premium or penalty, subject to restrictions contained in the documentation governing the Company’s other indebtedness. The New Term Loan Credit Agreement additionally provides that the Company will be required to prepay the New Term Loans in certain circumstances (without premium), including with the proceeds of asset sales and in connection with change of control transactions. Once repaid, the New Term Loans may not be reborrowed.
ABL Revolving Credit and Guaranty Agreements
On the Settlement Date, the Company and subsidiary borrowers (together with the Company, the “ABL Borrowers”) entered into a Revolving Credit and Guaranty Agreement (the “ABL Credit Agreement”). The ABL Credit Agreement provides for an asset-based revolving credit facility (the “ABL Facility”) consisting of three Tranches (respectively, “Tranche A,” “Tranche B” and “Tranche C”) with a total commitment of up to $250, including a Tranche A commitment of up to $155, a Tranche B commitment of up to $25 and a Tranche C commitment of up to $70. Letters of credit are limited to the lesser of (i) $50 and (ii) the aggregate unused amount of the applicable lenders’ Tranche A commitments then in effect. Swing line loans are limited to the lesser (i) $50 and (ii) in respect of an applicable borrower, such borrower’s Tranche A available credit then in effect. Subject to currencies available under the applicable Tranche, loans under the ABL Facility may be denominated, depending on the Tranche being drawn, in U.S. Dollars, Canadian Dollars, Euros and Pounds Sterling. The ABL Facility replaced the commitments of the Company’s existing revolving credit lenders under the Existing Credit Agreement, which were repaid in full and terminated on the Settlement Date.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
On the Settlement Date, certain ABL Borrowers borrowed a total of $182 under the ABL Facility, consisting of $122 of Tranche A loans and $60 of Tranche C loans. The proceeds of borrowing under the ABL Facility were or will be used, as applicable, (i) to finance the Refinancing Transactions, including the repayment of revolving loans outstanding under the Existing Credit Agreement on the Settlement Date, (ii) to finance the ongoing working capital requirements of the ABL Borrowers and their respective subsidiaries and (iii) for other general corporate purposes.
The ABL Facility will mature on July 20, 2026, subject to a springing maturity to a date that is 91 days prior to the maturity date of any indebtedness for borrowed money (other than any Existing Term Loans or 2024 Senior Notes that were not exchanged in connection with the Refinancing Transactions) in an aggregate principal amount of more than $25 incurred by the Company or any of its subsidiaries. Loans under the ABL Facility bear interest determined by reference to a benchmark rate plus a margin of between 1.50% and 3.00%, in each case, depending on the amount of excess availability, the currency of the loans and the type of loans under the ABL Facility. A commitment fee equal to 0.50% per annum of the average daily unused portion is also payable quarterly by the ABL Borrowers under the ABL Facility.
The ABL Borrowers may borrow only up to the lesser of the level of the then-current borrowing base and the committed maximum borrowing capacity of $250, subject to certain sub-caps that are applicable under the ABL facility. The obligations of the ABL Borrowers under the ABL Facility are guaranteed, subject to certain exclusions and agreed guaranty and security principles, by the Company’s material subsidiaries in the Specified Jurisdictions and secured (i) on a first-priority basis by the ABL Priority Collateral, and (ii) on a junior-most priority basis by the Non-ABL Priority Collateral.
The ABL Borrowers may voluntarily repay outstanding loans under the ABL Facility at any time, without prepayment premium, subject to certain customary “breakage” costs. Amounts borrowed and repaid under the ABL Facility may be reborrowed.
The ABL Credit Agreement contains affirmative and negative covenants customary for facilities of its type, including, but not limited to, delivery of financial information, limitations on mergers, consolidations and fundamental changes, limitations on sales of assets, limitations on investments and acquisitions, limitations on liens, limitations on transactions with affiliates, limitations on indebtedness, limitations on negative pledge clauses, limitations on restrictions on subsidiary distributions, limitations on restricted payments and limitations on certain payments of indebtedness. The ABL Facility also requires the maintenance of a minimum Fixed Charge Coverage Ratio (as defined in the ABL Credit Agreement) of 1.00 to 1.00 for the four-fiscal-quarter period immediately preceding such date when excess availability is less than the greater of $25 and 10% of the Line Cap (as defined in the ABL Credit Agreement) then in effect.
The ABL Credit Agreement contains customary events of default, including, but not limited to, nonpayment of principal, interest, fees or other amounts, breach of covenants, cross default and cross acceleration to material indebtedness, voluntary and involuntary bankruptcy or insolvency proceedings, unpaid material judgments and change of control.
Going Concern Assessment
Pursuant to the requirements of ASC Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a
Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise
substantial doubt about the Company’s ability to continue as a going concern for one year from the date the consolidated financial statements are issued. As part of this assessment, based on conditions that are known and reasonably knowable to us, the Company considers various scenarios, forecasts, projections, and estimates, and makes certain key assumptions, including the timing and nature of projected cash expenditures or programs, and the Company’s ability to delay or curtail those expenditures or programs, if necessary, among other factors. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the condensed consolidated financial statements are issued.
During the fourth quarter of 2022, an amendment to the Transaction Support Agreement was signed that requires the Company to raise equity stakecapital to repurchase, redeem, prepay, or pay in Kony, which is accounted for using the cost method of accounting.full any Excess Stub Notes. As of December 31, 2017,2022, the Company's carrying valueoutstanding principal balance of the 2024 Senior Notes is approximately $72.1 and may decrease as a result of the Registered Public Exchange Offer. If by April 15, 2024, the Company is unable to reduce the principal balance of the 2024 Senior Notes to below $20 either via participation in Kony was $14.0the Registered Exchange Offer or raised equity capital, it will constitute an event of default under the Superpriority Facility, the New Term Loans and the fair value was not estimated as there were no events or changes in circumstances2025 Senior Notes Indentures, which would permit the creditors thereunder to accelerate the related debt and may result in the investment.acceleration of any other debt to which a cross-acceleration or cross-default provision applies. Furthermore, if the obligors under these facilities and indentures are unable to repay the amounts due and payable thereunder, those lenders and noteholders could proceed against the collateral granted them to secure that indebtedness. In the event the Company’s lenders or noteholders accelerate the repayment of its indebtedness, the Company and its subsidiaries may not have sufficient assets to repay that indebtedness. In the event the Company’s lenders or noteholders accelerate the repayment of its indebtedness, the Company and its subsidiaries may not have sufficient assets to repay that indebtedness.
Securities and other investments also includes a cash surrender value of insurance contracts of $79.8 and $77.8DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
At the closing of the Refinancing Transactions, the Company drew down the ABL Facility to make payments to suppliers and 2016, respectively.vendors. As of December 31, 2022, therefore, the Company had no additional availability under the ABL Facility and $344 of cash, cash equivalents, restricted cash and short-term investments. As designed, the ABL Facility availability resets each month. Initially, the Company believed that the Refinancing Transactions, along with cash from operations, would be sufficient to meet the Company’s near-term and long-term liquidity needs for at least the next 12 months. Over the course of the first quarter of 2023, the borrowing base under the ABL Facility and the availability under the ABL Facility as of March 2023 has been substantially limited. In addition, slower-than-expected conversion of inventory into revenue has further suppressed liquidity. Accordingly, without modifications to the ABL Facility and access to additional capital, the Company currently projects that it includes anwill not generate sufficient cash from operations or have access to other sources of liquidity to sustain its operating needs or to meet its obligations as they become due over the twelve-month period from the date the consolidated financial statements are issued.
The Company is currently working to improve its operating performance and its cash, liquidity and financial position. In addition, the Company is in discussions with the lenders under the ABL Facility regarding modifications to the borrowing base under the ABL Facility to provide the Company with access to additional borrowings. The Company is also engaged in discussions with its lenders regarding additional short-term liquidity, including potentially providing additional liquidity in the form of a “first-in-last-out” facility to be provided under the ABL Facility, which a lender has provided a "highly confident letter" for, subject to customary conditions. The Company expects the first-in-last-out facility to provide $55 of additional liquidity and to close by March 20, 2023, however, there can be no assurance that such a facility will be entered into by such date or at all. In addition, the Company is in discussions with its lenders about other strategic initiatives and liquidity solutions for its business. However, there can be no assurance that the Company’s efforts to improve its operating performance and financial position will be successful, that it will be able to modify the terms of the ABL Facility, or that it will be able to obtain additional financing on commercially reasonable terms or at all. As a result, the Company’s liquidity and ability to timely meet its obligations when due could be adversely affected.
Based on the circumstances discussed above, substantial doubt exists regarding our ability to continue as a going concern.
The inclusion of the “going concern” uncertainty paragraph in the independent registered public accounting firm’s report covering the consolidated financial statements would have constituted a default under the agreements governing the ABL Facility, the Superpriority Facility and the New Term Loans; however, the requisite lenders under each of these facilities have waived such default.
The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern.
Uncommitted Line of Credit
As of December 31, 2022, the Company had various international, short-term uncommitted lines of credit with borrowing limits aggregating to $25.9. The weighted-average interest rate swap asset carrying valueon outstanding borrowings on the short-term uncommitted lines of $7.6 and $8.4credit as of December 31, 20172022 and 2016, respectively, which also represents fair2021 was 11.02 percent and 3.24 percent, respectively. Short-term uncommitted lines mature in less than one year. The remaining amount available under the short-term uncommitted lines at December 31, 2022 was $25.0.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
The cash flows related to debt borrowings and repayments were as follows:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| Revolving credit facility borrowings | $ | 693.9 | | | $ | 590.9 | |
| | | |
| Revolving credit facility repayments | $ | (572.9) | | | $ | (590.1) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Proceeds from 2025 Superpriority Term Loans | 370.0 | | | — | |
| International short-term uncommitted lines of credit and other borrowings | 16.1 | | | 11.2 | |
| Other debt borrowings | $ | 386.1 | | | $ | 11.2 | |
| | | |
| | | |
| | | |
| | | |
| Payments on Term Loan B Facility - USD under the Credit Agreement | (95.4) | | | (4.8) | |
| Payments on Term Loan B Facility - Euro under the Credit Agreement | (20.2) | | | (4.8) | |
| | | |
| International short-term uncommitted lines of credit and other repayments | (15.4) | | | (9.8) | |
| Other debt repayments | $ | (131.0) | | | $ | (19.4) | |
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) |
Term Loan B Facility - USD(i) | | LIBOR + 2.75% | | | November 2023 | | 7.5 |
Term Loan B Facility - Euro(iii) | | EURIBOR + 3.00% | | | November 2023 | | 7.5 |
| 2024 Senior Notes | | 8.50% | | | April 2024 | | 8 |
| 2025 Senior Secured Notes - USD | | 9.38% | | | July 2025 | | 5 |
| 2025 Senior Secured Notes - EUR | | 9.00% | | | July 2025 | | 5 |
| | | | | | | |
ABL(iii) | | SOFR + 2.50-3.00% | | | July 2026 | | 3.5 |
Extended Term B USD(iv) | | SOFR + 5.35% | | | July 2025 | | 2.5 |
Extended Term B EUR(v) | | EURIBOR + 5.60% | | | July 2025 | | 2.5 |
| 2L Notes | | 8.50% / 12.50% PIK | | | October 2026 | | 3.8 |
| Exchanged USD Senior Secured Notes | | 9.38% | | | July 2025 | | 2.5 |
| Exchanged EUR Senior Secured Notes | | 9.00% | | | July 2025 | | 2.5 |
Superpriority Term Loans(vi) | | SOFR + 6.50% | | | July 2025 | | 2.5 |
(i)LIBOR with a floor of 0.0 percent
(ii)EURIBOR with a floor of 0.0 percent
(iii)SOFR with a floor of 0.0 percent
(iv)SOFR with a floor of 1.5 percent
(v)EURIBOR with a floor of 0.5 percent
(vi)SOFR with a floor of 4.0 percent
Maturities of long-term debt as of December 31, 2022 are as follows:
| | | | | |
| Maturities of Debt(1) |
| 2023 | $ | 25.8 | |
| 2024 | 84.8 | |
| 2025 | 2,124.4 | |
| 2026 | 594.3 | |
| |
| $ | 2,829.3 | |
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
1.Total debt maturities will differ from the schedule of debt instruments above due to PIK (paid-in-kind) interest associated with the 2L Notes that will increase the carrying value (referof this instrument over the term of the loan.
Interest expense on the Company’s debt instruments for the years ended December 31, 2022, 2021 and 2020 was $187.9, $180.0 and $269.7, respectively.
NOTE 12: REDEEMABLE NONCONTROLLING INTERESTS
Changes in redeemable noncontrolling interests were as follows:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Balance at January 1 | $ | — | | | $ | 19.2 | | | $ | 20.9 | |
| Other comprehensive income | — | | | — | | | — | |
| Redemption value adjustment | — | | | — | | | (1.7) | |
| Redemption of shares | — | | | — | | | — | |
| Termination of put option | — | | | (19.2) | | | — | |
| Balance at December 31 | $ | — | | | $ | — | | | $ | 19.2 | |
During the first quarter of 2021, the Company entered into an agreement whereby its ownership percentage in a certain consolidated but non-wholly owned subsidiary in Europe was reduced by means of capital contributions from noncontrolling shareholders totaling $12.7. Following entry into the agreement, the Company maintains a controlling interest in the subsidiary. As part of this agreement, the put option that could have required the Company to note 20).acquire the noncontrolling shares was irrevocably waived, reducing the redeemable noncontrolling interest to zero.
NOTE 9: FINANCE LEASE RECEIVABLES13: ACCUMULATED OTHER COMPREHENSIVE LOSS
The Company provides financing arrangementsfollowing table summarizes the changes in the Company’s AOCI, net of tax, by component for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Translation | | Foreign Currency Hedges | | Interest Rate Hedges | | Pension and Other Post-Retirement Benefits | | | | Other | | Accumulated Other Comprehensive Loss |
| Balance at December 31, 2020 | $ | (256.7) | | | $ | (2.6) | | | $ | (6.1) | | | $ | (146.9) | | | | | $ | (0.6) | | | $ | (412.9) | |
| | | | | | | | | | | | | |
| Other comprehensive income (loss) before reclassifications (1) | (54.2) | | | 0.7 | | | 8.6 | | | 7.0 | | | | | (0.9) | | | (38.8) | |
| Amounts reclassified from AOCI | — | | | — | | | (2.1) | | | 75.3 | | | | | — | | | 73.2 | |
| Net current period other comprehensive income (loss) | (54.2) | | | 0.7 | | | 6.5 | | | 82.3 | | | | | (0.9) | | | 34.4 | |
| Balance at December 31, 2021 | $ | (310.9) | | | $ | (1.9) | | | $ | 0.4 | | | $ | (64.6) | | | | | $ | (1.5) | | | $ | (378.5) | |
| | | | | | | | | | | | | |
Other comprehensive income (loss) before reclassifications (1) | (41.2) | | | — | | | 5.5 | | | 0.9 | | | | | 2.8 | | | (32.0) | |
| Amounts reclassified from AOCI | — | | | — | | | (0.6) | | | 51.1 | | | | | — | | | 50.5 | |
| Net current period other comprehensive income (loss) | (41.2) | | | — | | | 4.9 | | | 52.0 | | | | | 2.8 | | | 18.5 | |
| Balance at December 31, 2022 | $ | (352.1) | | | $ | (1.9) | | | $ | 5.3 | | | $ | (12.6) | | | | | $ | 1.3 | | | $ | (360.0) | |
(1) Other comprehensive income (loss) before reclassifications within the translation component excludes (gains)/losses of $(5.9) and $(0.6) of translation attributable to customers purchasing its products. These financing arrangements are largely classifiednoncontrolling interests for December 31, 2022 and accounted for as sales-type leases.2021, respectively.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
The following table presents finance lease receivables sold bysummarizes the Companydetails about amounts reclassified from AOCI for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | |
| Amount Reclassified from AOCI | | Amount Reclassified from AOCI | | Affected Line Item in the Statement of Operations |
| Interest rate hedges (net of tax of $0.1 and $0.8, respectively) | $ | (0.6) | | | $ | (2.1) | | | Interest expense |
| Pension and post-retirement benefits: | | | | | |
| Net prior service benefit amortization (net of tax of $0.0 and $0.0, respectively) | 2.4 | | | — | | | (1) |
| Net actuarial gains recognized during the year (net of tax of $0.0 and $23.2, respectively) | 38.5 | | | 76.0 | | | (1) |
| Net actuarial gains (losses) recognized due to settlement (net of tax of $0.0 and $(0.4), respectively) | 10.2 | | | (0.7) | | | (1) |
| | | | | |
| | | | | |
| | | | | |
| 51.1 | | | 75.3 | | | |
| | | | | |
| Total reclassifications for the period | $ | 50.5 | | | $ | 73.2 | | | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Finance lease receivables sold | $ | — |
| | $ | 7.4 |
| | $ | 10.6 |
|
The following table presents the components of finance lease receivables as of December 31:
|
| | | | | | | |
| | 2017 | | 2016 |
| Gross minimum lease receivable | $ | 26.6 |
| | $ | 63.3 |
|
| Allowance for credit losses | (0.3 | ) | | (0.3 | ) |
| Estimated unguaranteed residual values | 1.1 |
| | 3.7 |
|
| | 27.4 |
| | 66.7 |
|
| Less: | | | |
| Unearned interest income | (1.0 | ) | | (2.9 | ) |
| Unearned residuals | (0.1 | ) | | (0.1 | ) |
| | (1.1 | ) | | (3.0 | ) |
| Total | $ | 26.3 |
| | $ | 63.7 |
|
Future minimum payments due from customers under finance lease receivables as of December 31, 2017 are as follows:
|
| | | |
| 2018 | $ | 12.6 |
|
| 2019 | 7.8 |
|
| 2020 | 4.0 |
|
| 2021 | 1.8 |
|
| 2022 | 0.2 |
|
| Thereafter | 0.2 |
|
| | $ | 26.6 |
|
NOTE 10: ALLOWANCE FOR CREDIT LOSSES14: ACQUISITIONS AND DIVESTITURES
Divestitures
In the first and second quarters of 2022, the Company received net proceeds of $5.8 and $4.7, respectively, from the German reverse vending business sale. The Company maintains allowancessigned a divestiture agreement for potential credit losses and such losses have been minimal and within management’s expectations. Since the Company’s receivable balance is concentrated primarilyits German reverse vending business in the financial and government sectors, an economic downturn in these sectors could result in higher than expected credit losses. The concentrationfourth quarter of credit risk in2021, however the Company’s trade receivables with respect to financial and government customers is largely mitigated bytransaction had not closed as it was pending the Company’s credit evaluationregulatory process and the geographical dispersion of sales transactions from a large number of individual customers.
The following table summarizes the Company’s allowance for credit losses and amount of financing receivables evaluated for impairment:
|
| | | | | | | | | | | | |
| | | Finance
Leases | | Notes
Receivable | | Total |
| Allowance for credit losses | | | | | | |
| Balance at January 1, 2016 | | $ | 0.5 |
| | $ | 4.1 |
| | $ | 4.6 |
|
| Write-offs | | (0.2 | ) | | — |
| | (0.2 | ) |
| Balance at December 31, 2016 | | $ | 0.3 |
| | $ | 4.1 |
| | $ | 4.4 |
|
| Provision for credit losses | | 0.1 |
| | — |
| | 0.1 |
|
| Write-offs | | (0.1 | ) | | — |
| | (0.1 | ) |
| Balance at December 31, 2017 | | $ | 0.3 |
| | $ | 4.1 |
| | $ | 4.4 |
|
The Company's allowance of $4.4 and $4.4 for the years ended December 31, 2017 and 2016, respectively, all resulted from individual impairment evaluation. As of December 31, 2017, finance leases and notes receivables individually evaluated for impairment were $26.3 and $16.0, respectively, were assessed with no provision recorded. As of December 31, 2016, finance leases and notes receivables individually evaluated for impairment were $62.2 and $20.7, respectively, were assessed with no provision recorded. As of December 31, 2017 and 2016, the Company’s financing receivables in Brazil were $2.2 and $30.3,
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(2021. An impairment loss was recorded in millions, except per share amounts)
respectively. The decrease is related primarily to recurring customer payments for financing arrangements in Brazil and the strengthening USD compared to the Brazil real.
The Company records interest income and any fees or costs2021 related to financing receivables usingthis transaction for $1.3.
In the effective interest method overthird quarter of 2022, 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 December 31, 2017 and 2016, the recorded investmentreceived $3.5 in past-due financing receivables on nonaccrual status was $0.6 and $0.4, respectively, and there was no recorded investment 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 December 31, 2017 and 2016 and was fully reserved.
The following table summarizes the Company’s aging of past-due notes receivable balances:
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| 30-59 days past due | $ | — |
| | $ | 0.1 |
|
| 60-89 days past due | 0.1 |
| | — |
|
| > 89 days past due | 4.0 |
| | 3.9 |
|
| Total past due | $ | 4.1 |
| | $ | 4.0 |
|
The following table summarizes the Company’s allowances for doubtful accounts:
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Balance at January 1 | $ | 50.4 |
| | $ | 31.7 |
| | $ | 20.9 |
|
| Charged to costs and expenses | 54.9 |
| | 22.9 |
| | 15.8 |
|
Charged to other accounts (1) | 1.4 |
| | 1.7 |
| | (4.0 | ) |
Deductions (2) | (35.0 | ) | | (5.9 | ) | | (1.0 | ) |
| Balance at December 31 | $ | 71.7 |
| | $ | 50.4 |
| | $ | 31.7 |
|
(1) Net effects of foreign currency translation.
(2) Uncollectible accounts written-off, net of recoveries.
NOTE 11: INVENTORIES
The following table summarizes the major classes of inventories as of December 31:
|
| | | | | | | |
| | 2017 | | 2016 |
| Finished goods | $ | 301.9 |
| | $ | 330.5 |
|
| Service parts | 270.6 |
| | 235.2 |
|
| Raw materials and work in process | 164.5 |
| | 172.0 |
|
| Total inventories | $ | 737.0 |
| | $ | 737.7 |
|
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
NOTE 12: PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment, at cost less accumulated depreciation and amortization as of December 31:
|
| | | | | | | | | |
| | Estimated Useful Life
(years) | | 2017 | | 2016 |
| Land and land improvements | 0-15 | | $ | 16.0 |
| | $ | 16.9 |
|
| Buildings and building improvements | 15-30 | | 112.9 |
| | 129.8 |
|
| Machinery, tools and equipment | 5-12 | | 108.2 |
| | 121.0 |
|
Leasehold improvements (1) | 10 | | 28.3 |
| | 29.4 |
|
| Computer equipment | 3 | | 153.8 |
| | 133.8 |
|
| Computer software | 5-10 | | 146.6 |
| | 224.7 |
|
| Furniture and fixtures | 5-8 | | 73.4 |
| | 75.0 |
|
| Tooling | 3-5 | | 136.4 |
| | 123.1 |
|
| Construction in progress | | | 7.7 |
| | 10.3 |
|
| Total property plant and equipment, at cost | | | $ | 783.3 |
| | $ | 864.0 |
|
| Less accumulated depreciation and amortization | | | 418.8 |
| | 477.0 |
|
| Total property plant and equipment, net | | | $ | 364.5 |
| | $ | 387.0 |
|
| |
(1)
| The estimated useful life for leasehold improvements is the lesser of 10 years or the term of the lease. |
During 2017, 2016 and 2015, depreciation expense, computed on a straight-line basis over the estimated useful lives of the related assets, was $92.9, $61.8 and $40.7, respectively. The decrease in computer software and accumulated depreciation and amortization is primarilycash proceeds related to the write-offsale of certain fully depreciated enterprise resource planning assets.IT assets with no book value.
NOTE 13: GOODWILL AND OTHER ASSETS
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 | $ | 452.2 |
| | $ | — |
| | $ | — |
| | $ | 452.2 |
|
| Accumulated impairment losses | (290.7 | ) | | — |
| | — |
| | (290.7 | ) |
| Balance at January 1, 2016 | 161.5 |
| | — |
| | — |
| | 161.5 |
|
| Goodwill acquired | 459.1 |
| | 238.7 |
| | 184.8 |
| | 882.6 |
|
| Goodwill adjustment | (0.5 | ) | | — |
| | — |
| | (0.5 | ) |
| Currency translation adjustment | (20.8 | ) | | (13.8 | ) | | (10.7 | ) | | (45.3 | ) |
| Goodwill | 890.0 |
| | 224.9 |
| | 174.1 |
| | 1,289.0 |
|
| Accumulated impairment losses | (290.7 | ) | | — |
| | — |
| | (290.7 | ) |
| Balance at December 31, 2016 | 599.3 |
| | 224.9 |
| | 174.1 |
| | 998.3 |
|
| Goodwill acquired | 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 |
|
Goodwill.In the fourth quarter of 2017, goodwill was reviewed for impairment based on a two-step test, which resulted in no impairment in any of the Company's reporting units. The Company estimated the fair value of its nine reporting unit using a combination of the income valuation and market approach in valuation methodology. The determination of the fair value of the reporting unit requires significant estimates and assumptions, including significant unobservable inputs. The key inputs included,
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
but were not limited to, discount rates, terminal growth rates, market multiple data from selected guideline public companies, management’s internal forecasts which include numerous assumptions such as projected net sales, gross profit, sales mix, operating and capital expenditures and earnings before interest and taxes margins, among others. Management determined that the Services-AP and Software-EMEA reporting units had excess fair value of $15.4 or 8.1 percent and $1.3 or 0.6 percent, respectively, when compared to their carrying amounts. The other reporting units had excess fair value of approximately $50 or greater cushion when compared to their carrying amount. Changes in certain assumptions or the Company's failure to execute on the current plan could have a significant impact to the estimated fair value of the reporting units.
The $5.6 acquired goodwill from Moxx and Visio primarily relates to anticipated synergies achieved through increased scale and higher utilization of the service organization.
In August 2016,2022, the Company acquired Diebold Nixdorf AG. During the first quarterreceived $2.7 in cash proceeds and recognized $1.9 of 2017, in connection with the business combination agreementgain related to the Acquisition,sale of a building in Belgium.
In the second quarter of 2021, the Company realigneddivested its reportable operating segment to its lines ofAsia Pacific Electronic Security business, to drive greater efficiency and further improve customer service.
The acquired Diebold Nixdorf AG goodwill is primarily the result of anticipated synergies achieved through increased scale, a streamlined portfolio of products and solutions, higher utilizationnon-core, wholly owned portion of the service organization, workforce rationalizationbanking business. The sale resulted in overlapping regionsa gain of approximately $1.0 and shared back office resources. The Company also expects, after completioncash proceeds of the business combination and related integration, to generate strong free cash flow, which would be used to make investments in innovative software and solutions and reduce debt. The Company has allocated goodwill to its Services, Software and Systems reportable operating segments. The goodwill associated with the Acquisition is not deductible for income tax purposes.$5.8.
In connection with the recasting from geographical regions to lines of business reportable operating segments, the Company has identified nine reporting units, which are summarized below:
|
| | | | |
Services | | Software | | Systems |
EMEA | | EMEA | | EMEA |
Americas | | Americas | | Americas |
AP | | AP | | AP |
Other Assets. Other assets consists of net capitalized computer software development costs, patents, trademarks and other intangible assets. Where applicable, other assets are stated at cost and, if applicable, are amortized ratably over the relevant contract period or the estimated life of the assets. Fees to renew or extend the term of the Company’s intangible assets are expensed when incurred.
In 2017, the Company recorded impairments totaling $3.1 related to IT transformation and integration activities. During the fourth quarter of 2016,2021, the Company recordeddivested Prosystems IT GmbH, a $9.8 impairment charge related to redundant legacy Diebold internally-developed software and an indefinite-lived trade namenon-core, wholly owned European ERP business which resulted in NA as a resultloss on sale of the Acquisition.
The following summarizes information on intangible assets by major category:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2017 | | December 31, 2016 |
| | Weighted-average remaining useful lives | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Customer relationships, net | 7.7 years | $ | 741.5 |
| | $ | (108.2 | ) | | $ | 633.3 |
| | $ | 621.7 |
| | $ | (25.4 | ) | | $ | 596.3 |
|
| | | | | | | | | | | | | |
| Internally-developed software | 2.6 years | 192.9 |
| | (99.8 | ) | | 93.1 |
| | 151.0 |
| | (53.2 | ) | | 97.8 |
|
| Development costs non-software | 1.3 years | 55.3 |
| | (35.1 | ) | | 20.2 |
| | 48.4 |
| | (9.7 | ) | | 38.7 |
|
| Other | 1.7 years | 84.5 |
| | (57.3 | ) | | 27.2 |
| | 85.3 |
| | (45.2 | ) | | 40.1 |
|
| Other intangible assets, net | | 332.7 |
| | (192.2 | ) | | 140.5 |
| | 284.7 |
| | (108.1 | ) | | 176.6 |
|
| | | | | | | | | | | | | |
| Total | 4.1 years | $ | 1,074.2 |
| | $ | (300.4 | ) | | $ | 773.8 |
| | $ | 906.4 |
| | $ | (133.5 | ) | | $ | 772.9 |
|
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
The increase in the gross carrying amount of intangible assets was due primarily to the impact of the euro. Amortization expense on capitalized software of $34.6, $24.4 and $14.5 was included in service and software cost of sales for 2017, 2016 and 2015, respectively. The Company's total amortization expense, including deferred financing costs, was $159.3 and $73.0 for 2017 and 2016, respectively. The year-over-year increase in amortization expense was primarily related to the inclusion of a full year of amortization related to the identifiable intangibles related to the Acquisition. The expected annual amortization expense is as follows:
|
| | | |
| | Estimated amortization |
| 2018 | $ | 147.9 |
|
| 2019 | 125.1 |
|
| 2020 | 96.2 |
|
| 2021 | 86.0 |
|
| 2022 | 78.2 |
|
| | $ | 533.4 |
|
NOTE 14: DEBT
Outstanding debt balances were as follows: |
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Notes payable – current | | | |
| Uncommitted lines of credit | $ | 16.2 |
| | $ | 9.4 |
|
| Term Loan A Facility | 23.0 |
| | 17.3 |
|
| Delayed Draw Term Loan A Facility | 17.2 |
| | — |
|
| Term Loan B Facility - USD | 4.8 |
| | 10.0 |
|
| Term Loan B Facility - Euro | 5.0 |
| | 3.7 |
|
| European Investment Bank | — |
| | 63.1 |
|
| Other | 0.5 |
| | 3.4 |
|
| | $ | 66.7 |
| | $ | 106.9 |
|
| Long-term debt | | | |
| Revolving credit facility | $ | 75.0 |
| | $ | — |
|
| Term Loan A Facility | 178.3 |
| | 201.3 |
|
| Delayed Draw Term Loan A Facility | 226.6 |
| | — |
|
| Term Loan B Facility - USD | 466.7 |
| | 787.5 |
|
| Term Loan B Facility - Euro | 489.5 |
| | 363.5 |
|
| 2024 Senior Notes | 400.0 |
| | 400.0 |
|
| Other | 1.4 |
| | 0.8 |
|
| | 1,837.5 |
| | 1,753.1 |
|
| Long-term deferred financing fees | (50.4 | ) | | (61.7 | ) |
| | $ | 1,787.1 |
| | $ | 1,691.4 |
|
As of December 31, 2017, the Company had various short-term uncommitted lines of credit with borrowing limits of $233.1. The weighted-average interest rate on outstanding borrowings on the short-term uncommitted lines of credit as of December 31, 2017 and 2016 was 9.17 percent and 9.87 percent, respectively. The decrease in the weighted-average interest rate is attributable to the change in mix of borrowings of foreign entities. Short-term uncommitted lines mature in less than one year. The amount available under the short-term uncommitted lines at December 31, 2017 was $216.9.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
The cash flows related to debt borrowings and repayments were as follows:
|
| | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| Revolving debt borrowings (repayments), net | $ | 75.0 |
| | $ | (178.0 | ) |
| | | | |
| Proceeds from Delayed Draw Term Loan A Facility | $ | 250.0 |
| | $ | — |
|
| Proceeds from Term Loan B Facility - USD | — |
| | 990.0 |
|
| Proceeds from Term Loan B Facility - Euro | 73.3 |
| | 398.1 |
|
| Proceeds from 2024 Senior Notes | — |
| | 393.0 |
|
| International short-term uncommitted lines of credit borrowings | 50.8 |
| | 56.6 |
|
| Other debt borrowings | $ | 374.1 |
| | $ | 1,837.7 |
|
| | | | |
| Payments on 2006 Senior Notes | $ | — |
| | $ | (225.0 | ) |
| Payments on Term Loan A Facility | (17.3 | ) | | (11.5 | ) |
| Payments on Delayed Draw Term Loan A Facility | (6.3 | ) | | — |
|
| Payments on Term Loan B Facility - USD | (326.1 | ) | | (202.5 | ) |
| Payments on Term Loan B Facility - Euro | (4.6 | ) | | (0.9 | ) |
| Payments on European Investment Bank | (63.1 | ) | | — |
|
| International short-term uncommitted lines of credit and other repayments | (41.4 | ) | | (222.6 | ) |
| Other debt repayments | $ | (458.8 | ) | | $ | (662.5 | ) |
The Company entered into a revolving and term loan credit agreement (the Credit Agreement), dated as of November 23, 2015, among the Company and certain of the Company's subsidiaries, as borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders named therein. The Credit Agreement included, among other things, mechanics for the Company’s existing revolving and term loan A facilities to be refinanced under the Credit Agreement. On December 23, 2015, the Company entered into a Replacement Facilities Effective Date Amendment, which amended the Credit Agreement, among the Company, certain of the Company’s subsidiaries, the lenders identified therein and JPMorgan Chase Bank, N.A., as Administrative Agent, pursuant to which the Company refinanced its $520.0 revolving and $230.0 term loan A senior unsecured credit facilities (which have been terminated and repaid in full) with, respectively, a new unsecured revolving facility (the Revolving Facility) in an amount of up to $520.0$3.9 million and a new (non-delayed draw) unsecured term loan A facility (the Term Loan A Facility) on substantially the same terms as the Delayed Draw Term Facility (as defined in the Credit Agreement) in the amountnet cash consideration distribution of up to $230.0. The Revolving Facility and Term Loan A Facility are subject to the same maximum consolidated net leverage ratio and minimum consolidated interest coverage ratio as the Delayed Draw Term Facility. 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 credit facility borrowings as of December 31, 2017 and December 31, 2016 was 3.63 percent and 2.56 percent, respectively, which is variable based on the LIBOR. The amount available under the revolving credit facility as of December 31, 2017 was $445.0.$4.7.
On April 19, 2016, the Company issued $400.0 aggregate principal amount of 2024 Senior Notes. The 2024 Senior Notes are and will be guaranteed by certain of the Company’s existing and future domestic subsidiaries.
On May 9, 2017, the Company entered into an incremental amendment to its Credit Agreement (the Incremental Agreement) which reduced the initial term loan B facility (the Term Loan B Facility) of a $1,000.0 USD-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 EURIBOR plus 3.00 percent (with a floor of 0.00 percent). Prior to the Incremental Agreement, the interest rate for the Term Loan B Facility - USD was LIBOR plus an applicable margin of 4.50 percent (or, at the Company’s option, prime plus an applicable margin of 3.50 percent), and the interest rate for the Term Loan B Facility - Euro was at the EURIBOR plus an applicable margin of 4.25 percent.
The Incremental Amendment also renewed the repricing premium of 1.00 percent in relation to the Term Loan B Facility to the date that is six months after the Incremental Effective Date, removed the requirement to prepay the repriced Dollar Term Loan
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
and the repriced Euro Term Loan upon any asset sale or casualty event if the Company is below a total net leverage ratio of 2.5:1.0 on a pro forma basis for such asset sale or casualty event and provides additional restricted payments and investment carveouts in regards to assets acquired with the Acquisition. All other material provisions under the Credit Agreement were unchanged.
On May 6 and August 16, 2016, the Company entered into the Second and Third Amendments to the Credit Agreement, which re-denominated a portion of the Term Loan B Facility into euros and guaranteed the prompt and complete payment and performance of the obligations when due under the Credit Agreement. On February 14, 2017, the Company entered into the Fourth Amendment to the Credit Agreement which released certain restrictions on the Delayed Draw Term Loan A effective immediately.
The Credit Agreement financial ratios at December 31, 2017 are as follows:
a maximum total net debt to adjusted EBITDA leverage ratio of 4.25 to 1.00 as of December 31, 2017 (reducing to 4.00 on December 31, 2018, and further reduced to 3.75 on June 30, 2019); and
a minimum adjusted EBITDA to net interest expense coverage ratio of not less than 3.00 to 1.00
The Company incurred $1.1 and $39.2 of fees in the years ended December 31, 2017 and 2016, respectively, related to the Credit Agreement and 2024 Senior Notes, which are amortized as a component of interest expense over the terms.
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 + 2.00% | | December 2020 | | 5 |
| Term Loan A Facility | | LIBOR + 2.00% | | December 2020 | | 5 |
| Delayed Draw Term Loan A Facility | | LIBOR + 2.00% | | December 2020 | | 5 |
| Term Loan B Facility - USD | | LIBOR(i) + 2.75% | | November 2023 | | 7.5 |
| Term Loan B Facility - Euro | | EURIBOR(ii) + 3.00% | | November 2023 | | 7.5 |
| 2024 Senior Notes | | 8.5% | | April 2024 | | 8 |
| |
(i)
| LIBOR with a floor of 0.0 percent. |
| |
(ii)
| EURIBOR with a floor of 0.0 percent. |
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.
In March 2006, the Company issued the 2006 Senior Notes in an aggregate principal amount of $300.0. The Company funded the repayment of $75.0 aggregate principal amount of the 2006 Senior Notes at maturity in March 2013 using borrowings under its revolving credit facility and the repayment of $175.0 aggregate principal amount of the 2006 Senior Notes that matured in March 2016 through the use of proceeds from the divestiture of the Company's NA ES business. Prepayment of the remaining $50.0 aggregate principal amount of the 2006 Senior Notes were paid in full on May 2, 2016. The prepayment included a make-whole premium of $3.9, which was paid in addition to the principal and interest of the 2006 Senior Notes and is included in interest expense for the year ended December 31, 2016.
Maturities of long-term debt as of December 31, 2017 are as follows:
|
| | | |
| | Maturities of
Long-Term Debt |
| 2018 | $ | 66.7 |
|
| 2019 | 63.4 |
|
| 2020 | 437.4 |
|
| 2021 | 9.7 |
|
| Thereafter | 1,327.0 |
|
| | $ | 1,904.2 |
|
Interest expense on the Company’s debt instruments for the years ended December 31, 2017, 2016 and 2015 was $102.7, $85.7 and $23.4, respectively.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
The Company’s financing agreements contain various restrictive financial covenants, including net debt to capitalization, net debt to EBITDA and net interest coverage ratios. As of December 31, 2017, the Company was in compliance with the financial and other covenants in its debt agreements.
NOTE 15: BENEFIT PLANS
Qualified Retirement Benefits. The Company has a qualified retirement plansplan covering certain U.S. employees that havehas been closed to new participants since 2003 and frozen since December 2013. Plans that cover salaried employees provide retirement benefits based on the employee’s compensation during the ten years before the date of the plan freeze or the date of their 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 also has the followinga number of non-U.S. defined benefit plans outsidecovering eligible employees located predominately in Europe, the U.S., among others:
In Germany, post-employment benefitmost significant of which are German plans. Benefits for these plans are set up asbased primarily on each employee's final salary, with annual adjustments for inflation. The obligations in Germany consist of employer funded pension plans and deferred compensation plans. The employer funded pension commitments in Germanyplans 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 Company has other defined benefit plans outside the post-employment benefit plan is requiredU.S., which have not been mentioned here 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.materiality.
In the Netherlands, there is an average career salary plan, which is employer- and employee-financed and handled by an external fund. Insured events are disability, death and reaching of retirement age. During the fourth quarter of 2016, the Company recognized a curtailment gain of $4.6 related to its Netherlands' SecurCash B.V. plan due to a restructuring and cessation of accruals in the plan as of December 31, 2016. A transfer to an industry-wide pension fund occurred in early 2017 which transferred $186.8 of obligations and assets and is included in the settlements caption in the following tables. Final settlement accounting for this plan took place and resulted in $0.4 of income for the year.
Supplemental Executive Retirement Benefits. The Company has non-qualified pension plans in the U.S. to provide supplemental retirement benefits to certain officers, which werehave also been frozen since December 2013. Benefits are payable at retirement based upon a percentage of the participant’s compensation, as defined.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Other Benefits. 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.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
The following tables set forth the change in benefit obligation, change in plan assets, funded status, consolidated balance sheet presentation and net periodic benefit cost for the Company’s defined benefit pension plans and other benefits at and for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Retirement Benefits | | Other Benefits |
| U.S. Plans | | Non-U.S. Plans | | | | |
| 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| Change in benefit obligation | | | | | | | | | | | |
| Benefit obligation at beginning of year | $ | 584.4 | | | $ | 620.1 | | | $ | 420.5 | | | $ | 468.7 | | | $ | 5.7 | | | $ | 13.7 | |
| Service cost | — | | | — | | | 8.9 | | | 9.8 | | | — | | | 0.1 | |
| Interest cost | 17.3 | | | 15.9 | | | 4.1 | | | 2.9 | | | 0.2 | | | 0.7 | |
| Actuarial gain | (133.8) | | | (24.0) | | | (80.5) | | | (5.4) | | | (1.2) | | | (8.0) | |
| Plan participant contributions | — | | | — | | | 1.2 | | | 1.4 | | | — | | | — | |
| Benefits paid | (25.7) | | | (27.6) | | | (6.5) | | | (6.5) | | | (0.5) | | | (0.5) | |
| Plan amendments | — | | | — | | | (2.4) | | | (2.9) | | | — | | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Settlements | (82.4) | | | — | | | (24.6) | | | (18.4) | | | — | | | — | |
| | | | | | | | | | | |
| Foreign currency impact | — | | | — | | | (22.9) | | | (29.1) | | | 0.1 | | | (0.3) | |
| Acquired benefit plans and other | — | | | — | | | (0.3) | | | — | | | — | | | — | |
| Benefit obligation at end of year | 359.8 | | | 584.4 | | | 297.5 | | | 420.5 | | | 4.3 | | | 5.7 | |
| Change in plan assets | | | | | | | | | | | |
| Fair value of plan assets at beginning of year | 511.3 | | | 486.4 | | | 394.4 | | | 394.1 | | | — | | | — | |
| Actual return on plan assets | (113.8) | | | 48.9 | | | (27.6) | | | 41.6 | | | — | | | — | |
| Employer contributions | 3.6 | | | 3.5 | | | 10.9 | | | 9.6 | | | 0.5 | | | 0.5 | |
| Plan participant contributions | — | | | — | | | 1.2 | | | 1.4 | | | — | | | — | |
| Benefits paid | (25.7) | | | (27.5) | | | (6.5) | | | (6.5) | | | (0.5) | | | (0.5) | |
| Foreign currency impact | — | | | — | | | (22.5) | | | (27.5) | | | — | | | — | |
| | | | | | | | | | | |
| Settlements | (82.4) | | | — | | | (24.6) | | | (18.3) | | | — | | | — | |
| Fair value of plan assets at end of year | 293.0 | | | 511.3 | | | 325.3 | | | 394.4 | | | — | | | — | |
| Funded status | $ | (66.8) | | | $ | (73.1) | | | $ | 27.8 | | | $ | (26.1) | | | $ | (4.3) | | | $ | (5.7) | |
| Amounts recognized in balance sheets | | | | | | | | | | | |
| Noncurrent assets | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Current liabilities | 3.5 | | | 3.5 | | | 3.1 | | | 3.3 | | | 0.5 | | | 0.6 | |
Noncurrent liabilities (1) | 63.3 | | | 69.6 | | | (30.9) | | | 22.7 | | | 3.8 | | | 5.1 | |
| Accumulated other comprehensive loss: | | | | | | | | | | | |
Unrecognized net actuarial (loss) gain (2) | (77.3) | | | (94.9) | | | 45.4 | | | 13.8 | | | 5.6 | | | 4.8 | |
Unrecognized prior service (cost) benefit (2) | — | | | — | | | 5.9 | | | 3.9 | | | | | — | |
| Net amount recognized | $ | (10.5) | | | $ | (21.8) | | | $ | 23.5 | | | $ | 43.7 | | | $ | 9.9 | | | $ | 10.5 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Retirement Benefits | | Other Benefits |
| | U.S. Plans | | Non-U.S. Plans | | | | |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Change in benefit obligation | | | | | | | | | | | |
| Benefit obligation at beginning of year | $ | 554.5 |
| | $ | 544.7 |
| | $ | 546.9 |
| | $ | 1.7 |
| | $ | 10.8 |
| | $ | 12.7 |
|
| Service cost | 3.9 |
| | 3.5 |
| | 10.5 |
| | 5.5 |
| | — |
| | — |
|
| Interest cost | 22.9 |
| | 24.7 |
| | 5.7 |
| | 2.7 |
| | 0.4 |
| | 0.5 |
|
| Actuarial (gain) loss | 17.9 |
| | 11.6 |
| | 7.5 |
| | (44.6 | ) | | (0.5 | ) | | (1.3 | ) |
| Plan participant contributions | — |
| | — |
| | 1.3 |
| | 0.9 |
| | — |
| | — |
|
| Benefits paid | (30.2 | ) | | (30.0 | ) | | (10.0 | ) | | (5.1 | ) | | (0.8 | ) | | (1.1 | ) |
| Plan amendments | — |
| | — |
| | (0.8 | ) | | — |
| | — |
| | — |
|
| Special termination benefits | — |
| | — |
| | 0.1 |
| | — |
| | — |
| | — |
|
| Curtailment | — |
| | — |
| | — |
| | (4.6 | ) | | — |
| | — |
|
| Settlements | — |
| | — |
| | (191.4 | ) | | — |
| | — |
| | — |
|
| Foreign currency impact | — |
| | — |
| | 59.2 |
| | (34.7 | ) | | — |
| | — |
|
| Acquired benefit plans and other | — |
| | — |
| | 23.0 |
| | 625.1 |
| | — |
| | — |
|
| Benefit obligation at end of year | 569.0 |
| | 554.5 |
| | 452.0 |
| | 546.9 |
| | 9.9 |
| | 10.8 |
|
| Change in plan assets | | | | | | | | | | | |
| Fair value of plan assets at beginning of year | 351.7 |
| | 347.9 |
| | 482.9 |
| | — |
| | — |
| | — |
|
| Actual return on plan assets | 53.6 |
| | 30.4 |
| | 12.7 |
| | (12.3 | ) | | — |
| | — |
|
| Employer contributions | 3.6 |
| | 3.4 |
| | 1.3 |
| | 5.3 |
| | 0.8 |
| | 1.1 |
|
| Plan participant contributions | — |
| | — |
| | 1.3 |
| | 0.9 |
| | — |
| | — |
|
| Benefits paid | (30.2 | ) | | (30.0 | ) | | (10.0 | ) | | (5.1 | ) | | (0.8 | ) | | (1.1 | ) |
| Foreign currency impact | — |
| | — |
| | 51.7 |
| | (30.1 | ) | | — |
| | — |
|
| Acquired benefit plans and other | — |
| | — |
| | 11.0 |
| | 524.2 |
| | — |
| | — |
|
| Settlements | — |
| | — |
| | (191.4 | ) | | — |
| | — |
| | — |
|
| Fair value of plan assets at end of year | 378.7 |
| | 351.7 |
| | 359.5 |
| | 482.9 |
| | — |
| | — |
|
| Funded status | $ | (190.3 | ) | | $ | (202.8 | ) | | $ | (92.5 | ) | | $ | (64.0 | ) | | $ | (9.9 | ) | | $ | (10.8 | ) |
| Amounts recognized in balance sheets | | | | | | | | | | | |
| Noncurrent assets | $ | 0.3 |
| | $ | — |
| | $ | 6.9 |
| | $ | 15.7 |
| | $ | — |
| | $ | — |
|
| Current liabilities | 3.5 |
| | 3.5 |
| | 3.2 |
| | 3.3 |
| | 1.1 |
| | 1.1 |
|
Noncurrent liabilities (1) | 187.1 |
| | 199.3 |
| | 96.2 |
| | 76.4 |
| | 8.8 |
| | 9.7 |
|
| Accumulated other comprehensive loss: | | | | | | | | | | | |
Unrecognized net actuarial gain (loss) (2) | (154.4 | ) | | (170.1 | ) | | 27.7 |
| | 27.8 |
| | (0.5 | ) | | (1.1 | ) |
Unrecognized prior service benefit (cost) (2) | — |
| | — |
| | 0.8 |
| | (0.1 | ) | | — |
| | — |
|
| Net amount recognized | $ | 35.9 |
| | $ | 32.7 |
| | $ | 121.0 |
| | $ | 91.7 |
| | $ | 9.4 |
| | $ | 9.7 |
|
| |
(1)
| Included in the consolidated balance sheets in pensions and other benefits and other post-retirement benefits are international plans. |
| |
(2)
| Represents amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost. |
(1) Included in the consolidated balance sheets in pensions, post-retirement and other benefits.
(2) Represents amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Retirement Benefits | | Other Benefits |
| U.S. Plans | | Non-U.S. Plans | | | | |
| 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| Change in accumulated other comprehensive loss | | | | | | |
| Balance at beginning of year | $ | (94.9) | | | $ | (154.5) | | | $ | 17.7 | | | $ | (3.8) | | | $ | 4.8 | | | $ | (3.8) | |
| Prior service credit/loss recognized during the year | — | | | — | | | 2.4 | | | — | | | — | | | — | |
| | | | | | | | | | | |
| Net actuarial gains (losses) recognized during the year | (1.1) | | | 50.6 | | | 38.4 | | | 23.6 | | | 1.2 | | | 8.0 | |
| Net actuarial (losses) gains occurring during the year | 4.4 | | | 9.0 | | | (1.6) | | | 0.3 | | | (0.5) | | | 0.2 | |
| | | | | | | | | | | |
| Net actuarial losses recognized due to settlement | 14.3 | | | — | | | (4.1) | | | (1.1) | | | — | | | — | |
| | | | | | | | | | | |
| Acquired benefit plans and other | — | | | — | | | — | | | (0.1) | | | — | | | 0.2 | |
| Foreign currency impact | — | | | — | | | (1.5) | | | (1.2) | | | 0.1 | | | 0.2 | |
| | | | | | | | | | | |
| Balance at end of year | $ | (77.3) | | | $ | (94.9) | | | $ | 51.3 | | | $ | 17.7 | | | $ | 5.6 | | | $ | 4.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Retirement Benefits | | Other Benefits |
| U.S. Plans | | Non-U.S. Plans | | |
| 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
| Components of net periodic benefit cost | | | | | | | | | | | | | | | | | |
| Service cost | $ | — | | | $ | — | | | $ | 3.8 | | | $ | 8.9 | | | $ | 9.8 | | | $ | 9.8 | | | $ | — | | | $ | 0.1 | | | $ | 0.1 | |
| Interest cost | 17.3 | | | 15.9 | | | 18.9 | | | 4.1 | | | 2.9 | | | 4.0 | | | 0.2 | | | 0.7 | | | 0.8 | |
| Recognition/establishment of Germany benefit obligation | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Expected return on plan assets | (21.2) | | | (22.3) | | | (25.4) | | | (14.5) | | | (14.5) | | | (13.4) | | | — | | | — | | | — | |
| Other Adjustments | — | | | — | | | — | | | — | | | — | | | 0.2 | | | — | | | — | | | — | |
| Amortization of prior service cost | — | | | — | | | — | | | (0.4) | | | (0.1) | | | 2.8 | | | — | | | — | | | — | |
| Recognized net actuarial (gain) loss | 4.4 | | | 8.9 | | | 7.8 | | | (1.6) | | | 0.3 | | | (0.6) | | | (0.4) | | | 0.2 | | | 0.4 | |
| | | | | | | | | | | | | | | | | |
| Settlement (gain) loss | 14.3 | | | — | | | — | | | (4.1) | | | (1.1) | | | 1.1 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
| Net periodic benefit cost | $ | 14.8 | | | $ | 2.5 | | | $ | 5.1 | | | $ | (7.6) | | | $ | (2.7) | | | $ | 3.9 | | | $ | (0.2) | | | $ | 1.0 | | | $ | 1.3 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Retirement Benefits | | Other Benefits |
| | U.S. Plans | | Non-U.S. Plans | | | | |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Change in accumulated other comprehensive loss | | | | | | |
| Balance at beginning of year | $ | (170.1 | ) | | $ | (167.5 | ) | | $ | 27.7 |
| | $ | (0.1 | ) | | $ | (1.1 | ) | | $ | (2.6 | ) |
| Prior service cost occurring during the year | — |
| | — |
| | 0.9 |
| | — |
| | — |
| | — |
|
| Net actuarial losses recognized during the year | 5.9 |
| | 5.6 |
| | (0.4 | ) | | — |
| | — |
| | 0.2 |
|
| Net actuarial gains (losses) occurring during the year | 9.8 |
| | (8.2 | ) | | 0.7 |
| | 33.7 |
| | 0.6 |
| | 1.3 |
|
| Net actuarial gains (losses) recognized due to settlement | — |
| | — |
| | (0.6 | ) | | — |
| | — |
| | — |
|
| Net actuarial gains (losses) recognized due to curtailment | — |
| | — |
| | — |
| | (4.8 | ) | | — |
| | — |
|
| Acquired benefit plans and other | — |
| | — |
| | (3.0 | ) | | — |
| | — |
| | — |
|
| Foreign currency impact | — |
| | — |
| | 3.2 |
| | (1.1 | ) | | — |
| | — |
|
| Balance at end of year | $ | (154.4 | ) | | $ | (170.1 | ) | | $ | 28.5 |
| | $ | 27.7 |
| | $ | (0.5 | ) | | $ | (1.1 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Retirement Benefits | | Other Benefits |
| | U.S. Plans | | Non-U.S. Plans | | |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Components of net periodic benefit cost | | | | | | | | | | | | | | | | | |
| Service cost | $ | 3.9 |
| | $ | 3.5 |
| | $ | 3.6 |
| | $ | 10.5 |
| | $ | 5.5 |
| | $ | 0.1 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Interest cost | 22.9 |
| | 24.7 |
| | 23.8 |
| | 5.7 |
| | 2.7 |
| | — |
| | 0.4 |
| | 0.5 |
| | 0.6 |
|
| Expected return on plan assets | (25.9 | ) | | (27.0 | ) | | (27.0 | ) | | (4.5 | ) | | (3.5 | ) | | — |
| | — |
| | — |
| | — |
|
Amortization of prior service cost (1) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (0.2 | ) |
| Recognized net actuarial loss | 5.9 |
| | 5.5 |
| | 6.6 |
| | (0.4 | ) | | — |
| | — |
| | — |
| | 0.2 |
| | 0.3 |
|
| Curtailment gain | — |
| | — |
| | — |
| | 0.1 |
| | (4.6 | ) | | — |
| | — |
| | — |
| | — |
|
| Settlement loss | — |
| | — |
| | — |
| | (0.6 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Net periodic benefit cost | $ | 6.8 |
| | $ | 6.7 |
| | $ | 7.0 |
| | $ | 10.8 |
| | $ | 0.1 |
| | $ | 0.1 |
| | $ | 0.4 |
| | $ | 0.7 |
| | $ | 0.7 |
|
| |
(1)
| The annual amortization of prior service cost is determined as the increase in projected benefit obligation due to the plan change divided by the average remaining service period of participating employees expected to receive benefits under the plan. |
The following table represents information for pension plans with an accumulated benefit obligation in excess of plan assets at December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Plans | | Non-U.S. Plans |
| 2022 | | 2021 | | 2022 | | 2021 |
| Projected benefit obligation | $ | 359.8 | | | $ | 584.4 | | | $ | 189.2 | | | $ | 293.9 | |
| Accumulated benefit obligation | $ | 359.8 | | | $ | 584.4 | | | $ | 181.6 | | | $ | 282.3 | |
| Fair value of plan assets | $ | 293.0 | | | $ | 511.3 | | | $ | 51.7 | | | $ | 88.7 | |
|
| | | | | | | | | | | | | | | |
| | U.S. Plans | | Non-U.S. Plans |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Projected benefit obligation | $ | 569.0 |
| | $ | 554.5 |
| | $ | 452.0 |
| | $ | 546.9 |
|
| Accumulated benefit obligation | $ | 569.0 |
| | $ | 554.5 |
| | $ | 439.5 |
| | $ | 538.2 |
|
| Fair value of plan assets | $ | 378.7 |
| | $ | 351.7 |
| | $ | 359.5 |
| | $ | 482.9 |
|
The following table represents the weighted-average assumptions used to determine benefit obligations at December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| U.S. Plans | | Non-U.S. Plans | | |
| 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| Discount rate | 5.59% | | 2.99% | | 4.92% | | 2.39% | | 6.84% | | 4.22% |
| Rate of compensation increase | N/A | | N/A | | 3.88% | | 3.89% | | N/A | | N/A |
|
| | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | U.S. Plans | | Non-U.S. Plans | | |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Discount rate | 3.71 | % | | 4.24 | % | | 1.45 | % | | 1.63 | % | | 3.71 | % | | 4.62 | % |
| Rate of compensation increase | N/A |
| | N/A |
| | 2.75 | % | | 2.52 | % | | N/A |
| | N/A |
|
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
The following table represents the weighted-average assumptions used to determine periodic benefit cost at December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| U.S. Plans | | Non-U.S. Plans | | |
| 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| Discount rate | 2.99% | | 2.62% | | 2.39% | | 1.90% | | 4.22% | | 5.19% |
| Expected long-term return on plan assets | 5.25% | | 6.05% | | 3.30% | | 3.32% | | N/A | | N/A |
| Rate of compensation increase | N/A | | N/A | | 3.89% | | 3.63% | | N/A | | N/A |
|
| | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | U.S. Plans | | Non-U.S. Plans | | |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Discount rate | 4.24 | % | | 4.62 | % | | 1.47 | % | | 1.16 | % | | 4.24 | % | | 4.62 | % |
| Expected long-term return on plan assets | 7.40 | % | | 7.75 | % | | 1.34 | % | | 1.82 | % | | N/A |
| | N/A |
|
| Rate of compensation increase | N/A |
| | N/A |
| | 2.76 | % | | 2.49 | % | | N/A |
| | N/A |
|
The discount rate is determined by analyzing the average return of high-quality (i.e., AA-rated) fixed-income investments and the year-over-year comparison of certain widely used benchmark indices as of the measurement date. The expected long-term rate of return on plan assets is primarily determined using the plan’s current asset allocation and its expected rates of return. The Company also considers information provided by its investment consultant, a survey of other companies using a December 31 measurement date and the Company’s historical asset performance in determining the expected long-term rate of return. The rate of compensation increase assumptions reflects the Company’s long-term actual experience and future and near-term outlook.
During 2017,2021, the Society of Actuaries released new mortality improvementtables (Pri-2012) and projection scale (MP-2017)scales resulting from recent studies measuring mortality rates for various groups of individuals. As of December 31, 2017,2022, the Company adopted forused the pension plan in the U.S. the use of the RP-2014 base mortality table modified to remove the post-2006 projections using the MP-2014 mortality improvement scale and replacing it with projections using the fully generational MP-2017 projection scale. For the plans outside the U.S., thePri-2012 mortality tables and the MP-2021 mortality projection scales. The Pri-2012 mortality tables were also used are those either required or customary for local accounting and/or funding purposes.in 2021.
The following table represents assumed healthcare cost trend rates at December 31:
| | | | | | | | | | | |
| 2022 | | 2021 |
| Healthcare cost trend rate assumed for next year | 6.0% | | 5.6% |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 4.0% | | 4.0% |
| Year that rate reaches ultimate trend rate | 2046 | | 2045 |
|
| | | | | |
| | 2017 | | 2016 |
| Healthcare cost trend rate assumed for next year | 6.8 | % | | 7.0 | % |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 5.0 | % | | 5.0 | % |
| Year that rate reaches ultimate trend rate | 2025 |
| | 2025 |
|
The healthcare trend rates for the postemployment benefits plans in the U.S. are reviewed based upon the results of actual claims experience. The Company used initial healthcare cost trends of 6.86.0 percent and 7.05.6 percent in 20172022 and 2016,2021, respectively, with an ultimate trend rate of 5.04.0 percent reached in 2025.2046. Assumed healthcare cost trend rates have a modest effect on the amounts reported for the healthcare plans.
A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:results in a minimal impact to total service and interest cost and post-retirement benefit obligation.
|
| | | | | | | |
| | One-Percentage-Point Increase | | One-Percentage-Point Decrease |
| Effect on total of service and interest cost | $ | — |
| | $ | — |
|
| Effect on post-retirement benefit obligation | $ | 0.5 |
| | $ | (0.5 | ) |
The Company has a pension investment policy in the U.S. designed to achieve an adequate funded status based on expected benefit payouts and to establish an asset allocation that will meet or exceed the return assumption while maintaining a prudent level of risk. The plans' target asset allocation adjusts based on the plan's funded status. As the funded status improves or declines, the debt security target allocation will increase and decrease, respectively. The Company utilizes the services of an outside consultant in performing asset / liability modeling, setting appropriate asset allocation targets along with selecting and monitoring professional investment managers.
The U.S. plan assets are invested in equity and fixed income securities, alternative assets and cash. Within the equities asset class, the investment policy provides for investments in a broad range of publicly-traded securities including both domestic and international stocks diversified by value, growth and cap size. Within the fixed income asset class, the investment policy provides for investments in a broad range of publicly-traded debt securities with a substantial portion allocated to a long duration strategy in order to partially offset interest rate risk relative to the plans’ liabilities. The alternative asset class includes investments in diversified strategies with a stable and proven track record and low correlation to the U.S. stock market. Several plans outside of the U.S. are also invested in various assets, under various investment policies in compliance with local funding regulations.
In connection with the Acquisition, the Company also acquired plan assets that had been created in June 2006 as part of a Contractual Trust Arrangement (CTA), under which company assets have been irrevocably transferred to a registered association
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
(Wincor Nixdorf Pension Trust e. V.) for the exclusive purpose of securing and funding pension and other postemployment benefits obligations to employees in Belgium, Germany, France and Switzerland. The association is investing in current and non-current assets, using a funding strategy that is reviewed on a regular basis by analyzing asset development as well as the current situation of the financial market.
The following table summarizes the Company’s target allocation for these asset classes in 2018,2023, which are readjusted at least quarterly within a defined range for the U.S., and the Company’s actual pension plan asset allocation as of December 31, 20172022 and 2016:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Plans | | Non-U.S. Plans |
| | Target | | Actual | | Target | | Actual |
| | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Equity securities | | 41% | | 43% | | 46% | | 52% | | 52% | | 55% |
| Debt securities | | 50% | | 48% | | 50% | | 26% | | 26% | | 25% |
| Real estate | | 4% | | 7% | | 3% | | 8% | | 8% | | 12% |
| Other | | 5% | | 2% | | 1% | | 14% | | 14% | | 8% |
| Total | | 100% | | 100% | | 100% | | 100% | | 100% | | 100% |
|
| | | | | | | | | | | | |
| | | U.S. Plans | | Non-U.S. Plans |
| | | Target | | Actual | | Target | | Actual |
| | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 |
| Equity securities | | 45% | | 46% | | 45% | | 34% | | 24% | | 9% |
| Debt securities | | 40% | | 40% | | 41% | | 36% | | 26% | | 46% |
| Real estate | | 5% | | 5% | | 5% | | 9% | | 11% | | 4% |
| Other | | 10% | | 9% | | 9% | | 21% | | 39% | | 41% |
| Total | | 100% | | 100% | | 100% | | 100% | | 100% | | 100% |
Assets areThe following table summarizes the fair value categorized into a three level hierarchy, as discussed in Note 1 of the consolidated financial statements, based upon the assumptions (inputs) used to determineof the Company’s plan assets as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Plans | | Non-U.S. Plans |
| | Fair Value | | Level 1 | | Level 2 | | NAV | | Fair Value | | Level 1 | | Level 2 | | NAV |
| Cash and short-term investments | | $ | 1.8 | | | $ | 1.8 | | | $ | — | | | $ | — | | | $ | 12.1 | | | $ | 11.4 | | | $ | — | | | $ | 0.7 | |
| | | | | | | | | | | | | | | | |
| Mutual funds | | 0.8 | | | 0.8 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Equity securities | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| U.S. small cap core | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| International developed markets | | — | | | — | | | — | | | — | | | 170.4 | | | 167.5 | | | — | | | 2.9 | |
| | | | | | | | | | | | | | | | |
| Fixed income securities | | | | | | | | | | | | | | | | |
| U.S. corporate bonds | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| International corporate bonds | | — | | | — | | | — | | | — | | | 59.6 | | | 50.1 | | | — | | | 9.5 | |
| U.S. government | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Fixed and index funds | | — | | | — | | | — | | | — | | | 23.7 | | | 14.2 | | | — | | | 9.5 | |
| Common collective trusts | | | | | | | | | | | | | | | | |
| Real estate (a) | | 20.1 | | | — | | | — | | | 20.1 | | | 25.5 | | | — | | | 14.5 | | | 11.0 | |
| Other (b) | | 263.1 | | | — | | | — | | | 263.1 | | | 16.8 | | | — | | | — | | | 16.8 | |
| Alternative investments | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Private equity funds (c) | | 7.2 | | | — | | | — | | | 7.2 | | | — | | | — | | | — | | | — | |
| Other alternative investments (d) | | — | | | — | | | — | | | — | | | 17.2 | | | 0.3 | | | — | | | 16.9 | |
| Fair value of plan assets at end of year | | $ | 293.0 | | | $ | 2.6 | | | $ | — | | | $ | 290.4 | | | $ | 325.3 | | | $ | 243.5 | | | $ | 14.5 | | | $ | 67.3 | |
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
The following table summarizes the fair value of the assets.Company’s plan assets as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Plans | | Non-U.S. Plans |
| | Fair Value | | Level 1 | | Level 2 | | NAV | | Fair Value | | Level 1 | | Level 2 | | NAV |
| Cash and short-term investments | | $ | 2.5 | | | $ | 2.5 | | | $ | — | | | $ | — | | | $ | 19.7 | | | $ | 19.7 | | | $ | — | | | $ | — | |
| Other | | 0.5 | | | 0.5 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Mutual funds | | 1.1 | | | 1.1 | | | — | | | — | | | 0.7 | | | — | | | — | | | 0.7 | |
| Equity securities | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| U.S. small cap core | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| International developed markets | | — | | | — | | | — | | | — | | | 216.8 | | | 214.6 | | | — | | | 2.2 | |
| | | | | | | | | | | | | | | | |
| Fixed income securities | | | | | | | | | | | | | | | | |
| U.S. corporate bonds | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| International corporate bonds | | — | | | — | | | — | | | — | | | 58.8 | | | 58.8 | | | — | | | — | |
| U.S. government | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Fixed and index funds | | — | | | — | | | — | | | — | | | 38.6 | | | 18.9 | | | — | | | 19.7 | |
| Common collective trusts | | | | | | | | | | | | | | | | |
| Real estate (a) | | 17.2 | | | — | | | — | | | 17.2 | | | 45.8 | | | — | | | 15.9 | | | 29.9 | |
| Other (b) | | 485.9 | | | — | | | — | | | 485.9 | | | — | | | — | | | — | | | — | |
| Alternative investments | | | | | | | | | | | | | | | | |
| Multi-strategy hedge funds | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Private equity funds (c) | | 4.1 | | | — | | | — | | | 4.1 | | | — | | | — | | | — | | | — | |
| Other alternative investments (d) | | — | | | — | | | — | | | — | | | 14.0 | | | 0.4 | | | — | | | 13.6 | |
| Fair value of plan assets at end of year | | $ | 511.3 | | | $ | 4.1 | | | $ | — | | | $ | 507.2 | | | $ | 394.4 | | | $ | 312.4 | | | $ | 15.9 | | | $ | 66.1 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Level 1 - Fair value of investments categorized as level 1 are determined based on period end closing prices in active markets. Mutual funds are valued at their net asset value (NAV) on the last day of the period.
Level 2 - Fair value of investments categorized as level 2 are determined based on the latest available ask price or latest trade price if listed. The fair value of unlisted securities is established by fund managers using the latest reported information for comparable securitiesIn 2022 and financial analysis. If the manager believes the fund is not capable of immediately realizing2021, the fair value otherwise determined, the manager has the discretion to determine an appropriate value. Common collective trusts are valued at NAV on the last day of the period.
Level 3 - Fair value of investments categorized as level 3 represent the plan’splan's interest in private equity, hedge and property funds. The fair value for these assets is determined based on the NAV as reported by the underlying investment managers.
(a) Real estate common collective trust.The objective of the real estate common collective trust (CCT) is to achieve long-term returns through investments in a broadly diversified portfolio of improved properties with stabilized occupancies. As of December 31, 2022, investments in this CCT, for U.S. plans, included approximately 22 percent office, 27 percent residential, 10 percent retail and 41 percent industrial, cash and other. As of December 31, 2021, investments in this CCT, for U.S. plans, included approximately 31 percent office, 24 percent residential, 12 percent retail and 33 percent industrial, cash and other. Investments in the real estate CCT can be redeemed once per quarter subject to available cash, with a 30-day notice.
(b) Other common collective trusts. At December 31, 2022, approximately 53 percent of the other CCTs are invested in fixed income securities including 36 percent in corporate bonds and 64 percent in U.S. Treasury and other. Approximately 19 percent of the other CCTs at December 31, 2022 are invested in Russell 1000 Fund large cap index funds, 16 percent in International Funds, and approximately 12 percent in funds, including emerging markets, real assets, and other funds. At December 31, 2021, approximately 52 percent of the other CCTs are invested in fixed-income securities, including approximately 42 percent in corporate bonds and 58 percent in U.S. Treasury and other. Approximately 20 percent of the other CCTs at December 31, 2021 are invested in Russell 1000 Fund large cap index funds, 15 percent in International Funds, and approximately 13 percent in funds, including emerging markets, real assets, and other funds. Investments in all common collective trust securities can be redeemed daily.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
(c) Private equity funds. The following table summarizes the fair valueobjective of the Company’s plan assets asprivate equity funds is to achieve long-term returns through investments in a diversified portfolio of private equity limited partnerships that offer a variety of investment strategies, targeting low volatility and low correlation to traditional asset classes. As of December 31, 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. Plans | | Non-U.S. Plans |
| | | Fair Value | | Level 1 | | Level 2 | | Level 3 | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Cash and short-term investments | | $ | 3.5 |
| | $ | 3.5 |
| | $ | — |
| | $ | — |
| | $ | 82.5 |
| | $ | 82.1 |
| | $ | 0.4 |
| | $ | — |
|
| Mutual funds | | 32.0 |
| | 32.0 |
| | — |
| | — |
| | 77.5 |
| | 77.5 |
| | — |
| | — |
|
| Equity securities | | | | | | | | | | | | | | | | |
| U.S. mid cap value | | — |
| | — |
| | — |
| | — |
| | 0.7 |
| | 0.7 |
| | — |
| | — |
|
| U.S. small cap core | | 19.0 |
| | 19.0 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| International developed markets | | 39.3 |
| | 39.3 |
| | — |
| | — |
| | 11.2 |
| | 11.2 |
| | — |
| | — |
|
| Emerging markets | | 19.5 |
| | — |
| | 19.5 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Fixed income securities | | | | | | | | | | | | | | | | |
| U.S. corporate bonds | | 50.0 |
| | — |
| | 50.0 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| International corporate bonds | | — |
| | — |
| | — |
| | — |
| | 86.9 |
| | 5.9 |
| | 81.0 |
| | — |
|
| U.S. government | | 7.7 |
| | — |
| | 7.7 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Fixed and index funds | | 0.6 |
| | — |
| | 0.6 |
| | — |
| | 11.7 |
| | 7.4 |
| | 4.3 |
| | — |
|
| Common collective trusts | |
|
| | | | | | | | | | | | | | |
| Real estate (a) | | 19.2 |
| | — |
| | — |
| | 19.2 |
| | 4.7 |
| | — |
| | 4.7 |
| | — |
|
| Other (b) | | 159.9 |
| | — |
| | 159.9 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Alternative investments | | | | | | | | | | | | | | | | |
| Multi-strategy hedge funds (c) | | 18.9 |
| | — |
| | — |
| | 18.9 |
| | 1.6 |
| | — |
| | 1.6 |
| | — |
|
| Private equity funds (d) | | 9.1 |
| | — |
| | — |
| | 9.1 |
| | — |
| | — |
| | — |
| | — |
|
| Other alternative investments (e) | | — |
| | — |
| | — |
| | — |
| | 82.7 |
| | — |
| | 0.9 |
| | 81.8 |
|
| Fair value of plan assets at end of year | | $ | 378.7 |
| | $ | 93.8 |
| | $ | 237.7 |
| | $ | 47.2 |
| | $ | 359.5 |
| | $ | 184.8 |
| | $ | 92.9 |
| | $ | 81.8 |
|
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(business. Investments in millions, except per share amounts)
The following table summarizes the fair value of the Company’s plan assets as of December 31, 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. Plans | | Non-U.S. Plans |
| | | Fair Value | | Level 1 | | Level 2 | | Level 3 | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| Cash and short-term investments | | $ | 3.4 |
| | $ | 3.4 |
| | $ | — |
| | $ | — |
| | $ | 92.3 |
| | $ | 92.3 |
| | $ | — |
| | $ | — |
|
| Mutual funds | | 28.2 |
| | 28.2 |
| | — |
| | — |
| | 61.6 |
| | 61.6 |
| | — |
| | — |
|
| Equity securities | | | | | | | | | | | | | | | | |
| U.S. mid cap value | | — |
| | — |
| | — |
| | — |
| | 0.1 |
| | 0.1 |
| | — |
| | — |
|
| U.S. small cap core | | 16.9 |
| | 16.9 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| International developed markets | | 36.9 |
| | 36.9 |
| | — |
| | — |
| | 9.2 |
| | 9.2 |
| | — |
| | — |
|
| Emerging markets | | 16.5 |
| | — |
| | 16.5 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Fixed income securities | | | | | | | | | | | | | | | | |
| U.S. corporate bonds | | 44.8 |
| | — |
| | 44.8 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| International corporate bonds | | — |
| | — |
| | — |
| | — |
| | 77.3 |
| | — |
| | 77.3 |
| | — |
|
| U.S. government | | 7.7 |
| | — |
| | 7.7 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Fixed and index funds | | 1.5 |
| | — |
| | 1.5 |
| | — |
| | 5.4 |
| | — |
| | 5.4 |
| | — |
|
| Common collective trusts | | | | | | | | | | | | | | | | |
| Real estate (a) | | 18.1 |
| | — |
| | — |
| | 18.1 |
| | 4.3 |
| | — |
| | 4.3 |
| | — |
|
| Other (b) | | 148.4 |
| | — |
| | 148.4 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Alternative investments | |
|
| |
| |
| |
| | | | | | | | |
| Multi-strategy hedge funds (c) | | 17.6 |
| | — |
| | — |
| | 17.6 |
| | 2.8 |
| | — |
| | 2.1 |
| | 0.7 |
|
| Private equity funds (d) | | 11.7 |
| | — |
| | — |
| | 11.7 |
| | — |
| | — |
| | — |
| | — |
|
| Other alternative investments (e) | | — |
| | — |
| | — |
| | — |
| | 229.9 |
| | — |
| | — |
| | 229.9 |
|
| Fair value of plan assets at end of year | | $ | 351.7 |
| | $ | 85.4 |
| | $ | 218.9 |
| | $ | 47.4 |
| | $ | 482.9 |
| | $ | 163.2 |
| | $ | 89.1 |
| | $ | 230.6 |
|
| |
(a) | Real estate common collective trust.The objective of the real estate common collective trust (CCT) is to achieve long-term returns through investments in a broadly diversified portfolio of improved properties with stabilized occupancies. As of December 31, 2017, investments in this CCT, for U.S. plans, included approximately 41 percent office, 21 percent residential, 27 percent retail and 11 percent industrial, cash and other. As of December 31, 2016, investments in this CCT, for U.S. plans, included approximately 39 percent office, 20 percent residential, 25 percent retail and 16 percent industrial, cash and other. Investments in the real estate CCT can be redeemed once per quarter subject to available cash, with a 45-day notice.
|
| |
(b) | Other common collective trusts. At December 31, 2017, approximately 59 percent of the other CCTs are invested in fixed income securities including approximately 15 percent in mortgage-backed securities, 54 percent in corporate bonds and 31 percent in U.S. Treasury and other. Approximately 41 percent of the other CCTs at December 31, 2017 are invested in Russell 1000 Fund large cap index funds. At December 31, 2016, approximately 60 percent of the other CCTs are invested in fixed-income securities including approximately 22 percent in mortgage-backed securities, 58 percent in corporate bonds and 20 percent in U.S. Treasury and other. Approximately 40 percent of the other CCTs at December 31, 2016 are invested in Russell 1000 Fund large cap index funds. Investments in fixed-income securities can be redeemed daily.
|
| |
(c) | Multi-strategy hedge funds. The objective of the multi-strategy hedge funds is to diversify risks and reduce volatility. At December 31, 2017 and 2016, investments in this class for U.S. plans include approximately 50 percent and 43 percent long/short equity, respectively, 45 percent and 50 percent arbitrage and event investments, respectively, and 5 percent and 7 percent in directional trading, fixed income and other, respectively. Investments in the multi-strategy hedge fund can be redeemed semi-annually with a 95-day notice.
|
| |
(d) | Private equity funds. The objective of the private equity funds is to achieve long-term returns through investments in a diversified portfolio of private equity limited partnerships that offer a variety of investment strategies, targeting low volatility and low correlation to traditional asset classes. As of December 31, 2017 and 2016, investments in these private equity funds include approximately 42 percent and 43 percent, respectively, in buyout private equity funds that usually invest in mature companies with established business plans, approximately 25 percent and 26 percent, respectively, in special situations private equity and debt funds that focus on niche investment strategies and approximately 33 percent and 31 percent respectively, in venture private equity funds that invest in early development or expansion of business. Investments in the private equity fund can be redeemed only with written
|
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
private equity fund can be redeemed only with written consent from the general partner, which may or may not be granted. At December 31, 20172022 and 2016,2021 the Company had unfunded commitments of underlying funds of $5.5 in both years.$1.6 and $2.4, respectively.
| |
(e) | Other alternative investments. (d) Other alternative investments. Following the Acquisition, the Company’s plan assets were expanded with a combination of insurance contracts, multi-strategy investment funds and company-owned real estate. The fair value for these assets is determined based on the NAV as reported by the underlying investment manager, insurance companies and the trustees of the CTA. |
The following table summarizes the changes in fair value for these assets is determined based on the NAV as reported by the underlying investment manager, insurance companies and the trustees of level 3 assets for the years ended December 31:CTA.
|
| | | | | | | | | | | | | | | | |
| | | U.S. Plans | | Non-U.S. Plans |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Balance, January 1 | | $ | 47.4 |
| | $ | 53.3 |
| | $ | 230.6 |
| | $ | — |
|
| Dispositions | | (4.3 | ) | | (8.3 | ) | | (175.3 | ) | | — |
|
| Realized and unrealized gain, net | | 4.1 |
| | 2.4 |
| | 26.5 |
| | 0.1 |
|
| Acquisition | | — |
| | — |
| | — |
| | 230.5 |
|
| Balance, December 31 | | $ | 47.2 |
| | $ | 47.4 |
| | $ | 81.8 |
| | $ | 230.6 |
|
The following table represents the amortization amounts expected to be recognized during 2018:2023:
| | | | | | | | | | | | | | | | | | | | |
| | U.S. Pension Benefits | | Non-U.S. Pension Benefits | | Other Benefits |
| Amount of net prior service credit | | $ | — | | | $ | (0.7) | | | $ | — | |
| Amount of net loss (gain) | | $ | 0.6 | | | $ | (3.7) | | | $ | (0.6) | |
|
| | | | | | | | | | | |
| | U.S. Pension Benefits | | Non-U.S. Pension Benefits | | Other Benefits |
| Amount of net prior service credit | $ | — |
| | $ | (0.1 | ) | | $ | — |
|
| Amount of net loss | $ | 6.6 |
| | $ | (0.6 | ) | | $ | — |
|
The Company contributed $5.7$15.0 to its retirement and other benefit plans, including contributions to the nonqualified plan and benefits paid from company assets, andassets. In 2022, the Company received a reimbursement of $17.0 from the CTA assets to the Company for benefits paid directly from company assets and $0.8 to its other post-retirement benefit plan during the year ended December 31, 2017.2022. The Company expects to contribute $1.1approximately $0.6 to its other post-retirement benefit plan and expects to contribute $49.6approximately $26.2 to its retirement plans, including the nonqualified plan, as well as benefits payments directly from the Company during the year ending December 31, 2018.2023. The Company anticipates reimbursement of approximately $22 for certain benefits paid from its trustee in 2022. The following benefit payments, which reflect expected future service, are expected to be paid:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Pension Benefits | | Non-U.S. Pension Benefits | | Other Benefits | | Other Benefits
after Medicare
Part D Subsidy |
| 2023 | | $ | 22.5 | | | $ | 22.6 | | | $ | 0.6 | | | $ | 0.5 | |
| 2024 | | $ | 23.3 | | | $ | 18.9 | | | $ | 0.5 | | | $ | 0.5 | |
| 2025 | | $ | 24.2 | | | $ | 20.1 | | | $ | 0.5 | | | $ | 0.5 | |
| 2026 | | $ | 25.0 | | | $ | 20.9 | | | $ | 0.5 | | | $ | 0.5 | |
| 2027 | | $ | 25.7 | | | $ | 22.6 | | | $ | 0.5 | | | $ | 0.4 | |
| 2028-2032 | | $ | 132.8 | | | $ | 103.4 | | | $ | 1.9 | | | $ | 1.8 | |
|
| | | | | | | | | | | | | | |
| | U.S. Pension Benefits | Non-U.S. Pension Benefits | | Other Benefits | | Other Benefits
after Medicare
Part D Subsidy |
| 2018 | $ | 27.9 |
| $ | 28.7 |
| | $ | 1.1 |
| | $ | 1.0 |
|
| 2019 | $ | 28.5 |
| $ | 26.6 |
| | $ | 1.0 |
| | $ | 0.9 |
|
| 2020 | $ | 29.1 |
| $ | 25.8 |
| | $ | 1.0 |
| | $ | 0.9 |
|
| 2021 | $ | 29.8 |
| $ | 27.3 |
| | $ | 0.9 |
| | $ | 0.9 |
|
| 2022 | $ | 30.3 |
| $ | 24.6 |
| | $ | 0.9 |
| | $ | 0.8 |
|
| 2023-2027 | $ | 157.6 |
| $ | 130.4 |
| | $ | 3.7 |
| | $ | 3.4 |
|
During 2022 the Company executed settlement agreements that reduced benefit obligations by $107.0 and resulted in non-cash expense of $10.1. These settlements included an agreement that the U.S. Pension Plan executed during the third quarter of 2022, which reduced benefit obligations by $82.4. As a result of the U.S. settlement, the Company recognized a non-cash expense of $14.3 which is reported in miscellaneous, net on the condensed consolidated statement of operations.
Retirement Savings Plan. The Company offers employee 401(k) savings plans (Savings Plans) to encourage eligible employees to save on a regular basis by payroll deductions. The Company's basic match is 60 percent of the first 6 percent of a participant's qualified contributions, subject to IRS limits.
The Company match is determined by the Board of Directors and evaluated at least annually. Total Company match was $8.2, $8.3$7.0, $7.4 and $9.5$6.9 for the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively.
Deferred Compensation Plans. The Company has deferred compensation plans in the U.S. and Germany that enable certain employees to defer a portion of their cash wages, cash bonus, 401(k) or other compensation and non-employee directors to defer receipt of director fees at the participants’ discretion. For deferred cash-based compensation and 401(k), the Company established rabbi trusts in the U.S. which are recorded at fair value of the underlying securities within securities and other investments. The related deferred compensation liabilities are 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 with corresponding changes in the Company’s deferred compensation obligation recorded as compensation cost within selling and administrative expense.
NOTE 16: LEASES
The Company’s future minimum lease payments due under non-cancellable operating leases for real estate, vehicles and other equipment at December 31, 2017 are as follows:
|
| | | | | | | | | | | |
| | Total | | Real Estate | | Vehicles and Equipment (a) |
| 2018 | $ | 89.6 |
| | $ | 52.3 |
| | $ | 37.3 |
|
| 2019 | 53.8 |
| | 39.5 |
| | 14.3 |
|
| 2020 | 30.5 |
| | 24.4 |
| | 6.1 |
|
| 2021 | 24.3 |
| | 21.6 |
| | 2.7 |
|
| 2022 | 19.1 |
| | 17.3 |
| | 1.8 |
|
| Thereafter | 13.1 |
| | 12.2 |
| | 0.9 |
|
| | $ | 230.4 |
| | $ | 167.3 |
| | $ | 63.1 |
|
| |
(a) | The Company leases vehicles with contractual terms of 36 to 60 months that are cancellable after 12 months without penalty. Future minimum lease payments reflect only the minimum payments during the initial 12-month non-cancellable term. |
Under lease agreements that contain escalating rent provisions, lease expenseCompany's basic match is recorded on a straight-line basis over the lease term. Rental expense under all lease agreements amounted to $125.4, $84.3 and $67.7 for the years ended December 31, 2017, 2016 and 2015, respectively.
NOTE 17: GUARANTEES AND PRODUCT WARRANTIES
The Company provides its global operations guarantees and standby letters of credit through various financial institutions to suppliers, customers, regulatory agencies and insurance providers. If the Company is not able to make payment, the suppliers, customers, regulatory agencies and insurance providers may draw50 percent on the pertinent bank. At December 31, 2017, the maximum future contractual obligations relativefirst 6 percent of a participant's qualified contributions, subject 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. At December 31, 2016, the maximum future payment obligations relative to these various guarantees totaled $183.3, of which $28.0 represented standby letters of credit to insurance providers, and no associated liability was recorded.IRS limits.
The Company provides its customers a standard 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:
|
| | | | | | | |
| | 2017 | | 2016 |
| Balance at January 1 | $ | 101.6 |
| | $ | 73.6 |
|
| Current period accruals | 36.0 |
| | 53.4 |
|
| Current period settlements | (65.2 | ) | | (73.5 | ) |
| Acquired warranty accruals | — |
| | 43.8 |
|
| Currency translation | 4.3 |
| | 4.3 |
|
| Balance at December 31 | $ | 76.7 |
| | $ | 101.6 |
|
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
NOTE 16: 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 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 right-of-use (ROU) assets. Lease agreements are utilized worldwide, with the largest location concentration in the United States, Germany and India.
The Company made the following elections related to the January 1, 2019 adoption of ASU No. 2016-02, Leases:
| | | | | |
| ● | The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carry forward its ASC 840 assessment regarding definition of a lease, lease classification and initial direct costs. |
| ● | The practical expedient related to land easements is not applicable as the Company currently does not utilize any easements. |
| ● | The Company declined the hindsight practical expedient to determine the lease term and ROU asset impairment for existing leases. The decision to decline the hindsight practical expedient resulted in relying on assessments made under ASC 840 during transition and re-assessing under ASC 842 going forward. |
| ● | The Company declined the short-term lease exception, therefore recognizing all leases in the ROU asset and lease liability balances. Consistent with ASC 842 requirements, leases that are one month or less are not included in the balance. |
| ● | The Company elected to not separate non-lease components from lease components and, instead, to account for each separate lease component and the non-lease components associated with it as a single lease component, recognized on the balance sheet. This election has been made for all classes of underlying assets. |
| ● | The Company elected to use a grouping/portfolio approach on applying discount rates to leases at transition, for certain groups of leases where it was determined that using this approach would not differ materially from a lease-by-lease approach. |
The Company's lease population has initial lease terms ranging from less than one year to approximately fifteen 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 Company assesses these renewal/extension options using a threshold of reasonably certain, which is a high threshold and, therefore, the majority of its lease terms for accounting purposes do not include renewal periods. For leases where the Company is reasonably certain to renew, those optional periods are included within the lease term and, therefore, the measurement of the ROU asset and lease liability. Some of the vehicle and IT equipment leases also include options to purchase the leased asset, typically at end of term at fair market value. Some of the Company's leases include options to terminate the lease early. This allows the contract parties to terminate their obligations under the lease contract, sometimes in return for an agreed upon financial consideration. The terms and conditions of the termination options vary by contract, and for those leases where the Company is reasonably certain to use these options, the term and payments recognized in the measurement of ROU assets and lease liabilities has been updated accordingly. Additionally, there are several open-ended lease arrangements where the Company controls the option to continue or terminate the arrangement at any time after the first year. For these arrangements, the Company has analyzed a mix of historical use and future economic incentives to determine the reasonable expected holding period. This term is used for measurement of ROU assets and lease liabilities.
The following table summarizes the weighted-average remaining lease terms and discount rates related to the Company's lease population:
| | | | | | | | | | | |
| | | |
| December 31, 2022 | | December 31, 2021 |
| Weighted-average remaining lease terms (in years) | | | |
| Operating leases | 5.8 | | 4.0 |
| Finance leases | 3.1 | | 3.3 |
| Weighted-average discount rate | | | |
| Operating leases | 15.4% | | 6.8% |
| Finance leases | 11.9% | | 6.2% |
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
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
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 December 31, 2022, 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 implicit 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.
The following table summarizes the components of lease expense for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Lease expense | | | | | |
| Operating lease expense | $ | 75.7 | | | $ | 87.3 | | | $ | 93.6 | |
| Finance lease expense | | | | | |
| Amortization of ROU lease assets | $ | 4.1 | | | $ | 2.9 | | | $ | 1.5 | |
| Interest on lease liabilities | $ | 0.7 | | | $ | 0.9 | | | $ | 0.5 | |
| Variable lease expense | $ | 10.1 | | | $ | 7.8 | | | $ | 8.0 | |
The following table summarizes the maturities of lease liabilities:
| | | | | | | | | | | |
| Operating | | Finance |
| 2023 | $ | 53.1 | | | $ | 4.9 | |
| 2024 | 34.4 | | | 3.3 | |
| 2025 | 20.0 | | | 1.7 | |
| 2026 | 12.2 | | | 1.0 | |
| 2027 | 8.9 | | | 0.6 | |
| Thereafter | 29.1 | | | 0.2 | |
| Total | 157.7 | | | 11.7 | |
| Less: Present value discount | (42.0) | | | (1.9) | |
| Lease liability | $ | 115.7 | | | $ | 9.8 | |
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
The following table summarizes the cash flow information related to leases:
| | | | | | | | | | | |
| | | |
| | December 31, 2022 | | December 31, 2021 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating - operating cash flows | $ | 76.2 | | | $ | 87.3 | |
| Finance - financing cash flows | $ | 4.3 | | | $ | 2.3 | |
| Finance - operating cash flows | $ | 0.7 | | | $ | 0.4 | |
| ROU lease assets obtained in the exchange for lease liabilities: | | | |
| Operating leases | $ | 28.1 | | | $ | 57.4 | |
| Finance leases | $ | 7.4 | | | $ | 4.5 | |
The following table summarizes the balance sheet information related to leases:
| | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
| Assets | | | |
| Operating | $ | 108.5 | | | $ | 152.4 | |
| Finance | 10.3 | | | 7.1 | |
| Total leased assets | $ | 118.8 | | | $ | 159.5 | |
| | | |
| Current liabilities | | | |
| Operating | $ | 39.0 | | | $ | 54.5 | |
| Finance | 4.1 | | | 2.5 | |
| Noncurrent liabilities | | | |
| Operating | 76.7 | | | 103.0 | |
| Finance | 5.7 | | | 4.1 | |
| Total lease liabilities | $ | 125.5 | | | $ | 164.1 | |
Finance leases are included in other assets, other current liabilities and other liabilities on the consolidated balance sheets.
NOTE 17: FINANCE LEASE RECEIVABLES
The Company provides financing arrangements to customers purchasing its products. These financing arrangements are largely classified and accounted for as sales-type leases. 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.
Future minimum payments due from customers under finance lease receivables as of December 31, 2022 are as follows:
| | | | | |
| 2023 | $ | 8.7 | |
| 2024 | 5.0 | |
| 2025 | 5.1 | |
| 2026 | 4.6 | |
| 2027 | 3.7 | |
| Thereafter | 1.0 | |
| $ | 28.1 | |
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
The following table presents the components of finance lease receivables as of December 31:
| | | | | | | | | | | |
| 2022 | | 2021 |
| Gross minimum lease receivable | $ | 28.1 | | | $ | 39.5 | |
| Allowance for credit losses | (0.2) | | | (0.3) | |
| Estimated unguaranteed residual values | 0.1 | | | 0.1 | |
| 28.0 | | | 39.3 | |
| Less: | | | |
| Unearned interest income | (1.5) | | | (1.2) | |
| Unearned residuals | — | | | — | |
| (1.5) | | | (1.2) | |
| Total | $ | 26.5 | | | $ | 38.1 | |
The Company's combined allowance for finance receivables and notes receivables was minimal for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, finance leases and notes receivables individually evaluated for impairment were $26.7 and $0.5, respectively, with no provision recorded. As of December 31, 2021, finance leases and notes receivables individually evaluated for impairment were $38.4 and $0.6, respectively, with no provision recorded. As of December 31, 2022 and 2021, the recorded investment in past-due financing receivables was minimal and no recorded investment in finance receivables was past due 90 days or more and still accruing interest.
The following table presents finance lease receivables sold by the Company for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Finance lease receivables sold | $ | 1.6 | | | $ | 1.9 | | | $ | 5.0 | |
NOTE 18: COMMITMENTS AND CONTINGENCIES
Contractual Obligation
At December 31, 2017, the Company had purchase commitments due within one year totaling $11.1 for materials and services through contract manufacturing agreements at negotiated prices. The amounts purchased under these obligations totaled $14.2 in 2017. The Company guarantees a fixed cost of certain products used in production to its strategic partners. Variations in the products costs are absorbed by the Company.
Indirect Tax Contingencies
The Company accrues non-income-tax liabilities for indirect tax matters when management believes that a loss is probable and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. In the event any losses are sustained in excess of accruals, they are charged against income. In evaluating indirect tax matters, management takes into consideration factors such as historical experience with matters of similar nature, specific facts and circumstances, and the likelihood of prevailing. Management evaluates and updates accruals as matters progress over time. It is reasonably possible that some of the matters for which accruals have not been established could be decided unfavorably to the Company and could require recognizing future expenditures. Also, statutes of limitations could expire without the Company paying the taxes for matters for which accruals have been established, which could result in the recognition of future gains upon reversal of these accruals at that time.
At December 31, 2017, the Company was a party to several routine indirect tax claims from various taxing authorities globally that were incurred in the normal course of business, which neither individually nor in the aggregate are considered material by management in relation to the Company’s financial position or results of operations. In management’s opinion, the consolidated financial statements would not be materially affected by the outcome of these indirect tax claims and/or proceedings or asserted claims.
In addition to these routine indirect tax matters, the Company was a party to the proceedings described below:
In August 2012, one of the Company's Brazil subsidiaries was notified of a tax assessment of approximately R$270, including penalties and interest, regarding certain Brazil federal indirect taxes (Industrialized Products Tax, Import Tax, Programa de Integração Social and Contribution to Social Security Financing) for 2008 and 2009. The assessment alleges improper importation of certain components into Brazil's free trade zone that would nullify certain indirect tax incentives. On September 10, 2012, the Company filed its administrative defenses with the tax authorities.
In March 2017, the administrative proceedings concluded and the assessment was reduced approximately 95 percent to a total of R$17.3 including penalties and interest as of March 2017. The Company is pursuing its remedies in the judicial sphere and management continues to believe that it has valid legal positions. In addition, this matter could negatively impact Brazil federal indirect taxes in other years that remain open under statute. It is reasonably possible that the Company could be required to pay taxes, penalties and interest related to this matter, which could be material to the Company's consolidated financial statements.
The Company has challenged the customs rulings in Thailand seeking to retroactively collect customs duties on previous imports of ATMs. Management believes that the customs authority’s attempt to retroactively assess customs duties is in contravention of World Trade Organization agreements and, accordingly, challenged the rulings. In the third quarter of 2015, the Company received a prospective ruling from the U.S. Customs Border Protection which is consistent with the Company's interpretation of the treaty in question. In August 2017, the Supreme Court of Thailand ruled in the Company's favor, finding that Customs' attempt to collect duties for importation of ATMs is improper. In addition, in August 2016 and February 2017, the tax court of appeals rendered decisions in favor of the Company related to more than half of the assessments at issue. The surviving matters remain at various stages of the appeals process and the Company will use the Supreme Court's decision in support of its position in those matters. Management remains confident that the Company has a valid legal position in these appeals. Accordingly, the Company does not have any amount accrued for this contingency.
At December 31, 2017 and 2016, the Company had an accrual related to the Brazil indirect tax matter disclosed above of $4.9 and $7.3, respectively. The reduction in the accrual is due to the expiration of the statute of limitations related to years subject to audit and foreign currency fluctuations in the Brazil real.
A loss contingency is reasonably possible if it has a more than remote but less than probable chance of occurring. Although management believes the Company has valid defenses with respect to its indirect tax positions, it is reasonably possible that a loss could occur in excess of the estimated accrual. The Company estimated the aggregate risk at December 31, 2017 to be up to $144.7 for its material indirect tax matters, of which $25.7 and $27.0, respectively, relates to the Brazil indirect tax matter and
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Thailand customs matter disclosed above. The aggregate risk related to indirect taxes is adjusted as the applicable statutes of limitations expire.
Legal Contingencies
At December 31, 2017, the Company was a party to several lawsuits that were incurred in the normal course of business, which neither individually nor in the aggregate are considered material by management in relation to the Company’s financial position or results of operations. In management’s opinion, the Company's consolidated financial statements would not be materially affected by the outcome of these legal proceedings, commitments or asserted claims.
On October 22, 2013, the Company finalized a settlement agreement with the SEC and a Deferred Prosecution Agreement (DPA) with the U.S. Department of Justice (DOJ) to settle charges arising from violations of the FCPA. Pursuant to those agreements, the Company was required to retain an independent corporate monitor to review our compliance program, internal accounting controls, record-keeping, and financial reporting policies and procedures relating to the FCPA and other applicable anti-corruption laws. Since that time, the Company has made significant enhancements to its global ethics and compliance program. On October 24, 2016, the corporate monitor certified to the SEC and DOJ that our compliance program is reasonably designed and implemented to prevent and detect violations of anti-corruption laws. The DPA and the independent corporate monitorship expired on October 29, 2016. With the completion of the monitorship, the Company has fulfilled its obligations under the settlement agreements with the DOJ and SEC.
In addition to these normal course of business litigation matters, the Company was a party to the proceedings described below:
Diebold KGaA is a party to appraisal proceedings (Spruchverfahren) relating to the DPLTA entered into by Diebold KGaA and Diebold Nixdorf AG on September 26, 2016 pending at the District Court (Landgericht) of Dortmund (Germany). The appraisal proceedings were filed by minority shareholders of Diebold Nixdorf AG challenging the adequacy of both, the cash exit compensation of €55.02 per Diebold Nixdorf AG share and the annual recurring compensation of €3.13 (€2.82 net under the current taxation regime) per Diebold Nixdorf AG share offered in connection with the DPLTA. A ruling by the court would apply to all Diebold Nixdorf AG shares outstanding at the time the DPLTA became effective. While the Company believes that the compensation offered in connection with the DPLTA was fair and the claims lack merit, this matter is still at a preliminary stage and the outcome is uncertain. As a result, the Company is unable to reasonably estimate the possible loss or range of losses, if any, arising from this litigation.
NOTE 19: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principallyconditions and manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company managescertain 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 tointerest expense on 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 consolidated statement of operations | | 2022 | | 2021 | | 2020 |
| Interest rate swaps and non-designated hedges | | Interest expense | | $ | (4.4) | | | $ | (8.4) | | | $ | (14.3) | |
| | | | | | | | |
| Foreign exchange forward contracts and cash flow hedges | | Net sales | | (0.1) | | | — | | | 1.2 | |
| Foreign exchange forward contracts and cash flow hedges | | Cost of sales | | (0.5) | | | 0.1 | | | — | |
| Foreign exchange forward contracts and cash flow hedges | | Foreign exchange gain (loss), net | | — | | | (4.6) | | | (30.9) | |
| | | | | | | | |
| Total | | | | $ | (5.0) | | | $ | (12.9) | | | $ | (44.0) | |
|
| | | | | | | | | | | | | |
| Derivative instrument | Classification on consolidated statement of operations | | 2017 | | 2016 | | 2015 |
| Non-designated hedges and interest rate swaps | Interest expense | | $ | (4.3 | ) | | $ | (5.1 | ) | | $ | (4.2 | ) |
| Gain on foreign currency option contracts - acquisition related | Miscellaneous, net | | — |
| | 35.6 |
| | 7.0 |
|
| Foreign exchange forward contracts and cash flow hedges | Foreign exchange gain (loss), net | | 6.3 |
| | 4.4 |
| | 10.7 |
|
| Foreign exchange forward contracts - acquisition related | Miscellaneous, net | | — |
| | (26.4 | ) | | — |
|
| Total | | | $ | 2.0 |
| | $ | 8.5 |
| | $ | 13.5 |
|
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
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 $2.0 and $(0.3) as of December 31, 2017 and 2016, respectively.The loss recognized in AOCI on net investment hedge derivative instruments was $(2.2) and $(13.3) for the years ended December 31, 2017 and 2016, 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 USD. Effectiveness is assessed at least quarterly by confirming that the respective designated net investments' net equity balances at the beginning of any period collectively continues to equal or exceed the balance outstanding on the Company's euro-denominated term loan. Changes in value that are deemed effective are accumulated in AOCI. When the respective net investments are sold or substantially liquidated, the balance of the cumulative translation adjustment in AOCI will be reclassified into earnings. The net gain (loss) recognized in AOCI on net investment hedge foreign currency borrowings was $(41.3) and $22.8 for the years ended December 31, 2017 and 2016, 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 14. 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 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 $(4.9) and $2.6 as of December 31, 2017 and 2016, respectively.
Cash Flow Hedges. The Company is exposed to fluctuations in various foreign currencies against its functional currency. At the Company, both sales and purchases are transacted in foreign currencies. Wincor Nixdorf International GmbH (WNI) is the Diebold Nixdorf AG currency management center. Currency risks in the aggregate are identified, quantified, and controlled at the WNI treasury center, and furthermore, it provides foreign currencies if necessary. The Diebold Nixdorf AG subsidiaries are primarily exposed to the USD and GBP as the EUR is its functional currency. This risk is considerably reduced by natural hedging (i.e. management of sales and purchases by choice location and suppliers). For the remainder of the risk that is not naturally hedged, foreign currency forwards are used to manage the exposure between EUR-GBP and EUR-USD.
Derivative transactions are recorded on the balance sheet at fair value. For transactions designated as cash flow hedges, the effective portion of changes in the fair value are recorded in AOCI and are subsequently reclassified into earnings in the period that the hedged forecasted transactions impact earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. As of December 31, 2017, the Company had the following outstanding foreign currency derivatives that were used to hedge its foreign exchange risks:
|
| | | | | | | | | | | |
| Foreign Currency Derivative | | Number of Instruments | | Notional Sold | | Notional Purchased |
| Currency forward agreements (EUR-USD) | | 10 |
| | 56.8 |
| USD | | 49.6 |
| EUR |
| Currency forward agreements (EUR-GBP) | | 12 |
| | 31.0 |
| GBP | | 35.0 |
| EUR |
| Currency forward agreements (EUR-CAD) | | 1 |
| | 1.0 |
| CAD | | 0.7 |
| EUR |
| Currency forward agreements (EUR-CZK) | | 2 |
| | 161.6 |
| CZK | | 6.1 |
| EUR |
Foreign Currency Option and Forward Contracts - acquisition related. On November 23, 2015, the Company entered into two foreign currency option contracts to purchase €1,416.0 for $1,547.1 to hedge against the effect of exchange rate fluctuations on the euro-denominated cash consideration related to the Acquisition and estimated euro-denominated transaction related costs and any outstanding Diebold Nixdorf AG borrowings. At that time, the euro-denominated cash component of the purchase price consideration approximated €1,162.2. The foreign currency option contracts were sold during the second quarter of 2016 for cash
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
proceeds of $42.6, which are included in investing activities in the consolidated statements of cash flows, resulting in a gain of $35.6 and $7.0 during the years ended December 31, 2016 and 2015, respectively, and included in other income (expense) miscellaneous, net on the consolidated statements of operations. The weighted average strike price was $1.09 per euro.
On April 29, 2016, the Company entered into one foreign currency forward contract to purchase €713.0 for $820.9 to hedge against the effect of exchange rate fluctuations on the euro-denominated cash consideration related to the Acquisition and estimated euro denominated transaction related costs and any outstanding Diebold Nixdorf AG borrowings. The forward rate is $1.1514. The foreign currency forward contract was settled for $792.6 during the third quarter of 2016, which is included in investing activities in the consolidated statements of cash flows, resulting in a loss of $26.4 during the year ended December 31, 2016. This foreign currency forward contract was non-designated and included in other current assets or other current liabilities based on the net asset or net liability position, respectively, in the consolidated balance sheets for the periods it was outstanding. The gains and losses from the revaluation of the foreign currency forward contract are included in other income (expense) miscellaneous, net on the consolidated statements of operations during 2016.
For the year ended December 31, 2016, the Company recorded a $9.3, mark-to-market gain (loss) on foreign currency and forward option contracts reflected in other income (expense) miscellaneous, net as these contracts were settled during the year.
INTEREST RATE
Cash Flow Hedges. The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During November 2016, the Company entered into multiple pay-fixed receive-variable interest rate swaps outstanding with an aggregate notional amount of $400.0.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in AOCI and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the fourth quarter of 2016, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The fair value of the Company’s interest rate contracts was $9.8 as of December 31, 2017.
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.
In connection with the Acquisition,March 2020 and September 2019, the Company acquired an interest swap for a notional amount of €50.0, which was entered into in May 2010 with a ten-year term from October 1, 2010 until September 30, 2020. For this interest swap, the three-month EURIBOR is received and a fixedmultiple pay-fixed receive-variable interest rate swaps with aggregate notional amounts of 2.97 percent is paid. The fair value, which is measured at market prices, as of December 31, 2017$250.0 and 2016 was $(5.5) and $(6.9),$500.0, respectively. The interest rate contract is not designated andeffective portion of changes in the fair value of non-designatedderivatives 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 changes in fair value of the derivatives is recognized directly in earnings.
As a result of the Company's refinancing activities in July 2020 (refer to Note 11 of the consolidated financial statements), the Company terminated $625.0 of interest rate swap agreements are recognized in Miscellaneous, net in the consolidated statementshedges for a termination payout of operations. For the year ended December 31, 2017, the Company recognized $1.4 in interest expense relating to the interest rate.$6.2.
Additionally, theThe Company does not enter into or use derivatives for trading or speculative purposes.purposes and currently does not have any additional derivatives that are not designated as hedges.
NOTE 19: FAIR VALUE OF ASSETS AND LIABILITIES
Assets and Liabilities Recorded at Fair Value
Assets and liabilities subject to fair value measurement by fair value level and recorded at fair value are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Classification on consolidated balance sheets | | December 31, 2022 | | | | December 31, 2021 |
| | Fair Value | | Level 1 | | Level 2 | | | | Fair Value | | Level 1 | | Level 2 | | |
| Assets | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Certificates of deposit | Short-term investments | | $ | 24.6 | | | $ | 24.6 | | | $ | — | | | | | $ | 34.3 | | | $ | 34.3 | | | $ | — | | | |
| Assets held in rabbi trusts | Securities and other investments | | 4.4 | | | 4.4 | | | — | | | | | 7.0 | | | 7.0 | | | — | | | |
| Foreign exchange forward contracts | Other current assets | | — | | | — | | | — | | | | | 0.1 | | | — | | | 0.1 | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Total | | | $ | 29.0 | | | $ | 29.0 | | | $ | — | | | | | $ | 41.4 | | | $ | 41.3 | | | $ | 0.1 | | | |
| | | | | | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | | | | | | |
| Foreign exchange forward contracts | Other current liabilities | | $ | — | | | $ | — | | | $ | — | | | | | $ | 0.1 | | | $ | — | | | $ | 0.1 | | | |
| Interest rate swaps - short term | Other current liabilities | | — | | | — | | | — | | | | | 2.8 | | | — | | | 2.8 | | | |
| Interest rate swaps - long term | Other liabilities | | — | | | — | | | — | | | | | — | | | — | | | | | |
| Deferred compensation | Other liabilities | | 4.4 | | | 4.4 | | | — | | | | | 7.0 | | | 7.0 | | | — | | | |
| Total | | | $ | 4.4 | | | $ | 4.4 | | | $ | — | | | | | $ | 9.9 | | | $ | 7.0 | | | $ | 2.9 | | | |
| | | | | | | | | | | | | | | | | |
The Company uses the end of the period when determining the timing of transfers between levels. During each of the years ended December 31, 2022 and 2021, there were no transfers between levels.
The carrying amount of the Company's revolving credit facility approximates fair value. The remaining debt had a carrying value of $2,557.6 and fair value of $1,819.7 at December 31, 2022, and a carrying value of $2,267.0 and fair value of $1,584.1 at December 31, 2021.
Refer to Note 11 of the consolidated financial statements for further details surrounding long-term debt as of December 31, 2022. Additionally, the Company remeasures certain assets to fair value, using Level 3 measurements, as a result of the occurrence of triggering events. There was no significant assets or liabilities that were remeasured at fair value on a non-recurring basis during the periods presented.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
NOTE 20: FAIR VALUE OF ASSETSCOMMITMENTS AND LIABILITIESCONTINGENCIES
ReferContractual Obligations
At December 31, 2022, the Company's purchase commitments due within one year were minimal for materials and services through contract manufacturing agreements at negotiated prices. The amounts purchased under these obligations were minimal in 2022. The Company guarantees a fixed cost of certain products used in production to note 1its strategic partners. Variations in the products costs are absorbed by the Company.
Indirect Tax Contingencies
The Company accrues non-income-tax liabilities for indirect tax matters when management believes that a loss is probable and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. In the event any losses are sustained in excess of accruals, they are charged against income. In evaluating indirect tax matters, management takes into consideration factors such as historical experience with matters of similar nature, specific facts and circumstances, and the likelihood of prevailing. Management evaluates and updates accruals as matters progress over time. It is reasonably possible that some of the matters for which accruals have not been established could be decided unfavorably to the Company and could require recognizing future expenditures. Also, statutes of limitations could expire without the Company paying the taxes for matters for which accruals have been established, which could result in the recognition of future gains upon reversal of these accruals at that time.
At December 31, 2022, the Company was a party to several routine indirect tax claims from various taxing authorities globally that were incurred in the normal course of business, which neither individually nor in the aggregate are considered material by management in relation to the Company’s accounting policiesfinancial position or results of operations. In management’s opinion, the consolidated financial statements would not be materially affected by the outcome of these indirect tax claims and/or proceedings or asserted claims.
A loss contingency is reasonably possible if it has a more than remote but less than probable chance of occurring. Although management believes the Company has valid defenses with respect to its indirect tax positions, it is reasonably possible that a loss could occur in excess of the estimated accrual. The Company estimated the aggregate risk at December 31, 2022 to be up to $51.4 for its material indirect tax matters. The aggregate risk related to fair value accounting. Referindirect taxes is adjusted as the applicable statutes of limitations expire.
Legal Contingencies
At December 31, 2022, the Company was a party to note 15 for assets heldseveral lawsuits that were incurred in the normal course of business, which neither individually nor in the aggregate were considered material by management in relation to the Company’s defined pension plans,financial position or results of operations. In management’s opinion, the Company's consolidated financial statements would not be materially affected by the outcome of these legal proceedings, commitments or asserted claims.
In addition to these normal course of business litigation matters, the Company was a party to the proceedings described below:
Diebold KGaA is a party to two separate appraisal proceedings (Spruchverfahren) in connection with the purchase of all shares in its former listed subsidiary, Diebold Nixdorf AG. Both proceedings are pending at the same Chamber for Commercial Matters (Kammer fur Hangelssachen) at the District Court (Landgericht) of Dortmund (Germany). The first appraisal proceeding relates to the Domination and Profit Loss Transfer Agreement (DPLTA) entered into by Diebold KGaA and former Diebold Nixdorf AG, which are measured at fair value. Assetsbecame effective on February 17, 2017. The DPLTA appraisal proceeding was filed by minority shareholders of Diebold Nixdorf AG challenging the adequacy of both the cash exit compensation of €55.02 per Diebold Nixdorf AG share (of which 6.9 shares were then outstanding) and liabilities subjectthe annual recurring compensation of €2.82 per Diebold Nixdorf AG share offered in connection with the DPLTA.
The second appraisal proceeding relates to fair value measurement are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2017 | | December 31, 2016 |
| | Classification on consolidated balance sheets | | | Fair Value Measurements Using | | | | Fair Value Measurements Using |
| | Fair Value | | Level 1 | | Level 2 | | Fair Value | | Level 1 | | Level 2 |
| Assets | | | | | | | | | | | | |
| Short-term investments | | | | | | | | | | | | |
| Certificates of deposit | Short-term investments | $ | 84.1 |
| | $ | 84.1 |
| | $ | — |
| | $ | 64.1 |
| | $ | 64.1 |
| | $ | — |
|
| Assets held in rabbi trusts | Securities and other investments | 9.4 |
| | 9.4 |
| | — |
| | 8.5 |
| | 8.5 |
| | — |
|
| Foreign exchange forward contracts | Other current assets | 6.7 |
| | — |
| | 6.7 |
| | 7.2 |
| | — |
| | 7.2 |
|
| Interest rate swaps | Other current assets | 2.2 |
| | — |
| | 2.2 |
| | — |
| | — |
| | — |
|
| Interest rate swaps | Securities and other investments | 7.6 |
| | — |
| | 7.6 |
| | 8.4 |
| | — |
| | 8.4 |
|
| Total | | $ | 110.0 |
| | $ | 93.5 |
| | $ | 16.5 |
| | $ | 88.2 |
| | $ | 72.6 |
| | $ | 15.6 |
|
| | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | |
| Foreign exchange forward contracts | Other current liabilities | $ | 10.2 |
| | $ | — |
| | $ | 10.2 |
| | $ | 7.7 |
| | $ | — |
| | $ | 7.7 |
|
| Interest rate swaps | Other current liabilities | 5.5 |
| | — |
| | 5.5 |
| | 6.9 |
| | — |
| | 6.9 |
|
| Deferred compensation | Other liabilities | 9.4 |
| | 9.4 |
| | — |
| | 8.5 |
| | 8.5 |
| | — |
|
| Total | | $ | 25.1 |
| | $ | 9.4 |
| | $ | 15.7 |
| | $ | 23.1 |
| | $ | 8.5 |
| | $ | 14.6 |
|
During the years ended December 31, 2017 and 2016, there were no transfers between levels.cash merger squeeze-out of minority shareholders of Diebold Nixdorf AG in 2019. The redeemable noncontrolling interests were preliminarily recorded at fair value assqueeze-out appraisal proceeding was filed by former minority shareholders of Diebold Nixdorf AG challenging the adequacy of the Acquisition date by applyingcash exit compensation of €54.80 per Diebold Nixdorf AG share (of which 1.4 shares were then outstanding) in connection with the income approach using unobservable inputs for projected cash flows andmerger squeeze-out.
In both appraisal proceedings, a discount rate, which are considered Level 3 inputs, and subjectcourt ruling would apply to change as the measurement period related to the Acquisition has not expired and purchase accounting remains preliminary. The balance of redeemable noncontrolling interests is reportedall Diebold Nixdorf AG shares outstanding at the greater of its carrying valuetime when the DPLTA or its maximum redemption value at each reporting date.the merger squeeze-out, respectively, became effective. Any cash compensation received by former Diebold Nixdorf AG shareholders in connection with the merger squeeze-out would be netted with any higher cash compensation such shareholder may still claim in connection with the DPLTA appraisal proceeding.
The fair value and carrying value of the Company’s debt instruments are summarized as follows:
|
| | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
| Notes payable | $ | 66.7 |
| | $ | 66.7 |
| | $ | 106.9 |
| | $ | 106.9 |
|
| | | | | | | | |
| Revolving credit facility | 75.0 |
| | 75.0 |
| | — |
| | — |
|
| Term Loan A Facility | 178.3 |
| | 178.3 |
| | 201.3 |
| | 201.3 |
|
| Delayed Draw Term Loan A Facility | 226.6 |
| | 226.6 |
| | — |
| | — |
|
| Term Loan B Facility - USD | 466.7 |
| | 466.7 |
| | 787.5 |
| | 787.5 |
|
| Term Loan B Facility - Euro | 489.5 |
| | 489.5 |
| | 363.5 |
| | 363.5 |
|
| 2024 Senior Notes | 425.0 |
| | 400.0 |
| | 426.0 |
| | 400.0 |
|
| Other | 1.4 |
| | 1.4 |
| | 0.8 |
| | 0.8 |
|
| Long-term deferred financing fees | (50.4 | ) | | (50.4 | ) | | (61.7 | ) | | (61.7 | ) |
| Long-term debt | 1,812.1 |
| | 1,787.1 |
| | 1,717.4 |
| | 1,691.4 |
|
| Total debt instruments | $ | 1,878.8 |
| | $ | 1,853.8 |
| | $ | 1,824.3 |
| | $ | 1,798.3 |
|
Refer to note 14 for further details surrounding the increase in long-term debt as of December 31, 2017.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
In the second quarter of 2022, the District Court of Dortmund dismissed all claims to increase the cash compensation in the DPLTA appraisal proceedings. This first instance decision, however, is not final as some of the plaintiffs filed appeals. The Company believes that the compensation offered in connection with the DPLTA and the merger squeeze-out was in both cases fair and that the decision of the District Court of Dortmund in the DPLTA appraisal proceedings validates its position. German courts often adjudicate increases of the cash compensation to plaintiffs in varying amounts in connection with German appraisal proceedings. Therefore, the Company cannot rule out that a court may increase the cash compensation in these appraisal proceedings. The Company, however, is convinced that its defense in both appraisal proceedings is supported by strong sets of facts and the Company will continue to vigorously defend itself in these matters.
Bank Guarantees, Standby Letters of Credit, andSurety Bonds
In the ordinary course of business, the Company may issue performance guarantees on behalf of its subsidiaries to certain customers and other parties. Some of those guarantees may be backed by standby letters of credit, surety bonds, or similar instruments. In general, under the guarantees, the Company would be obligated to perform, or cause performance, over the term of the underlying contract in the event of an unexcused, uncured breach by its subsidiary, or some other specified triggering event, in each case as defined by the applicable guarantee. At December 31, 2022, the maximum future contractual obligations relative to these various guarantees totaled $173.2, of which $24.0 represented standby letters of credit to insurance providers, and no associated liability was recorded. At December 31, 2021, the maximum future payment obligations relative to these various guarantees totaled $155.6, of which $24.0 represented standby letters of credit to insurance providers, and no associated liability was recorded.
NOTE 21: RESTRUCTURINGREVENUE RECOGNITION
Revenue is measured based on consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The amount of consideration can vary depending on discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties, or other similar items contained in the contract with the customer of which generally these variable consideration components represents minimal amount of net sales. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.
The following table summarizes the impact of Company’s restructuring chargesCompany's payment terms vary depending on the consolidated statementsindividual contracts and are generally fixed fee. The Company recognizes advance payments and billings in excess of operations forrevenue recognized as deferred revenue. In certain contracts where services are provided prior to billing, the years ended December 31:Company recognizes a contract asset within trade receivables and other current assets.
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Cost of sales - services and software | $ | 27.4 |
| | $ | 20.8 |
| | $ | 3.1 |
|
| Cost of sales - systems | 1.8 |
| | 4.7 |
| | 1.4 |
|
| Selling and administrative expense | 21.3 |
| | 28.8 |
| | 16.1 |
|
| Research, development and engineering expense | (1.1 | ) | | 5.1 |
| | 0.6 |
|
| Total | $ | 49.4 |
| | $ | 59.4 |
| | $ | 21.2 |
|
The following table summarizesCompany 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 it 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 Company’s restructuring charges by reporting segmenttime of the sale, a corresponding estimated liability for potential warranty costs. For additional information on product warranty refer to Note 9 of the years ended December 31:
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Severance | | | | | |
| Services | $ | 32.5 |
| | $ | 23.5 |
| | $ | 6.2 |
|
| Software | 2.4 |
| | 7.1 |
| | 0.7 |
|
| Systems | 8.7 |
| | 17.6 |
| | 7.2 |
|
| Corporate | 5.8 |
| | 11.2 |
| | 7.1 |
|
| Total | $ | 49.4 |
| | $ | 59.4 |
| | $ | 21.2 |
|
Multi-Year Transformation Plan
During the first quarter of 2013,consolidated financial statements. 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 announcedhas a multi-year transformation plan. Certain aspectsstand-ready obligation to provide services when or as needed by the customer. This input method is the most accurate assessment of this plan were previously disclosed underprogress toward completion the Company's global realignment planCompany can apply.
Nature of goods and global shared services plan. This multi-year realignment focused on globalizing
Product revenue is recognized at the Company's service organization and creating a unified center-led global organization for research and development, as well as transformingpoint in time that the Company's general and administrative cost structure. Restructuring charges of $7.7 and $21.2 for the years ended December 31, 2016 and 2015, respectively. The multi-year transformation plan incurred cumulative total restructuring costs of $105.0 and $3.5 related to severance and other costs, respectively, and was considered complete as of December 31, 2016.
DN2020 Plan
As of August 15, 2016, the datecustomer obtains control of the Acquisition,product, which could be upon delivery or upon completion of installation services, depending on contract terms. The Company’s software licenses are functional in nature (the IP has significant stand-alone functionality); as such, the Company launched a multi-year integration and transformation program, known as DN2020. The DN2020 plan focuses onrevenue recognition of distinct software license sales is at the utilizationpoint in time that the customer obtains control of cost efficiencies and synergy opportunities that result from the Acquisition, which aligns employee activities with the Company's goal of delivering net operating profit savings of approximately $240rights granted by the year 2020. During 2017, the Company closed certain facilities in Hungary and the Netherlands. The Company incurred restructuring charges primarily related to severance of $47.0 and $42.8 for the years ended December 31, 2017 and 2016 related to this plan. The Company anticipates additional restructuring costs of approximately $50 to be incurred through the end of the plan.license.
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 spanned several years, the Delta Program was designed to hasten the expansion of software and professional services operations and to further enhance profitability in the services business. This program included expansion in the high-end fields of managed services and outsourcing. It also involved capacity adjustments on the hardware side, enabling the Company to respond more effectively to market volatility while maintaining its abilities with innovation. As of August 15, 2016, the date of the Acquisition, the restructuring accrual balance acquired was $45.5 and consisted of severance activities. During the third quarter of 2017, the Company recorded a measurement period adjustment of $8.2 to the acquired restructuring accrual resulting in a $37.3 final fair value. The Company incurred restructuring charges of $3.2 for the year ended December 31, 2016 related to this plan. As of December 31, 2016, the Company does not anticipate additional restructuring costs to be incurred through the end of the plan.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Strategic Alliance Plan
On November 10, 2016,Professional services integrate the Company entered into a strategic alliancecommercial solution with the Inspur Group, a Chinese cloud computingcustomer's existing infrastructure and data center company,helps define the optimal user experience, improve business processes, refine existing staffing models and deploy technology to develop, manufacturemeet branch and distribute Systems solutions in China. The Inspur Group holds a majority stakestore automation objectives. Revenue from professional services are recognized over time, because the customer simultaneously receives and consumes the benefits of 60.0 percent in the Inspur JV. The Inspur JV will offer a complete range of self-service terminals within the Chinese market, including ATMs. The Company will serveCompany’s performance as the exclusive distributor outside of China for all products developed byservices are performed or when the Inspur JV, which will be sold under the Diebold Nixdorf brand. The Company will not consolidate Inspur JV but includes the results of operations in equity in earnings ofCompany’s performance creates an investee included in other income (expense) miscellaneous, net of the consolidated statements of operations. In November 2016, the Inspur JV was formedasset with no alternative use and the Company doeshas an enforceable right to payment for performance completed to date. Generally revenue will be recognized using an input measure, typically costs incurred. The typical contract length for service is generally one year and is billed and paid in advance except for installations, among others.
Services may be sold separately or in bundled packages. 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 or 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 or services. For items that are not expect a significant gain or loss fromsold separately, the transaction. The Company incurred restructuring charges of $2.4estimates 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 $5.7 forconsumes the years ended December 31, 2017 and 2016 related to this plan. The Company anticipates minimal additional restructuring costs to be incurred through the endbenefits of the plan.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 following table summarizesis a description of principal solutions offered within the Company's cumulative total restructuring coststwo main customer segments that generate the Company's revenue.
Banking
Products. Products for banking customers consist of cash recyclers and dispensers, intelligent deposit terminals, teller automation tools and kiosk technologies, as well as physical security solutions. The Company provides its banking customers front-end applications for consumer connection points and back-end platforms that manage channel transactions, operations and integration and facilitate omnichannel transactions, endpoint monitoring, remote asset management, customer marketing, merchandise management and analytics. These offerings include highly configurable, API enabled software that automates legacy banking transactions across channels.
Services. The Company provides its banking customers product-related services which include proactive monitoring, rapid resolution of incidents through remote service capabilities or an on-site visit and professional services.. 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.
Retail
Products. The retail product portfolio includes modular, integrated and mobile POS and SCO terminals that meet evolving automation and omnichannel requirements of consumers. Supplementing the POS system is a broad range of peripherals, including printers, scales and mobile scanners, as well as the cash management portfolio which offers a wide range of banknote and coin processing systems. Also in the portfolio, the Company provides SCO terminals and ordering kiosks which facilitate an efficient and user-friendly purchasing experience. The Company’s hybrid product line can alternate from continuing operationsan attended operator to self-checkout with the press of a button as of December 31, 2017 fortraffic conditions warrant throughout the respective plans:business day.
|
| | | | | | | | | | | | | | | |
| | Severance |
| | DN2020 Plan | | Delta Program | | Strategic Alliance Plan | | Total |
| Services | $ | 52.9 |
| | $ | 0.1 |
| | $ | 3.0 |
| | $ | 56.0 |
|
| Software | 8.0 |
| | 1.8 |
| | 0.5 |
| | 10.3 |
|
| Systems | 21.0 |
| | — |
| | 4.6 |
| | 25.6 |
|
| Corporate | 7.9 |
| | 1.3 |
| | — |
| | 9.2 |
|
| Total | $ | 89.8 |
| | $ | 3.2 |
| | $ | 8.1 |
| | $ | 101.1 |
|
The following table summarizes the Company’s restructuring accrual balancesCompany's platform software is installed within retail data centers to facilitate omnichannel transactions, endpoint monitoring, remote asset management, customer marketing, merchandise management and related activity:analytics.
Services. The Company provides its retail customers product-related services which include on-demand services and professional services. Diebold Nixdorf AllConnect Services for retailers include maintenance and availability services to continuously improve retail self-service fleet availability and performance. These include: total implementation services to support both current and new store concepts; managed mobility services to centralize asset management and ensure effective, tailored mobile capability; monitoring and advanced analytics providing operational insights to support new growth opportunities; and store life-cycle management to proactively monitors store IT endpoints and enable improved management of internal and external suppliers and delivery organizations.
|
| | | |
| Balance at January 1, 2015 | $ | 7.6 |
|
| Liabilities incurred | 21.2 |
|
| Liabilities paid/settled | (24.1 | ) |
| Balance at December 31, 2015 | $ | 4.7 |
|
| Liabilities incurred | 59.4 |
|
| Liabilities acquired | 45.5 |
|
| Liabilities paid/settled | (19.7 | ) |
| Balance at December 31, 2016 | $ | 89.9 |
|
| Liabilities incurred | 49.4 |
|
| Liabilities acquired | (8.2 | ) |
| Liabilities paid/settled | (77.1 | ) |
| Balance at December 31, 2017 | $ | 54.0 |
|
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Refer to Note 24 of the consolidated financial statements for additional information regarding the Company's reportable operating segments, disaggregation of net sales by segments and product solutions, net sales by geographical region and disaggregation by timing of revenue recognition.
Timing of revenue recognition
A performance obligation is a contractual promise to transfer a distinct good or service to the customer. A contract's transaction price is allocated to each distinct performance obligation and is recognized as revenue when (point in time) or as (over time) the performance obligation is satisfied. The following table represents the percentage of revenue recognized either at a point in time or over time as of December 31:
| | | | | | | | | | | |
| |
| |
| Timing of revenue recognition | 2022 | | 2021 |
| Products transferred at a point in time | 39% | | 41% |
| Products and services transferred over time | 61% | | 59% |
| Net sales | 100% | | 100% |
Contract balances
The following table provides 2022 and 2021 information about receivables and deferred revenue, which represent contract liabilities from contracts with customers:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 |
| Contract balance information | Trade Receivables | | Contract liabilities | | Trade Receivables | | Contract liabilities |
| Balance at January 1 | $ | 595.2 | | | $ | 322.4 | | | $ | 646.9 | | | $ | 346.8 | |
| Balance at December 31 | $ | 612.2 | | | $ | 453.2 | | | $ | 595.2 | | | $ | 322.4 | |
Contract assets are minimal for the periods presented. The amount of revenue recognized in 2022 and 2021 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.
As of January 1, 2022, the Company had $322.4 of unrecognized deferred revenue constituting the remaining performance obligations that are either unsatisfied or partially unsatisfied. During 2022, the Company recognized revenue of $252.5 related to the Company's deferred revenue balance at January 1, 2022.
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.
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. Once the variable consideration is identified, the Company estimates the amount of the variable consideration to include in the transaction price by using one of two methods, expected value (probability weighted methodology) or most likely amount (when there are only two possible outcomes). The Company chooses the method expected to better predict the amount of consideration to which it will be entitled and applies the method consistently to similar contracts. Generally, the Company applies the expected value method when assessing variable consideration including returns and refunds.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
The Company also applies the ‘as invoiced’ practical expedient in ASC paragraph 606-10-55-18 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. Service revenues that are recognized ratably are primarily contracts that include first and second line maintenance. Service revenues that are recognized using input measures include primarily preventative maintenance. The ‘as invoiced’ practical expedient relates to the on-demand service revenue which is generally not under contract.
Transaction price allocated to the remaining performance obligations
As of December 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $1,400. The Company generally expects to recognize revenue on the remaining performance obligations over the next twelve to eighteen 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 ASC 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.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
NOTE 22: CLOUD IMPLEMENTATION
At December 31, 2021, the Company had capitalized $50.7 of cloud implementation costs, which are presented in the Other assets caption of the condensed consolidated balance sheet. During the first quarter of 2022, the Company impaired $38.4 of capitalized cloud implementation costs related to a cloud-based North American enterprise resource planning (ERP) system, which was intended to replace the on premise ERP currently in use. In connection with the executive transition that took place in the first quarter of 2022 and the culmination of related process optimization workshops in March 2022, the Company made the decision to indefinitely suspend the cloud-based North America ERP implementation, which was going to require significant additional investment before it could function as well as our current North America ERP, and to instead focus the Company's ERP implementation efforts on the distribution subsidiaries, which can better leverage the standardization and simplification initiatives connected with the cloud-based implementation. As a result of the completed process optimization walkthroughs, the Company determined that the customizations already built for the North America ERP should not be leveraged at the distribution subsidiaries which require more streamlined and scalable process flows.
At December 31, 2022, the Company had a net book value of capitalized cloud implementation costs of $19.0, which relates to a combination of the distribution subsidiary ERP and corporate tools to support business operations.
Amortization of cloud implementation fees totaled $2.5 for the year ended December 31, 2022, and $0.8 for the year ended December 31, 2021. These fees are expensed over the term of the cloud computing arrangement, and the expense is required to be recognized in the same line item in the income statement as the associated hosting service expenses.
NOTE 23: WAR IN UKRAINE
The Company has a Russian distribution subsidiary that generated approximately $45.0 in revenue and $5.0 in operating profit in 2021. Due to the economic sanctions levied on and developing economic conditions in Russia, the Company is making progress towards liquidating the distribution subsidiary.
Additionally, the Company had distribution partners in Russia, Ukraine and Belarus that generated approximately $35.0 in revenue and $5.0 in gross profit in 2021. Due to the Russian incursion into Ukraine and the related economic sanctions, the prospect of re-establishing revenue from these relationships is currently uncertain.
Based on the circumstances outlined above, the Company recorded an impairment charge of $16.8 in the first quarter of 2022, inclusive of trade receivables from customers in the region that are doubtful of being collected, inventory specifically for customers in the region and various other assets that are not recoverable.
The War in Ukraine has had implications on logistic routes, which is one of several macroeconomic conditions that is negatively impacting our supply chain. We are not particularly reliant on specific suppliers based in the affected areas, but circumvention has impacted lead times of inbound product. Management has identified elevated cybersecurity risk related to the matter, and has implemented mitigation strategies. The net cost of these risks in addition to the aforementioned liquidation, management of economic sanctions, humanitarian efforts and other related expenditures offset with certain recoveries was approximately $4.5 during the year ended December 31, 2022.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
NOTE 22:24: SEGMENT INFORMATION
During the second quarter of 2022, the Company appointed a new Chief Executive Officer and announced an organizational simplification initiative. In connection with those events, the Company's reportable segments are no longer Americas Banking, Eurasia Banking and Retail, and instead the reportable operating segments are the following: Banking and Retail. Under the simplified organization and related restructuring discussed in Note 8 of the consolidated financial statements, the Company does not have regionally focused direct reports to the CODM, and the CODM analyzes Banking and Retail on a global basis and not based on regional profitability metrics.
The Company's accounting policies derivenew reportable segment results that areinformation below directly aligns with how the same as thoserecently appointed Chief Executive Officer, who is also the CODM, regularly reviews and usesresults to make decisions, allocate resources and assess performance. The new Banking segment's sales and cost of sales are the summation of the legacy Americas Banking and Eurasia Banking's sales and cost of sales. The Company will continually considersconsider its operating structure and the information subject to regular reviewreview.
Segment operating profit (loss) as disclosed herein is consistent with the segment profit or loss measure used by the OfficeCODM and does not include corporate charges, amortization of acquired intangible assets, asset impairment, restructuring and transformation charges, the results of the Chief Executive, who areheld-for-sale European retail business, or other non-routine, unusual or infrequently occurring items, as the CODM to identify reportable operating segments. The Company’s operating structure is based on a number of factors that management uses to evaluate, viewdoes not regularly review and run its business operations, which currently includes, but is not limited to, product, service and solution. The Companyuse such financial measures the performance of each segment based on several metrics, including net sales and segment operating profit. The CODM uses these results to make decisions, allocate resources and assess performance by the LOBs.performance.
Segment revenue represents revenues from sales to external customers. Segment operating profit is defined as revenues less expenses identifiabledirectly attributable to thosethe segments. The Company does not allocate to its segments certain operating expenses which it managesare managed at the corporateheadquarters level; that are not routinely used in the management of the segments; or information that issegments, not segment-specific, and impractical to report. These unallocated costs include certainallocate. In some cases the allocation of corporate costs, amortization of acquired intangible assets and deferred revenue, restructuring charges impairment charges, legal, indemnification, and professional fees relatedhas changed from the legacy structure to corporate monitor efforts, acquisition and divestiture expenses, along with other income (expenses).the new structure, but prior periods have been recast to conform to the new presentation. Segment operating profit reconciles to consolidated income (loss) from continuing operations before income taxes by deducting corporate costs and other income or expense items that are not attributed to the segments.segments and which are managed independently of segment results. Assets are not allocated to segments, and thus are not included in the assessment of segment performance, and consequently, the Company doeswe do not disclose total assets and depreciation and amortization expense by reportable operating segment.
In August 2016, in connection with the business combination agreement related to the Acquisition, the Company announced the realignment of its lines of business to drive greater efficiency and further improve customer service. During the first quarter of 2017, the Company reorganized the management team reporting to the CODM and evaluated and assessed the LOB reporting structure. The Company's reportable operating segments are based on the following three LOBs: Services, Systems, and Software. As a result, the Company reclassified comparative periods for consistency which were previously reported as four geographical segments of: NA, AP, EMEA and LA. The presentation of comparative periods also reflects the reclassification of certain global manufacturing administration expenses from corporate charges not allocated to segments to segment operating profit.
Services
Product-related services provided by the Company include proactive monitoring and rapid resolution of incidents through remote service capabilities or an on-site visit. First and second line maintenance, preventive maintenance and on-demand services keep the distributed assets of the Company's customers up and running through a standardized incident management process. Managed services and outsourcing consists of the end-to-end business processes, solution management, upgrades and transaction processing. The global service supply chain optimizes the process for obtaining replacement parts, making repairs, and implementing new features and functionality. The Company also provides a full array of cash management services, which optimizes the availability and cost of physical currency across the enterprise through efficient forecasting, inventory and replenishment processes.
Software
The Company provides front end applications for consumer connection points and back end platforms that manage channel transactions, operations and integration. The Company’s hardware-agnostic software applications facilitate millions of transactions via ATMs, POS terminals, kiosks, and a host of other self-service devices. The Company’s platform software facilitates omni-channel transactions, endpoint monitoring, remote asset management, marketing, merchandise management and analytics.
The professional services team provides systems integration, customization, consulting and project management. The Company’s advisory services team collaborates with its customers to help define optimal user experience, improve business processes, refine existing staffing models and deploy technology to meet branch automation objectives.
Systems
The systems portfolio consists of cash recyclers and dispensers, intelligent deposit terminals, teller automation tools, physical security devices, integrated and mobile POS systems. Supplementing the POS system is a broad range of peripherals, including printers, scales and mobile scanners, as well as the cash management portfolio which offers a wide range of banknote and coin processing systems. Also in the portfolio, the Company provides self-checkout terminals and ordering kiosks.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
The following tables represent information regarding the Company’s segment information and provides a reconciliation between segment operating profit and the consolidated income (loss) from continuing operations before income taxes for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Net sales summary by segment | | | | | |
| Banking | $ | 2,422.4 | | | $ | 2,711.1 | | | $ | 2,850.5 | |
| Retail | 1,018.2 | | | 1,194.1 | | | 1,051.8 | |
Held for sale non-core European retail business (7) | 20.1 | | | — | | | — | |
| Total Revenue | $ | 3,460.7 | | | $ | 3,905.2 | | | $ | 3,902.3 | |
| | | | | |
| Segment operating profit | | | | | |
| Banking | $ | 310.8 | | | $ | 440.6 | | | $ | 537.2 | |
| Retail | 134.0 | | | 164.6 | | | 115.6 | |
| Total segment operating profit | $ | 444.8 | | | $ | 605.2 | | | $ | 652.8 | |
| | | | | |
Corporate charges not allocated to segments (1) | $ | (247.3) | | | $ | (272.5) | | | $ | (297.4) | |
Impairment of assets (2) | (111.8) | | | (1.3) | | | (7.5) | |
Amortization of Wincor Nixdorf purchase accounting intangible assets (3) | (69.6) | | | (78.2) | | | (82.9) | |
Restructuring and transformation expenses (4) | (124.2) | | | (98.9) | | | (181.8) | |
Refinancing related costs (5) | (32.0) | | | — | | | — | |
Net non-routine expense (6) | (42.6) | | | (17.2) | | | (59.2) | |
Held for sale non-core European retail business (7) | (29.0) | | | — | | | — | |
| (656.5) | | | (468.1) | | | (628.8) | |
| Operating profit (loss) | (211.7) | | | 137.1 | | | 24.0 | |
| Other income (expense) | (226.9) | | | (187.8) | | | (293.5) | |
| Loss before taxes | $ | (438.6) | | | $ | (50.7) | | | $ | (269.5) | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Net sales summary by segment | | | | | |
| Services | $ | 2,397.3 |
| | $ | 1,726.7 |
| | $ | 1,295.7 |
|
| Software | 476.6 |
| | 256.3 |
| | 139.1 |
|
| Systems | 1,735.4 |
| | 1,333.3 |
| | 984.5 |
|
| Total customer revenues | $ | 4,609.3 |
| | $ | 3,316.3 |
| | $ | 2,419.3 |
|
| | | | | | |
| Segment operating profit | | | | | |
| Services | $ | 344.8 |
| | $ | 298.7 |
| | $ | 262.8 |
|
| Software | 33.7 |
| | 9.6 |
| | 11.8 |
|
| Systems | (24.2 | ) | | (24.7 | ) | | (48.8 | ) |
| Total segment operating profit | $ | 354.3 |
| | $ | 283.6 |
| | $ | 225.8 |
|
|
|
| |
|
| |
|
|
Corporate charges not allocated to segments (1) | (130.1 | ) | | (124.9 | ) | | (90.7 | ) |
| Impairment of assets | (3.1 | ) | | (9.8 | ) | | (18.9 | ) |
| Restructuring charges | (49.4 | ) | | (59.4 | ) | | (21.2 | ) |
| Net non-routine income (expense) | (255.3 | ) | | (249.3 | ) | | (36.4 | ) |
| (437.9 | ) | | (443.4 | ) | | (167.2 | ) |
| Operating profit (loss) | (83.6 | ) | | (159.8 | ) | | 58.6 |
|
| Other income (expense) | (92.1 | ) | | (78.5 | ) | | (12.8 | ) |
| Income (loss) from continuing operations before taxes | $ | (175.7 | ) | | $ | (238.3 | ) | | $ | 45.8 |
|
| |
(1)
| Corporate charges not allocated to segments include headquarter-based costs associated with procurement, human resources, compensation and benefits, finance and accounting, global development/engineering, global strategy/mergers and acquisitions, global information technology, tax, treasury and legal. |
(1) Corporate charges not allocated to segments include headquarter-based costs associated with procurement, human resources, compensation and benefits, finance and accounting, global development/engineering, global strategy/mergers and acquisitions, global IT, tax, treasury and legal.
(2) Charges were taken in the first quarter of 2022 related to the North American ERP and certain assets in Ukraine, Russia, and Belarus; in the second quarter of 2022 related to facility closures; in the third quarter related to German capitalized software; and in the fourth quarter of 2022 related to assets at the held for sale non-core European retail business.
(3) The amortization of purchase accounting intangible assets is not included in the segment results used by the CODM to make decisions, allocate resources or assess performance.
(4) Refer to Note 8 of the consolidated financial statements for further information. Consistent with the historical reportable segment structure, restructuring and transformation costs are not assigned to the segments, and are separately analyzed by the CODM.
(5) Refinancing related costs are fees earned by our advisors and the advisors of our potential lenders that do not qualify for capitalization.
(6)Net non-routine expense consists of items that the Company has determined are non-routine in nature and not allocated to the LOBs. Net non-routine expensereportable operating segments as they are not included in the measure used by the CODM to make decisions, allocate resources and assess performance.
(7) Held for sale non-core European retail business represents the revenue and operating profit, excluding impairment which is captured separately, of $255.3a business that has been classified as held for sale for all of the year endedperiods presented, but which was removed in 2022 from the retail segment's information used by the CODM to make decisions, assess performance and allocate resources, and now is individually analyzed. This change and timing thereof aligns with the build-out of a data center that makes the entity capable of operating autonomously and is consistent with material provided in connection with our refinancing effort which are exclusive of this entity.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017 was due to legal, acquisition and divestiture expenses of $16.1 inclusive of the mark-to-market impact on Diebold Nixdorf AG stock options and Acquisition integration expenses of $72.1 primarily within selling and administrative expense and purchase accounting pretax charges, which included deferred revenue of $30.4 and amortization of acquired intangibles of $128.4 and an increase 2022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in cost of sales of $1.9 related to measurement period adjustments of inventory. Net non-routine expense of $249.3 for the year ended December 31, 2016 was primarily due to the impact of purchase accounting adjustments of $128.6 primarily in cost of sales and legal, acquisition and divestiture related costs of $104.3 primarily within selling and administrative expense.millions, except per share amounts)
The following table presents information regarding the Company’s revenuesegment net sales by service and product solution:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Banking | | | | | |
| Services | $ | 1,548.1 | | | $ | 1,681.2 | | | $ | 1,781.9 | |
| Products | 874.3 | | | 1,029.9 | | | 1,068.6 | |
| Total Banking | $ | 2,422.4 | | | $ | 2,711.1 | | | $ | 2,850.5 | |
| Retail | | | | | |
| Services | $ | 540.9 | | | $ | 622.4 | | | $ | 582.6 | |
| Products | 477.3 | | | 571.7 | | | 469.2 | |
| Total Retail | $ | 1,018.2 | | | $ | 1,194.1 | | | $ | 1,051.8 | |
Held for sale non-core European retail business (7) | | | | | |
| Services | $ | 9.9 | | | $ | — | | | $ | — | |
| Products | 10.2 | | | — | | | — | |
| 20.1 | | | — | | | — | |
| Total Revenue | $ | 3,460.7 | | | $ | 3,905.2 | | | $ | 3,902.3 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Banking | | | | | |
| Services and software | $ | 2,248.4 |
| | $ | 1,758.2 |
| | $ | 1,426.1 |
|
| Systems | 1,180.6 |
| | 1,041.7 |
| | 975.4 |
|
| Total banking | 3,429.0 |
| | 2,799.9 |
| | 2,401.5 |
|
| Retail | | | | | |
| Services and software | 625.5 |
| | 224.8 |
| | — |
|
| Systems | 554.8 |
| | 291.6 |
| | 17.8 |
|
| Total retail | 1,180.3 |
| | 516.4 |
| | 17.8 |
|
| | $ | 4,609.3 |
| | $ | 3,316.3 |
| | $ | 2,419.3 |
|
The Company had no customers that accounted for more than 10 percent of total net sales in 2017, 20162022, 2021 and 2015.2020.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Below is a summary of net sales by point of origin for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Americas | | | | | |
| United States | $ | 861.4 | | | $ | 893.1 | | | $ | 974.7 | |
| Other Americas | 600.0 | | | 530.1 | | | 502.9 | |
| Total Americas Revenue | 1,461.4 | | | 1,423.2 | | | 1,477.6 | |
| EMEA | | | | | |
| Germany | 522.8 | | | 768.2 | | | 764.3 | |
| Other EMEA | 1,173.2 | | | 1,356.3 | | | 1,282.0 | |
| Total EMEA Revenue | 1,696.0 | | | 2,124.5 | | | 2,046.3 | |
| APAC | | | | | |
| Total APAC Revenue | 303.3 | | | 357.5 | | | 378.4 | |
| Total Revenue | $ | 3,460.7 | | | $ | 3,905.2 | | | $ | 3,902.3 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Americas | | | | | |
| United States | $ | 1,038.6 |
| | $ | 1,020.1 |
| | $ | 1,014.3 |
|
| Brazil | 218.5 |
| | 263.0 |
| | 211.5 |
|
| Other Americas | 348.7 |
| | 379.2 |
| | 347.6 |
|
| Total Americas | 1,605.8 |
| | 1,662.3 |
| | 1,573.4 |
|
| EMEA | | | | | |
| Germany | 564.3 |
| | 244.9 |
| | — |
|
| Other EMEA | 1,815.8 |
| | 938.3 |
| | 406.3 |
|
| Total EMEA | 2,380.1 |
| | 1,183.2 |
| | 406.3 |
|
| AP | | | | | |
| China | 96.3 |
| | 175.2 |
| | 279.0 |
|
| Other AP | 527.1 |
| | 295.6 |
| | 160.6 |
|
| Total AP | 623.4 |
| | 470.8 |
| | 439.6 |
|
| Total net sales | $ | 4,609.3 |
|
| $ | 3,316.3 |
| | $ | 2,419.3 |
|
Below is a summary of property, plant and equipment, net and right-of-use operating lease assets by geographical location as of December 31:
| | | | | | | | | | | |
| 2022 | | 2021 |
| Property, plant and equipment, net | | | |
| United States | $ | 24.4 | | | $ | 19.4 | |
| Germany | 80.5 | | | 96.9 | |
| Other international | 15.8 | | | 21.8 | |
| Total property, plant and equipment, net | $ | 120.7 | | | $ | 138.1 | |
| | | |
| Right-of-use operating lease assets | | | |
| United States | $ | 34.9 | | | $ | 49.1 | |
| Other international | 73.6 | | | 103.3 | |
| Total right-of-use operating lease assets | $ | 108.5 | | | $ | 152.4 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Property, plant and equipment, net | | | | | |
| United States | $ | 91.7 |
| | $ | 111.2 |
| | $ | 130.4 |
|
| Germany | 205.3 |
| | 199.7 |
| | — |
|
| Other international | 67.5 |
| | 76.1 |
| | 44.9 |
|
| Total property, plant and equipment, net | $ | 364.5 |
| | $ | 387.0 |
| | $ | 175.3 |
|
NOTE 23: DIVESTITURES
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. CMA. The divestiture closed on June 30, 2017. The legacy, independent Wincor Nixdorf U.K. and Ireland business will be completely integrated into the global Diebold Nixdorf operations and brand. As part of the Company's routine efforts to evaluate its business operations, during 2017, the Company agreed to sell its ES businesses located in Mexico and Chile to a wholly-owned subsidiary of Securitas AB and Avant, 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 and 2016.
In December 2015, the Company announced it was forming a new strategic alliance with a subsidiary of the Inspur Group, a Chinese cloud computing and data center company, to develop, manufacture and distribute banking solutions in China. The Inspur Group will hold a majority stake of 51.0 percent in the new jointly owned company, Inspur JV. In November 2016, the Inspur JV was formed and the Company did not have a significant gain or loss from the transaction. The Inspur JV offers a complete range of self-service terminals within the Chinese market, including ATMs. The Company will serve as the exclusive distributor outside of China for all products developed by the Inspur JV, which will be sold under the Diebold Nixdorf brand. The Company does not consolidate Inspur JV and includes its results of operations in equity in earnings of an investee included in other income (expense) of the consolidated statements of operations.
In addition, to support the services-led approach to the market, the Company will divest a minority share of its current China operations to the Inspur Group. Moving forward, this business will be focused on providing a whole suite of services, including installation, maintenance, professional and managed services related to ATMs and other automated transaction solutions.
During the third quarter of 2016, the Company received cash proceeds of $27.7 related to the sale of stock in its Aevi International GmbH and Diebold Nixdorf AG China subsidiaries. In addition to the cash proceeds received, the Company recorded deferred payments of $44.7 for the divestiture of its Diebold Nixdorf AG China subsidiaries. The Diebold Nixdorf AG China sale was reflected in the opening balance sheet and no gain or loss was recorded. The Diebold Nixdorf AG China sale was in connection with the June 2016, Diebold Nixdorf AG announcement to establish a strategic alliance with Aisino Corporation, to position itself in China
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 20172022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
NOTE 25: SUBSEQUENT EVENTS
to offer solutions that meet Chinese banking regulations. Aisino Corporation is a Chinese company that specializes in intelligent anti-forgery tax control systems, EFT, POS solutions, financial IC cards, bill receipt printing solutions and public IT security solutions. Following
On February 2, 2023, the closingBoard of Directors (the “Board”) of Diebold Nixdorf, Incorporated (the “Company”) increased the size of the transaction,Board from 12 to 14 members and appointed Marjorie L. Bowen, and Emanuel R. Pearlman, to the Board, effective immediately, to fill the vacancies created by the increase. Ms. Bowen’s and Mr. Pearlman’s terms will expire at the Company’s 2023 Annual Meeting of Shareholders. Ms. Bowen and Mr. Pearlman were each identified by the Company holds a noncontrolling interestas potential Board members in accordance with the requirements of the Transaction Support Agreement dated October 20, 2022, as amended, described in more detail in the Aisino JVCompany’s Current Reports on Form 8-K dated October 20, 2022, November 29, 2022, and December 21, 2022 (as amended, the “TSA”). Pursuant to TSA, the Company intends to nominate Ms. Bowen and Mr. Pearlman for election to the Board at the Company’s 2023 Annual Meeting of 43.6 percent. The Company includes the Aisino results of operations in equity in earnings of an investees included in other income (expense)Shareholders, to succeed two persons who were members of the consolidated statementsBoard at the time of operations.
In February 2016,the execution of the TSA. Accordingly, the Company finalized its divestiture of its wholly-owned ES subsidiary located inintends to reduce the U.S. and Canada for an aggregate purchase price of $350.0 in cash, 10.0 percent of which was contingent based on the successful transition of certain customer relationships. For ES to continue its growth, it would require resources and investment that Diebold Nixdorf was not committed to make given its focus on the self-service market. The Company received payment and recorded a pre-tax gain of $239.5 on the ES divestiture which was recognized during 2016. Cash flows provided or used by the NA ES business are presented as cash flows from discontinued operations for allsize of the periods presented. The resultsBoard effective at the 2023 Annual Meeting of operations, financial positionShareholders.
Chief Executive Officer Octavio Marquez was elected Chair of the Board of Directors, effective February 2, 2023. Gary Greenfield will not stand for reelection as director at the Company’s 2023 Annual Meeting of Shareholders. Mr. Greenfield’s decision not to stand for re-election is not the result of any disagreement between Mr. Greenfield and cash flows from the NA ES business were not included in the Company's financial statements from the closing date.
The following summarizes select financial information included in income from discontinued operations, net of tax:
|
| | | | | | | |
| | Years ended December 31, |
| | 2016 | | 2015 |
| Net sales | | | |
| Services and software | $ | 16.3 |
| | $ | 221.5 |
|
| Systems | 8.5 |
| | 127.0 |
|
| | 24.8 |
| | 348.5 |
|
| Cost of sales | | | |
| Services and software | 15.1 |
| | 181.1 |
|
| Systems | 6.9 |
| | 102.2 |
|
| | 22.0 |
| | 283.3 |
|
| Gross profit | 2.8 |
| | 65.2 |
|
| Selling and administrative expense | 4.8 |
| | 39.7 |
|
| Income (loss) from discontinued operations before taxes | (2.0 | ) | | 25.5 |
|
| Income tax (benefit) expense | (0.7 | ) | | 9.6 |
|
| | (1.3 | ) | | 15.9 |
|
| | | | |
| Gain on sale of discontinued operations before taxes | 239.5 |
| | — |
|
| Income tax (benefit) expense | 94.5 |
| | — |
|
| Gain on sale of discontinued operations, net of tax | 145.0 |
| | — |
|
| Income from discontinued operations, net of tax | $ | 143.7 |
| | $ | 15.9 |
|
As of March 31, 2015, the Company agreedon any matter relating to sell its equity interest in its Venezuela joint venture to its joint venture partner and recorded impairment charges of $18.6 and an additional $0.4 related to uncollectible accounts receivable, which is included in selling and administrative expenses on the consolidated statements of operations, during 2015.
NOTE 24: RELATED PARTY TRANSACTIONS
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 percentpolicies or practices of the Inspur JVCompany.
On February 9, 2023, the Company announced that, effective February 28, 2023, Jeffrey Rutherford departed as the Company’s Executive Vice President, Chief Financial Officer. James Barna, the Company’s current Senior Vice President and 43.6 percentTreasurer since September 2021, has been appointed to succeed Mr. Rutherford as Executive Vice President, Chief Financial Officer. Mr. Barna previously served as Vice President and Chief Accounting Officer of the Aisino JV. The Company engages in transactions in the ordinary course of business. The Company's strategic alliances are not significant subsidiaries and are accounted for under the equity method of investments. As of December 31, 2017, the Company had accounts receivable and accounts payable balances with these affiliates of $15.6 and $17.8, respectively, which is included trade receivables, less allowances for doubtful accounts and accounts payable, respectively, on the consolidated balance sheets.from September 2019 to September 2021.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
NOTE 25: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents selected unaudited quarterly financial information for the years ended December 31:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Net sales | $ | 1,102.8 |
| | $ | 509.6 |
| | $ | 1,133.9 |
| | $ | 580.0 |
| | $ | 1,122.7 |
| | $ | 983.3 |
| | $ | 1,249.9 |
| | $ | 1,243.4 |
|
| Gross profit | 242.5 |
| | 138.8 |
| | 237.8 |
| | 155.1 |
| | 241.0 |
| | 197.6 |
| | 288.4 |
| | 230.2 |
|
| Income (loss) from continuing operations, net of tax | (52.2 | ) | | 20.7 |
| | (23.6 | ) | | (20.8 | ) | | (28.8 | ) | | (97.2 | ) | | (100.9 | ) | | (73.4 | ) |
| Income from discontinued operations, net of tax | — |
| | 147.8 |
| | — |
| | 0.5 |
| | — |
| | (4.6 | ) | | — |
| | — |
|
| Net income (loss) | (52.2 | ) | | 168.5 |
| | (23.6 | ) | | (20.3 | ) | | (28.8 | ) | | (101.8 | ) | | (100.9 | ) | | (73.4 | ) |
| Net income (loss) attributable to noncontrolling interests | 6.6 |
| | 0.3 |
| | 7.0 |
| | 0.8 |
| | 6.6 |
| | 0.5 |
| | 7.4 |
| | 4.4 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (58.8 | ) | | $ | 168.2 |
| | $ | (30.6 | ) | | $ | (21.1 | ) | | $ | (35.4 | ) | | $ | (102.3 | ) | | $ | (108.3 | ) | | $ | (77.8 | ) |
| | | | | | | | | | | | | | | | |
| Basic earnings (loss) per share | | | | | | | | | | | | | | | |
| Income (loss) from continuing operations, net of tax | $ | (0.78 | ) | | $ | 0.31 |
| | $ | (0.41 | ) | | $ | (0.33 | ) | | $ | (0.47 | ) | | $ | (1.38 | ) | | $ | (1.43 | ) | | $ | (1.04 | ) |
| Income from discontinued operations, net of tax | — |
| | 2.27 |
| | — |
| | 0.01 |
| | — |
| | (0.06 | ) | | — |
| | — |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated (basic) | $ | (0.78 | ) | | $ | 2.58 |
| | $ | (0.41 | ) | | $ | (0.32 | ) | | $ | (0.47 | ) | | $ | (1.44 | ) | | $ | (1.43 | ) | | $ | (1.04 | ) |
| | | | | | | | | | | | | | | | |
| Diluted earnings (loss) per share | | | | | | | | | | | | | | | |
| Income (loss) from continuing operations, net of tax | $ | (0.78 | ) | | $ | 0.31 |
| | $ | (0.41 | ) | | $ | (0.33 | ) |
| $ | (0.47 | ) | | $ | (1.38 | ) | | $ | (1.43 | ) | | $ | (1.04 | ) |
| Income from discontinued operations, net of tax | — |
| | 2.25 |
| | — |
| | 0.01 |
| | — |
| | (0.06 | ) | | — |
| | — |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated (diluted) | $ | (0.78 | ) | | $ | 2.56 |
| | $ | (0.41 | ) | | $ | (0.32 | ) | | $ | (0.47 | ) | | $ | (1.44 | ) | | $ | (1.43 | ) | | $ | (1.04 | ) |
| | | | | | | | | | | | | | | | |
| Basic weighted-average shares outstanding | 75.3 |
| | 65.1 |
| | 75.5 |
| | 65.2 |
| | 75.5 |
| | 70.9 |
| | 75.5 |
| | 75.1 |
|
| Diluted weighted-average shares outstanding | 75.3 |
| | 65.7 |
| | 75.5 |
| | 65.2 |
| | 75.5 |
| | 70.9 |
| | 75.5 |
| | 75.1 |
|
During 2017, the Company incurred costs related to integration and restructuring, along with a full year of consolidated results from the Acquisition. The full year incremental results related to the Acquisition resulted in higher net sales and gross profit throughout the year. In addition to these items, income (loss) from continuing operations, net of tax included incremental interest expense related to higher average outstanding balances throughout the year offset by improve pricing, along with the impact of $81.7 from the Tax Act. This was offset by the cost reductions and synergies related to DN2020.
On February 1, 2016, the Company divested of its NA ES business resulting in a pre-tax gain of $239.5 during the first quarter. Income (loss) from continuing operations, net of tax during the second half of 2016 was impacted by increased interest expense and deal-related costs in connection with the Acquisition of $97.2.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
NOTE 26: SUPPLEMENTAL GUARANTOR INFORMATION
The Company issued the 2024 Senior Notes in an offering exempt from the registration requirements of the Securities Act in connection with the Acquisition. The 2024 Senior Notes are and will be guaranteed by certain of the Company's existing and future domestic subsidiaries. The following presents the condensed consolidating financial information separately for:
| |
(i) | Diebold Nixdorf, Incorporated (the Parent Company), the issuer of the guaranteed obligations; |
| |
(ii) | Guarantor Subsidiaries, on a combined basis, as specified in the indentures related to the Company's obligations under the 2024 Senior Notes; |
| |
(iii) | Non-guarantor subsidiaries, on a combined basis; |
| |
(iv) | Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions between the Parent Company, the Guarantor Subsidiaries and the Non-guarantor Subsidiaries, (b) eliminate the investments in our subsidiaries, and (c) record consolidating entries; and |
| |
(v) | Diebold Nixdorf, Incorporated and Subsidiaries on a consolidated basis. |
Each guarantor subsidiary is 100 percent owned by the Parent Company at the date of each balance sheet presented. The notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary. The guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. Each entity in the consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use by the Parent Company and the guarantor subsidiaries of the equity method of accounting to reflect ownership interests in subsidiaries which are eliminated upon consolidation. Changes in intercompany receivables and payables related to operations, such as intercompany sales or service charges, are included in cash flows from operating activities. Intercompany transactions reported as investing or financing activities include the sale of capital stock of various subsidiaries, loans and other capital transactions between members of the consolidated group.
Certain non-guarantor subsidiaries of the Parent Company are limited in their ability to remit funds to it by means of dividends, advances or loans due to required foreign government and/or currency exchange board approvals or limitations in credit agreements or other debt instruments of those subsidiaries.
The Company has reclassified certain assets and liabilities from its non-guarantor subsidiaries to the Parent Company as a result of a common control control transaction in connection with the Company's integration efforts of the Acquisition to optimize its operations.
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Condensed Consolidating Balance Sheets
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Reclassifications/ Eliminations | | Consolidated |
| ASSETS |
| Current assets | | | | | | | | | |
| Cash and cash equivalents | $ | 58.5 |
| | $ | 2.3 |
| | $ | 474.4 |
| | $ | — |
| | $ | 535.2 |
|
| Short-term investments | — |
| | — |
| | 81.4 |
| | — |
| | 81.4 |
|
| Trade receivables, net | 140.7 |
| | 1.4 |
| | 688.0 |
| | — |
| | 830.1 |
|
| Intercompany receivables | 735.7 |
| | 907.8 |
| | 2,104.1 |
| | (3,747.6 | ) | | — |
|
| Inventories | 167.6 |
| | — |
| | 569.4 |
| | — |
| | 737.0 |
|
| Prepaid expenses | 15.7 |
| | 1.0 |
| | 49.0 |
| | — |
| | 65.7 |
|
| Prepaid income taxes | 4.5 |
| | 15.2 |
| | 68.8 |
| | (15.1 | ) | | 73.4 |
|
| Other current assets | 15.2 |
| | 0.8 |
| | 176.3 |
| | (6.7 | ) | | 185.6 |
|
| Total current assets | 1,137.9 |
| | 928.5 |
| | 4,211.4 |
| | (3,769.4 | ) | | 2,508.4 |
|
| Securities and other investments | 96.8 |
| | — |
| | — |
| | — |
| | 96.8 |
|
| Property, plant and equipment, net | 89.6 |
| | 2.1 |
| | 272.8 |
| | — |
| | 364.5 |
|
| Deferred income taxes | 150.8 |
| | 8.0 |
| | 135.0 |
| | — |
| | 293.8 |
|
| Finance lease receivables | 3.3 |
| | 1.1 |
| | 10.0 |
| | — |
| | 14.4 |
|
| Goodwill | 55.5 |
| | — |
| | 1,061.6 |
| | — |
| | 1,117.1 |
|
| Intangible assets, net | 37.5 |
| | — |
| | 736.3 |
| | — |
| | 773.8 |
|
| Investment in subsidiary | 2,518.5 |
| | — |
| | — |
| | (2,518.5 | ) | | — |
|
| Other assets | 43.9 |
| | — |
| | 64.0 |
| | (26.5 | ) | | 81.4 |
|
| Total assets | $ | 4,133.8 |
| | $ | 939.7 |
| | $ | 6,491.1 |
| | $ | (6,314.4 | ) | | $ | 5,250.2 |
|
| | | | | | | | | | |
| LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY |
| Current liabilities | | | | | | | | | |
| Notes payable | $ | 49.9 |
| | $ | 0.3 |
| | $ | 16.5 |
| | $ | — |
| | $ | 66.7 |
|
| Accounts payable | 88.1 |
| | 0.1 |
| | 474.0 |
| | — |
| | 562.2 |
|
| Intercompany payable | 1,337.1 |
| | 192.2 |
| | 2,218.3 |
| | (3,747.6 | ) | | — |
|
| Deferred revenue | 115.8 |
| | 0.6 |
| | 321.1 |
| | — |
| | 437.5 |
|
| Payroll and other benefits liabilities | 26.1 |
| | 2.2 |
| | 170.6 |
| | — |
| | 198.9 |
|
| Other current liabilities | 115.2 |
| | 2.8 |
| | 437.9 |
| | (21.8 | ) | | 534.1 |
|
| Total current liabilities | 1,732.2 |
| | 198.2 |
| | 3,638.4 |
| | (3,769.4 | ) | | 1,799.4 |
|
| Long-term debt | 1,710.6 |
| | 0.1 |
| | 76.4 |
| | — |
| | 1,787.1 |
|
| Pensions, post-retirements and other benefits | 199.8 |
| | — |
| | 66.6 |
| | — |
| | 266.4 |
|
| Deferred income taxes | 10.0 |
| | — |
| | 277.1 |
| | — |
| | 287.1 |
|
| Other long-term liabilities | 11.2 |
| | — |
| | 126.6 |
| | (26.5 | ) | | 111.3 |
|
| Commitments and contingencies | | | | | | | | | |
| Redeemable noncontrolling interests | — |
| | — |
| | 492.1 |
| | — |
| | 492.1 |
|
| Total Diebold Nixdorf, Incorporated shareholders' equity | 470.0 |
| | 741.4 |
| | 1,777.1 |
| | (2,518.5 | ) | | 470.0 |
|
| Noncontrolling interests | — |
| | — |
| | 36.8 |
| | — |
| | 36.8 |
|
| Total liabilities and equity | $ | 4,133.8 |
| | $ | 939.7 |
| | $ | 6,491.1 |
| | $ | (6,314.4 | ) | | $ | 5,250.2 |
|
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Condensed Consolidating Balance Sheets
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Reclassifications/ Eliminations | | Consolidated |
| ASSETS |
| Current assets | | | | | | | | | |
| Cash and cash equivalents | $ | 138.9 |
| | $ | 2.3 |
| | $ | 511.5 |
| | $ | — |
| | $ | 652.7 |
|
| Short-term investments | — |
| | — |
| | 64.1 |
| | — |
| | 64.1 |
|
| Trade receivables, net | 140.1 |
| | — |
| | 696.4 |
| | (0.6 | ) | | 835.9 |
|
| Intercompany receivables | 883.0 |
| | 783.7 |
| | 497.0 |
| | (2,163.7 | ) | | — |
|
| Inventories | 147.9 |
| | 16.2 |
| | 573.6 |
| | — |
| | 737.7 |
|
| Prepaid expenses | 15.0 |
| | 1.1 |
| | 44.6 |
| | — |
| | 60.7 |
|
| Prepaid income taxes | 0.3 |
| | 25.4 |
| | 84.9 |
| | (25.4 | ) | | 85.2 |
|
| Other current assets | 5.1 |
| | 1.6 |
| | 176.6 |
| | — |
| | 183.3 |
|
| Total current assets | 1,330.3 |
| | 830.3 |
| | 2,648.7 |
| | (2,189.7 | ) | | 2,619.6 |
|
| Securities and other investments | 94.7 |
| | — |
| | — |
| | — |
| | 94.7 |
|
| Property, plant and equipment, net | 102.9 |
| | 9.0 |
| | 275.1 |
| | — |
| | 387.0 |
|
| Deferred income taxes | 173.7 |
| | 7.8 |
| | 128.0 |
| | — |
| | 309.5 |
|
| Finance lease receivables | 4.8 |
| | 4.8 |
| | 15.6 |
| | — |
| | 25.2 |
|
| Goodwill | 55.5 |
| | — |
| | 942.8 |
| | — |
| | 998.3 |
|
| Intangible assets, net | 1.8 |
| | 13.6 |
| | 757.5 |
| | — |
| | 772.9 |
|
| Investment in subsidiary | 2,609.5 |
| | — |
| | 9.9 |
| | (2,619.4 | ) | | — |
|
| Other assets | 7.8 |
| | 0.1 |
| | 55.2 |
| | — |
| | 63.1 |
|
| Total assets | $ | 4,381.0 |
| | $ | 865.6 |
| | $ | 4,832.8 |
| | $ | (4,809.1 | ) | | $ | 5,270.3 |
|
| | | | | | | | | | |
| LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY |
| Current liabilities | | | | | | | | | |
| Notes payable | $ | 30.9 |
| | $ | 1.3 |
| | $ | 74.7 |
| | $ | — |
| | $ | 106.9 |
|
| Accounts payable | 109.1 |
| | 1.1 |
| | 450.9 |
| | (0.6 | ) | | 560.5 |
|
| Intercompany payable | 1,421.2 |
| | 175.9 |
| | 566.6 |
| | (2,163.7 | ) | | — |
|
| Deferred revenue | 122.3 |
| | 0.7 |
| | 281.2 |
| | — |
| | 404.2 |
|
| Payroll and other benefits liabilities | 22.9 |
| | 1.4 |
| | 148.2 |
| | — |
| | 172.5 |
|
| Other current liabilities | 156.1 |
| | 3.9 |
| | 445.8 |
| | (25.4 | ) | | 580.4 |
|
| Total current liabilities | 1,862.5 |
| | 184.3 |
| | 1,967.4 |
| | (2,189.7 | ) | | 1,824.5 |
|
| Long-term debt | 1,690.5 |
| | 0.4 |
| | 0.5 |
| | — |
| | 1,691.4 |
|
| Pensions, post-retirements and other benefits | 212.6 |
| | — |
| | 84.6 |
| | — |
| | 297.2 |
|
| Deferred income taxes | 13.4 |
| | — |
| | 287.2 |
| | — |
| | 300.6 |
|
| Other long-term liabilities | 10.6 |
| | — |
| | 77.1 |
| | — |
| | 87.7 |
|
| Commitments and contingencies | | | | | | | | | |
| Redeemable noncontrolling interests | — |
| | — |
| | 44.1 |
| | — |
| | 44.1 |
|
| Total Diebold Nixdorf, Incorporated shareholders' equity | 591.4 |
| | 680.9 |
| | 1,938.5 |
| | (2,619.4 | ) | | 591.4 |
|
| Noncontrolling interests | — |
| | — |
| | 433.4 |
| | — |
| | 433.4 |
|
| Total liabilities and equity | $ | 4,381.0 |
|
| $ | 865.6 |
|
| $ | 4,832.8 |
|
| $ | (4,809.1 | ) |
| $ | 5,270.3 |
|
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Year Ended December 31, 2017
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Reclassifications/ Eliminations | | Consolidated |
| | | | | | | | | | |
| Net sales | $ | 1,126.4 |
| | $ | 7.4 |
| | $ | 3,480.6 |
| | $ | (5.1 | ) | | $ | 4,609.3 |
|
| Cost of sales | 898.0 |
| | 12.3 |
| | 2,694.4 |
| | (5.1 | ) | | 3,599.6 |
|
| Gross profit (loss) | 228.4 |
| | (4.9 | ) | | 786.2 |
| | — |
| | 1,009.7 |
|
| Selling and administrative expense | 283.8 |
| | 10.5 |
| | 639.4 |
| | — |
| | 933.7 |
|
| Research, development and engineering expense | 3.1 |
| | 40.6 |
| | 111.8 |
| | — |
| | 155.5 |
|
| Impairment of assets | 3.1 |
| | — |
| | — |
| | — |
| | 3.1 |
|
| (Gain) loss on sale of assets, net | 0.5 |
| | 0.4 |
| | 0.1 |
| | — |
| | 1.0 |
|
| | 290.5 |
| | 51.5 |
| | 751.3 |
| | — |
| | 1,093.3 |
|
| Operating profit (loss) | (62.1 | ) | | (56.4 | ) | | 34.9 |
| | — |
| | (83.6 | ) |
| Other income (expense) | | | | | | | | | |
| Interest income | 2.3 |
| | 0.2 |
| | 17.8 |
| | — |
| | 20.3 |
|
| Interest expense | (108.7 | ) | | (0.1 | ) | | (8.5 | ) | | — |
| | (117.3 | ) |
| Foreign exchange gain (loss), net | (0.5 | ) | | (0.1 | ) | | (3.3 | ) | | — |
| | (3.9 | ) |
| Equity in earnings of subsidiaries | (32.8 | ) | | — |
| | — |
| | 32.8 |
| | — |
|
| Miscellaneous, net | 6.2 |
| | 7.7 |
| | (3.8 | ) | | (1.3 | ) | | 8.8 |
|
| Income (loss) from continuing operations before taxes | (195.6 | ) | | (48.7 | ) | | 37.1 |
| | 31.5 |
| | (175.7 | ) |
| Income tax (benefit) expense | 37.5 |
| | (15.5 | ) | | 7.8 |
| | — |
| | 29.8 |
|
| Net income (loss) | (233.1 | ) | | (33.2 | ) | | 29.3 |
| | 31.5 |
| | (205.5 | ) |
| Income attributable to noncontrolling interests, net of tax | — |
| | — |
| | 27.6 |
| | — |
| | 27.6 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (233.1 | ) | | $ | (33.2 | ) | | $ | 1.7 |
| | $ | 31.5 |
| | $ | (233.1 | ) |
| Comprehensive income (loss) | $ | (88.1 | ) | | $ | (33.2 | ) | | $ | 200.7 |
| | $ | (134.0 | ) | | $ | (54.6 | ) |
| Less: comprehensive income attributable to noncontrolling interests | — |
| | — |
| | 33.5 |
| | — |
| | 33.5 |
|
| Comprehensive income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (88.1 | ) | | $ | (33.2 | ) | | $ | 167.2 |
| | $ | (134.0 | ) | | $ | (88.1 | ) |
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Year Ended December 31, 2016
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Reclassifications/ Eliminations | | Consolidated |
| | | | | | | | | | |
| Net sales | $ | 1,119.6 |
| | $ | 85.0 |
| | $ | 2,194.9 |
| | $ | (83.2 | ) | | $ | 3,316.3 |
|
| Cost of sales | 859.4 |
| | 92.0 |
| | 1,725.5 |
| | (82.3 | ) | | 2,594.6 |
|
| Gross profit (loss) | 260.2 |
| | (7.0 | ) | | 469.4 |
| | (0.9 | ) | | 721.7 |
|
| Selling and administrative expense | 314.4 |
| | 11.5 |
| | 435.3 |
| | — |
| | 761.2 |
|
| Research, development and engineering expense | 7.9 |
| | 45.7 |
| | 56.6 |
| | — |
| | 110.2 |
|
| Impairment of assets | — |
| | 5.1 |
| | 4.7 |
| | — |
| | 9.8 |
|
| (Gain) loss on sale of assets, net | 0.3 |
| | (0.1 | ) | | 0.1 |
| | — |
| | 0.3 |
|
| | 322.6 |
| | 62.2 |
| | 496.7 |
| | — |
| | 881.5 |
|
| Operating profit (loss) | (62.4 | ) | | (69.2 | ) | | (27.3 | ) | | (0.9 | ) | | (159.8 | ) |
| Other income (expense) | | | | | | | | | |
| Interest income | 2.5 |
| | 0.6 |
| | 18.4 |
| | — |
| | 21.5 |
|
| Interest expense | (100.1 | ) | | (0.1 | ) | | (1.2 | ) | | — |
| | (101.4 | ) |
| Foreign exchange gain (loss), net | (3.5 | ) | | (0.1 | ) | | 1.5 |
| | — |
| | (2.1 | ) |
| Equity in earnings of subsidiaries | (60.0 | ) | | — |
| | — |
| | 60.0 |
| | — |
|
| Miscellaneous, net | 1.8 |
| | 7.8 |
| | (6.1 | ) | | — |
| | 3.5 |
|
| Income (loss) from continuing operations before taxes | (221.7 | ) | | (61.0 | ) | | (14.7 | ) | | 59.1 |
| | (238.3 | ) |
| Income tax (benefit) expense | (53.5 | ) | | (28.6 | ) | | 14.5 |
| | — |
| | (67.6 | ) |
| Income (loss) from continuing operations, net of tax | (168.2 | ) | | (32.4 | ) | | (29.2 | ) | | 59.1 |
| | (170.7 | ) |
| Income from discontinued operations, net of tax | 135.2 |
| | — |
| | 8.5 |
| | — |
| | 143.7 |
|
| Net income (loss) | (33.0 | ) | | (32.4 | ) | | (20.7 | ) | | 59.1 |
| | (27.0 | ) |
| Income attributable to noncontrolling interests, net of tax | — |
| | — |
| | 6.0 |
| | — |
| | 6.0 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (33.0 | ) | | $ | (32.4 | ) | | $ | (26.7 | ) | | $ | 59.1 |
| | $ | (33.0 | ) |
| Comprehensive income (loss) | $ | (56.2 | ) | | $ | (32.4 | ) | | $ | (55.1 | ) | | $ | 96.7 |
| | $ | (47.0 | ) |
| Less: comprehensive income attributable to noncontrolling interests | — |
| | — |
| | 9.2 |
| | — |
| | 9.2 |
|
| Comprehensive income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (56.2 | ) | | $ | (32.4 | ) | | $ | (64.3 | ) | | $ | 96.7 |
| | $ | (56.2 | ) |
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Year Ended December 31, 2015
|
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Reclassifications/ Eliminations | | Consolidated |
| | | | | | | | | | |
| Net sales | $ | 959.3 |
| | $ | 171.4 |
| | $ | 1,458.4 |
| | $ | (169.8 | ) | | $ | 2,419.3 |
|
| Cost of sales | 645.7 |
| | 181.2 |
| | 1,109.2 |
| | (168.8 | ) | | 1,767.3 |
|
| Gross profit (loss) | 313.6 |
| | (9.8 | ) | | 349.2 |
| | (1.0 | ) | | 652.0 |
|
| Selling and administrative expense | 268.5 |
| | 10.6 |
| | 209.1 |
| | — |
| | 488.2 |
|
| Research, development and engineering expense | 8.3 |
| | 59.3 |
| | 19.3 |
| | — |
| | 86.9 |
|
| Impairment of assets | — |
| | 9.1 |
| | 9.8 |
| | — |
| | 18.9 |
|
| (Gain) loss on sale of assets, net | 0.3 |
| | — |
| | (0.9 | ) | | — |
| | (0.6 | ) |
| | 277.1 |
| | 79.0 |
| | 237.3 |
| | — |
| | 593.4 |
|
| Operating profit (loss) | 36.5 |
| | (88.8 | ) | | 111.9 |
| | (1.0 | ) | | 58.6 |
|
| Other income (expense) | | | | | | | | | |
| Interest income | 0.2 |
| | 1.0 |
| | 24.8 |
| | — |
| | 26.0 |
|
| Interest expense | (30.3 | ) | | (0.2 | ) | | (2.0 | ) | | — |
| | (32.5 | ) |
| Foreign exchange gain (loss), net | 4.0 |
| | (0.5 | ) | | (13.5 | ) | | — |
| | (10.0 | ) |
| Equity in earnings of subsidiaries | 29.4 |
| | — |
| | — |
| | (29.4 | ) | | — |
|
| Miscellaneous, net | (9.3 | ) | | 13.2 |
| | 51.3 |
| | (51.5 | ) | | 3.7 |
|
| Income (loss) from continuing operations before taxes | 30.5 |
| | (75.3 | ) | | 172.5 |
| | (81.9 | ) | | 45.8 |
|
| Income tax (benefit) expense | (28.3 | ) | | (12.1 | ) | | 26.7 |
| | — |
| | (13.7 | ) |
| Income (loss) from continuing operations, net of tax | 58.8 |
| | (63.2 | ) | | 145.8 |
| | (81.9 | ) | | 59.5 |
|
| Income from discontinued operations, net of tax | 14.9 |
| | — |
| | 1.0 |
| | — |
| | 15.9 |
|
| Net income (loss) | 73.7 |
| | (63.2 | ) | | 146.8 |
| | (81.9 | ) | | 75.4 |
|
| Income attributable to noncontrolling interests, net of tax | — |
| | — |
| | 1.7 |
| | — |
| | 1.7 |
|
| Net income (loss) attributable to Diebold Nixdorf, Incorporated | $ | 73.7 |
| | $ | (63.2 | ) | | $ | 145.1 |
| | $ | (81.9 | ) | | $ | 73.7 |
|
| Comprehensive income (loss) | $ | (53.9 | ) | | $ | (63.2 | ) | | $ | 0.2 |
| | $ | 64.1 |
| | $ | (52.8 | ) |
| Less: comprehensive income attributable to noncontrolling interests | — |
| | — |
| | 3.2 |
| | — |
| | 3.2 |
|
| Comprehensive income (loss) attributable to Diebold Nixdorf, Incorporated | $ | (53.9 | ) | | $ | (63.2 | ) | | $ | (3.0 | ) | | $ | 64.1 |
| | $ | (56.0 | ) |
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2017 |
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Reclassifications/ Eliminations | | Consolidated |
| Net cash provided (used) by operating activities | $ | (43.9 | ) | | $ | (41.6 | ) | | $ | 122.6 |
| | $ | — |
| | $ | 37.1 |
|
| | | | | | | | | | |
| Cash flow from investing activities | | | | | | | | | |
| Payments for acquisitions, net of cash acquired | — |
| | — |
| | (5.6 | ) | | — |
| | (5.6 | ) |
| Proceeds from maturities of investments | — |
| | — |
| | 296.2 |
| | — |
| | 296.2 |
|
| Payments for purchases of investments | (14.0 | ) | | — |
| | (315.8 | ) | | — |
| | (329.8 | ) |
| Proceeds from divestitures and the sale of assets | 4.6 |
| | — |
| | 16.3 |
| | — |
| | 20.9 |
|
| Capital expenditures | (13.0 | ) | | (0.1 | ) | | (56.3 | ) | | — |
| | (69.4 | ) |
| Increase (decrease) in certain other assets | (43.0 | ) | | 11.8 |
| | (9.9 | ) | | — |
| | (41.1 | ) |
| Capital contributions and loans paid | (114.5 | ) | | — |
| | — |
| | 114.5 |
| | — |
|
| Proceeds from intercompany loans | 210.7 |
| | — |
| | — |
| | (210.7 | ) | | — |
|
| Net cash provided (used) by investing activities | 30.8 |
| | 11.7 |
| | (75.1 | ) | | (96.2 | ) | | (128.8 | ) |
| | | | | | | | | | |
| Cash flow from financing activities | | | | | | | | | |
| Dividends paid | (30.6 | ) | | — |
| | — |
| | — |
| | (30.6 | ) |
| Debt issuance costs | (1.1 | ) | | — |
| | — |
| | — |
| | (1.1 | ) |
| Revolving debt borrowings (repayments), net | — |
| | — |
| | 75.0 |
| | — |
| | 75.0 |
|
| Other debt borrowings | 323.3 |
| | — |
| | 50.8 |
| | — |
| | 374.1 |
|
| Other debt repayments | (354.2 | ) | | (1.2 | ) | | (103.4 | ) | | — |
| | (458.8 | ) |
| Distribution to noncontrolling interest holders | — |
| | — |
| | (17.6 | ) | | — |
| | (17.6 | ) |
| Issuance of common shares | 0.3 |
| | — |
| | — |
| | — |
| | 0.3 |
|
| Repurchase of common shares | (5.0 | ) | | — |
| | — |
| | — |
| | (5.0 | ) |
| Capital contributions received and loans incurred | — |
| | 67.1 |
| | 47.4 |
| | (114.5 | ) | | — |
|
| Payments on intercompany loans | — |
| | (36.0 | ) | | (174.7 | ) | | 210.7 |
| | — |
|
| Net cash provided (used) by financing activities | (67.3 | ) | | 29.9 |
| | (122.5 | ) | | 96.2 |
| | (63.7 | ) |
| Effect of exchange rate changes on cash | — |
| | — |
| | 37.9 |
| | — |
| | 37.9 |
|
| Increase (decrease) in cash and cash equivalents | (80.4 | ) | | — |
| | (37.1 | ) | | — |
| | (117.5 | ) |
| Cash and cash equivalents at the beginning of the year | 138.9 |
| | 2.3 |
| | 511.5 |
| | — |
| | 652.7 |
|
| Cash and cash equivalents at the end of the period | $ | 58.5 |
| | $ | 2.3 |
| | $ | 474.4 |
| | $ | — |
| | $ | 535.2 |
|
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2016 |
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Reclassifications/ Eliminations | | Consolidated |
| Net cash provided (used) by operating activities | $ | (146.4 | ) | | $ | (43.2 | ) | | $ | 232.1 |
| | $ | (13.8 | ) | | $ | 28.7 |
|
| | | | | | | | | | |
| Cash flow from investing activities | | | | | | | | | |
| Payments for acquisitions, net of cash acquired | (995.2 | ) | | — |
| | 110.6 |
| | — |
| | (884.6 | ) |
| Proceeds from maturities of investments | (1.9 | ) | | — |
| | 226.9 |
| | — |
| | 225.0 |
|
| Payments for purchases of investments | — |
| | — |
| | (243.5 | ) | | — |
| | (243.5 | ) |
| Proceeds from divestitures and the sale of assets | — |
| | — |
| | 31.3 |
| | — |
| | 31.3 |
|
| Capital expenditures | (9.2 | ) | | (1.0 | ) | | (29.3 | ) | | — |
| | (39.5 | ) |
| Increase in certain other assets | 0.5 |
| | (6.8 | ) | | (21.9 | ) | | — |
| | (28.2 | ) |
| Proceeds from sale of foreign currency option and forward contracts, net | 16.2 |
| | — |
| | — |
| | — |
| | 16.2 |
|
| Capital contributions and loans paid | (270.2 | ) | | — |
| | (1,119.3 | ) | | 1,389.5 |
| | — |
|
| Proceeds from intercompany loans | 106.4 |
| | — |
| | — |
| | (106.4 | ) | | — |
|
| Net cash provided (used) by investing activities - continuing operations | (1,153.4 | ) | | (7.8 | ) | | (1,045.2 | ) | | 1,283.1 |
| | (923.3 | ) |
| Net cash used in investing activities - discontinued operations | 361.9 |
| | — |
| | — |
| | — |
| | 361.9 |
|
| Net cash provided (used) by investing activities | (791.5 | ) | | (7.8 | ) | | (1,045.2 | ) | | 1,283.1 |
| | (561.4 | ) |
| | | | | | | | | | |
| Cash flow from financing activities | | | | | | | | | |
| Dividends paid | (64.6 | ) | | — |
| | (13.8 | ) | | 13.8 |
| | (64.6 | ) |
| Debt issuance costs | (39.2 | ) | | — |
| | — |
| | — |
| | (39.2 | ) |
| Revolving debt borrowings (repayments), net | (178.0 | ) | | — |
| | — |
| | — |
| | (178.0 | ) |
| Other debt borrowings | 1,781.3 |
| | — |
| | 56.4 |
| | — |
| | 1,837.7 |
|
| Other debt repayments | (439.6 | ) | | (1.2 | ) | | (221.7 | ) | | — |
| | (662.5 | ) |
| Distribution to noncontrolling interest holders | — |
| | — |
| | (10.2 | ) | | — |
| | (10.2 | ) |
| Issuance of common shares | 0.3 |
| | — |
| | — |
| | — |
| | 0.3 |
|
| Repurchase of common shares | (2.2 | ) | | — |
| | — |
| | — |
| | (2.2 | ) |
| Capital contributions received and loans incurred | — |
| | 133.3 |
| | 1,256.2 |
| | (1,389.5 | ) | | — |
|
| Payments on intercompany loans | — |
| | (86.7 | ) | | (19.7 | ) | | 106.4 |
| | — |
|
| Net cash provided by (used in) financing activities | 1,058.0 |
| | 45.4 |
| | 1,047.2 |
| | (1,269.3 | ) | | 881.3 |
|
| Effect of exchange rate changes on cash | — |
| | — |
| | (8.0 | ) | | — |
| | (8.0 | ) |
| Increase (decrease) in cash and cash equivalents | 120.1 |
| | (5.6 | ) | | 226.1 |
| | — |
| | 340.6 |
|
| Add: Cash overdraft included in assets held for sale at beginning of year | (1.5 | ) | | — |
| | — |
| | — |
| | (1.5 | ) |
| Less: Cash overdraft included in assets held for sale at end of year | — |
| | — |
| | — |
| | — |
| | — |
|
| Cash and cash equivalents at the beginning of the year | 20.3 |
| | 7.9 |
| | 285.4 |
| | — |
| | 313.6 |
|
| Cash and cash equivalents at the end of the period | $ | 138.9 |
| | $ | 2.3 |
| | $ | 511.5 |
| | $ | — |
| | $ | 652.7 |
|
DIEBOLD NIXDORF, INCORPORATED AND SUBSIDIARIES
FORM 10-K as of December 31, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions, except per share amounts)
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2015 |
| | | | | | | | | | | | | | | | | | | |
| | Parent | | Combined Guarantor Subsidiaries | | Combined Non-Guarantor Subsidiaries | | Reclassifications/ Eliminations | | Consolidated |
| Net cash provided (used) by operating activities | $ | 1.6 |
| | $ | (26.2 | ) | | $ | 97.5 |
| | $ | (35.7 | ) | | $ | 37.2 |
|
| | | | | | | | | | |
| Cash flow from investing activities | | | | | | | | | |
| Payments for acquisitions, net of cash acquired | — |
| | — |
| | (59.4 | ) | | — |
| | (59.4 | ) |
| Proceeds from maturities of investments | (2.1 | ) | | — |
| | 178.2 |
| | — |
| | 176.1 |
|
| Payments for purchases of investments | — |
| | — |
| | (125.5 | ) | | — |
| | (125.5 | ) |
| Proceeds from divestitures and sale of assets | — |
| | 3.5 |
| | 1.5 |
| | — |
| | 5.0 |
|
| Capital expenditures | (34.9 | ) | | (5.9 | ) | | (11.5 | ) | | — |
| | (52.3 | ) |
| Increase in certain other assets | (6.5 | ) | | (6.6 | ) | | 6.8 |
| | — |
| | (6.3 | ) |
| Capital contributions and loans paid | (205.4 | ) | | — |
| | (3.8 | ) | | 209.2 |
| | — |
|
| Proceeds from intercompany loans | 173.0 |
| | — |
| | — |
| | (173.0 | ) | | — |
|
| Net cash provided (used) by investing activities - continuing operations | (75.9 | ) | | (9.0 | ) | | (13.7 | ) | | 36.2 |
| | (62.4 | ) |
| Net cash used in investing activities - discontinued operations | (2.5 | ) | | — |
| | — |
| | — |
| | (2.5 | ) |
| Net cash provided (used) by investing activities | (78.4 | ) | | (9.0 | ) | | (13.7 | ) | | 36.2 |
| | (64.9 | ) |
| | | | | | | | | | |
| Cash flow from financing activities | | | | | | | | | |
| Dividends paid | (75.6 | ) | | — |
| | (35.7 | ) | | 35.7 |
| | (75.6 | ) |
| Debt issuance costs | (6.0 | ) | | — |
| | — |
| | — |
| | (6.0 | ) |
| Revolving debt borrowings (repayments), net | 180.8 |
| | — |
| | (25.0 | ) | | — |
| | 155.8 |
|
| Other debt borrowings | — |
| | — |
| | 135.8 |
| | — |
| | 135.8 |
|
| Other debt repayments | (14.8 | ) | | (0.8 | ) | | (153.1 | ) | | — |
| | (168.7 | ) |
| Distribution to noncontrolling interest holders | 0.1 |
| | — |
| | (0.2 | ) | | — |
| | (0.1 | ) |
| Issuance of common shares | 3.5 |
| | — |
| | — |
| | — |
| | 3.5 |
|
| Repurchase of common shares | (3.0 | ) | | — |
| | — |
| | — |
| | (3.0 | ) |
| Capital contributions received and loans incurred | — |
| | 179.3 |
| | 29.9 |
| | (209.2 | ) | | — |
|
| Payments on intercompany loans | — |
| | (137.9 | ) | | (35.1 | ) | | 173.0 |
| | — |
|
| Net cash provided by (used in) financing activities | 85.0 |
| | 40.6 |
| | (83.4 | ) | | (0.5 | ) | | 41.7 |
|
| Effect of exchange rate changes on cash | — |
| | — |
| | (23.9 | ) | | — |
| | (23.9 | ) |
| Increase (decrease) in cash and cash equivalents | 8.2 |
| | 5.4 |
| | (23.5 | ) | | — |
| | (9.9 | ) |
| Add: Cash overdraft included in assets held for sale at beginning of year | (4.1 | ) | | — |
| | — |
| | — |
| | (4.1 | ) |
| Less: Cash overdraft included in assets held for sale at end of year | (1.5 | ) | | — |
| | — |
| | — |
| | (1.5 | ) |
| Cash and cash equivalents at the beginning of the year | 14.7 |
| | 2.5 |
| | 308.9 |
| | — |
| | 326.1 |
|
| Cash and cash equivalents at the end of the year | $ | 20.3 |
| | $ | 7.9 |
| | $ | 285.4 |
| | $ | — |
| | $ | 313.6 |
|
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A: CONTROLS AND PROCEDURES
(in millions)
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its co-ChiefChief Executive Officer (co-CEOs)(CEO) and Chief Financial Officer (CFO), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The Company carries out a variety of on-going procedures, under the supervision and with the participation of the Company’s management, including the Company’s co-CEOsCEO and CFO, to evaluate the effectiveness of the design and operation of the Company’s disclosure controls and procedures.
Based on that evaluation, the Company’s co-CEOsCEO and CFO concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered byof this report.
(a)MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally acceptedU.S. GAAP.
Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the United Statestransactions and dispositions of America.the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and withof the participation of management, including its co-CEOsCEO and CFO and Board of Directors, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in “Internal Control-Integrated Framework (2013 framework)” issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this assessment, management has concluded that the internal control over financial reporting was effective as of December 31, 2017.2022.
KPMG LLP, the Company'sCompany’s independent registered public accounting firm, has issued an auditor'sauditor’s report on management'smanagement’s assessment of the effectiveness of the Company'sCompany’s internal control over financial reporting as of December 31, 2017.2022. This report is included in Item 8 of this annual report on Form 10-K.
(b)CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
On August 15, 2016,During the second quarter of 2022, the Company completedimplemented cloud-based consolidation software to replace its legacy on-premise consolidation software. The consolidation process otherwise remains largely unchanged. Other than the acquisition of Diebold Nixdorf AG. During 2017, management integrated DIebold Nixdorf AG intochange in consolidation software, during the quarter ended December 31, 2022, there have been no changes in the Company's internal control over financial reporting framework.
During the quarter ended December 31, 2017, there have been no other changes in our internal control over financial reporting during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, ourits internal control over financial reporting.
ITEM 9B: OTHER INFORMATION
None.
ITEM 9C: DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to directors of the Company, includingany delinquent Section 16(a) reports, the audit committee and the designated audit committee financial experts, is included in the Company’s proxy statement for the 20182023 Annual Meeting of Shareholders (the 20182023 Annual Meeting) and is incorporated herein by reference. Information with respect to anyThere have been no material changes to the procedures by which security holders may recommend nominees to the Company’s board of directors is included in the Company’s proxy statement for the 2018 Annual Meeting and is incorporated herein by reference. directors.
The following table summarizes information regarding executive officers of the Company as of February 16, 2018:
|
| | | | | | | |
| Name, Age, Title and Year Elected to Present Office | | Other Positions Held Last Five Years |
| | |
| | |
Octavio Marquez — 55
Chairman of the Board, President and Chief Executive Officer
Year elected: 2022
| | Christopher2020-March 2022: Executive Vice President, Global Banking for Diebold Nixdorf, Incorporated; 2016-2020: Senior Vice President of the Americas region for Diebold Nixdorf, Incorporated.
|
| | |
James A. ChapmanBarna — 43Interim Co-Chief
Executive Vice President, Chief Financial Officer
Year elected: 2023
| | 2021-2023: Senior Vice President, Treasurer and Tax for Diebold Nixdorf, Incorporated; 2019-2021: Vice President and Chief FinancialAccounting Officer
Year elected: 2014 | 2011 - Jun 2014: Vice President, Global Finance, 2004- 2011: Vice President, for Diebold Nixdorf, Incorporated; 2016-2019: Chief Accounting Officer and Controller International Operationsfor Ferro Corporation (international coatings manufacturing)
|
Jürgen Wunram — 59
Interim Co-Chief Executive Officer, Senior Vice President and Chief Operating Officer
Year elected: 2016
| Aug 2016-Feb 2017: Senior Vice President, Chief Integration Officer and Retail Lead; 2007-Aug 2016: Chief Financial Officer, Chief Operating Officer, and a member of the executive board for Wincor Nixdorf AG
|
Jonathan B. Leiken — 46
Senior51
Executive Vice President, Chief Legal Officer and General Counsel
Corporate Secretary
Year elected: 2014 | 2008 - May 2014: Partner, Jones Day (global legal services)
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Alan KerrOlaf Heyden — 61
Senior59
Executive Vice President, Software
Chief Operating Officer
Year elected: 2016 | | |
David Caldwell — 66
Executive Vice President, Corporate Development
Year elected: 2018 | | |
Jonathan B. Myers — 49
Executive Vice President, Global Banking
Year elected: 2022 | | 2014-Aug 20162011-2022: Executive Vice President Software Solutionsand Chief Revenue Officer for Diebold, Incorporated; 2008-2012: Elavon (payments processing)
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Ilhami Cantadurucu — 48
Executive Vice President, Field OperationsGlobal Retail
Year elected: 2023 | | 2021-2023: Vice President, Retail Global Account Management for Kofax (business process automation software)Diebold Nixdorf, Incorporated; 2018-2020: Vice President, Retail Global Finance for Diebold Nixdorf, Incorporated |
Olaf HeydenElizabeth C. Radigan — 54
42
Executive Vice President, Chief People Officer
Year elected: 2023
| | 2014-January 2023:Senior Vice President, Services Year elected: 2016
| 2013-Aug 2016: Executive Vice President, SoftwareChief Ethics and Services, and a member of the executive board for Wincor Nixdorf AG; 2011-2013: Chief ExecutiveCompliance Officer for Freudenberg IT KG (information technology services)Diebold Nixdorf, Incorporated
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Ulrich Näher — 52
Senior Vice President, Systems
Year elected: 2016
| Mar 2016-Aug 2016: Executive Vice President of Systems Business and member of the board of directors for Wincor Nixdorf AG; 2015-Mar 2016: Senior Vice President of Research and Development at Wincor Nixdorf AG; 2006-2015: Senior Partner at McKinsey and Company (management and consulting)
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There isare no family relationship,relationships, either by blood, marriage or adoption, between any of the executive officers and directors of the Company.
CODE OF BUSINESS ETHICS
All of the directors, executive officers and employees of the Company are required to comply with certain policies and protocols concerning business ethics and conduct, which we refer to as our Code of Business Ethics (COBE). The COBE applies not only to the Company, but also to all of those domestic and international companies in which the Company owns or controls a majority interest. The COBE describes certain responsibilities that the directors, executive officers and employees have to the Company, to each other and to the Company’s global partners and communities including, but not limited to, compliance with laws, conflicts of interest, intellectual property and the protection of confidential information. The COBE is available on the Company’s web site at www.dieboldnixdorf.com or by written request to the Corporate Secretary.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Information with respect to Section 16(a) beneficial ownership reporting compliance is included in the Company’s proxy statement for the 2018 Annual Meeting and is incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
Information with respect to executive officers' and directors' compensation is included in the Company’s proxy statement for the 20182023 Annual Meeting and is incorporated herein by reference. Information with respect to compensation committee interlocks and insider participation and the compensation committee report is included in the Company’s proxy statement for the 20182023 Annual Meeting and is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information with respect to security ownership of certain beneficial owners and management is included in the Company’s proxy statement for the 20182023 Annual Meeting and is incorporated herein by reference.
Equity Compensation Plan Information
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| Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
| Equity compensation plans approved by security holders | | | | | | |
| Stock options | | 1,505,807 | | | $ | 16.81 | | | N/A |
| Restricted stock units | | 2,217,760 | | | N/A | | N/A |
| Performance shares | | 2,610,848 | | | N/A | | N/A |
| Non-employee director deferred shares | | 27,965 | | | N/A | | N/A |
| Deferred compensation | | 815 | | | N/A | | N/A |
| Total equity compensation plans approved by security holders | | 6,363,195 | | | $ | 16.81 | | | 7,100,000 | |
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| In column (b), the weighted-average exercise price is only applicable to stock options. In column (c), the number of securities remaining available for future issuance for stock options, restricted stock units, performance shares and non-employee director deferred shares is approved in total and not individually. |
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| Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | Weighted-average exercise price of outstanding options, warrants and rights (b) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
| | Equity compensation plans approved by security holders | | | | | | |
| | Stock options | | 2,294,781 |
| | $ | 29.68 |
| | N/A |
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| | Restricted stock units | | 1,278,959 |
| | N/A |
| | N/A |
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| | Performance shares | | 2,500,734 |
| | N/A |
| | N/A |
|
| | Non-employee director deferred shares | | 125,800 |
| | N/A |
| | N/A |
|
| | Deferred compensation | | 815 |
| | N/A |
| | N/A |
|
| | Total equity compensation plans approved by security holders | | 6,201,089 |
| | $ | 29.68 |
| | 4,800,000 |
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| In column (b), the weighted-average exercise price is only applicable to stock options. In column (c), the number of securities remaining available for future issuance for stock options, restricted stock units, performance shares and non-employee director deferred shares is approved in total and not individually. |
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information with respect to certain relationships and related transactions and director independence is included in the Company’s proxy statement for the 20182023 Annual Meeting and is incorporated herein by reference.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company's independent registered public accounting firm is KPMG LLP (PCAOB firm ID: 185) with the primary location of Cleveland, OH. Information with respect to principal accountant fees and services is included in the Company’s proxy statement for the 20182023 Annual Meeting and is incorporated herein by reference.
PART IV
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Documents filed as a part of this annual report on Form 10-K.
•Reports of Independent Registered Public Accounting Firm
•Consolidated Balance Sheets at December 31, 20172022 and 2016
2021•Consolidated Statements of Operations for the Years Ended December 31, 2017, 20162022, 2021 and 2015
2020•Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2017, 20162022, 2021 and 2015
2020•Consolidated Statements of Equity for the Years Ended December 31, 2017, 20162022, 2021 and 2015
2020•Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 20162022, 2021 and 2015
2020•Notes to Consolidated Financial Statements
(a) 2. Financial statement schedules
All schedules are omitted, as the required information is inapplicable or the information is presented in the Consolidated Financial Statementsconsolidated financial statements or related notes.
(a) 3. Exhibits
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| Indenture, dated as of July 20, 2020, among Diebold Nixdorf, Incorporated, as issuer, the subsidiaries of Diebold Nixdorf, Incorporated named therein as guarantors, and U.S. Bank National Association, as trustee and notes collateral agent, relating to Diebold Nixdorf, Incorporated's 9.375% Senior Secured Notes due 2025 (including Form of 9.375% Senior Secured Notes due 2025) – incorporated by reference to Exhibit 4.1 to Registrant's Current Report on Form 8-K filed on July 24, 2020 (Commission File No. 1-4879) |
| Supplemental Indenture, dated as of December 29, 2022, to the Indenture, dated as of July 20, 2020, among Diebold Nixdorf, Incorporated, the subsidiary guarantors party thereto, U.S. Bank Trust Company, National Association, as trustee and existing notes collateral agent, and GLAS Americas LLC, as new notes collateral agent —incorporated by reference to Exhibit 4.3 to Registrant’s Current Report on Form 8-K filed on January 5, 2023 (Commission File No. 1-4879) |
| Indenture, dated as of July 20, 2020, among Diebold Nixdorf Dutch Holding B.V., as issuer, Diebold Nixdorf, Incorporated, as guarantor, the subsidiaries of Diebold Nixdorf, Incorporated named therein as guarantors, Euroclear Financial Services DAC, as paying agent, transfer agent and registrar, and U.S. Bank National Association, as trustee, and U.S. Bank Trustees Limited, as notes collateral agent, relating to Diebold Nixdorf Dutch Holding B.V.'s 9.000% Senior Secured Notes due 2025 (including Form of 9.000% Senior Secured Notes due 2025) – incorporated by reference to Exhibit 4.3 to Registrant's Current Report on Form 8-K filed on July 24, 2020 (Commission File No. 1-4879) |
| Supplemental Indenture, dated as of December 29, 2022, to the Indenture, dated as of July 20, 2020, among Diebold Nixdorf, Incorporated, Diebold Nixdorf Dutch Holding B.V., the subsidiary guarantors party thereto, U.S. Bank Trust Company, National Association, as trustee, Elavon Financial Services DAC, as paying agent, transfer agent and registrar, U.S Bank Trustees Limited, as existing notes collateral agent and GLAS Americas LLC, as collateral agent—incorporated by reference to Exhibit 4.4 to Registrant’s Current Report on Form 8-K filed on January 5, 2023 (Commission File No. 1-4879) |
| Indenture, dated as of December 29, 2022, among Diebold Nixdorf, Incorporated, the subsidiary guarantors party thereto, U.S. Bank Trust Company, National Association, as trustee, and GLAS Americas LLC, as collateral agent —incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed on January 5, 2023 (Commission File No. 1-4879) |
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| 1985 Deferred Compensation |
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*10.5 | Long-Term Executive Incentive Plan — incorporated by reference to Exhibit 10.9 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 1-4879) |
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| Credit Agreement, dated as of November 23, 2015, among Diebold, Incorporated, the subsidiary borrowers from time to time party thereto, the lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as administrative agent — incorporated by reference to Exhibit 10.1 to Registrant’s Amendment No. 1 to Registration Statement on Form S-4/A filed on January 8, 2016 (Registration No. 333-208186) |
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| Replacement Facilities Effective Date Amendment, dated as of December 23, 2015, among Diebold, Incorporated, and the subsidiary borrower party thereto, the guarantors party thereto, JPMorgan Chase Bank, N.A, as administrative agent, and the lenders party thereto — incorporated by reference to Exhibit 10.2 to Registrant’s Amendment No. 1 to Registration Statement on Form S-4/A filed on January 8, 2016 (Registration No. 333-208186) |
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| Second Amendment to Credit Agreement, dated as of May 6, 2016, among Diebold, Incorporated, the subsidiary borrowers party thereto, the guarantors party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto — incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on May 12, 2016 (Commission File No. 1-4879) |
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| Incremental Amendment to Credit Agreement, dated as of May 9, 2017, among Diebold Nixdorf, Incorporated, (f/k/a Diebold, Incorporated), the subsidiary borrowers party thereto, the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent — incorporated by reference to Exhibit 10.12 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 (File No. 1-4879) |
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| Fifth Amendment, No. 1 to the Transfer and Administration Agreement, dated as of May 2001, byApril 17, 2018, among Diebold Nixdorf, Incorporated, the subsidiary borrower party thereto, the guarantor party thereto, the lenders party thereto and among DCC Funding LLC, Diebold Credit Corporation, Diebold, Incorporated, Receivables Capital Corporation andJPMorgan Chase Bank, of America, National Association and the financial institutions from time to time parties thereto — incorporated by reference to Exhibit 10.20(ii) to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March, 31, 2001 (Commission File No. 1-4879) |
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| FormSixth Amendment and Incremental Amendment, dated as of Deferred Shares AgreementAugust 30, 2018, among Diebold Nixdorf, Incorporated, the subsidiary borrowers party thereto, the guarantor party thereto, the lenders party thereto and JP Morgan Chase Bank, N.A., as administrative agent — incorporated by reference to Exhibit 10.510.1 to Registrant’sRegistrant's Current Report on Form 8-K filed on September 21, 20094, 2018 (Commission File No. 1-4879) |
| Form of Deferred Shares Agreement (2014)Seventh Amendment, dated August 7, 2019, among Diebold Nixdorf, Incorporated, the subsidiary borrowers party thereto, the guarantor party thereto, the lenders party thereto and JP Morgan Chase Bank, N.A., as administrative agent — incorporated by reference to Exhibit 10.17(ii)10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 (Commission File No. 1-4879) |
| Eighth Amendment, dated as of February 27, 2020, among Diebold Nixdorf, Incorporated, the subsidiary borrowers party thereto, the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent — incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (Commission File No. 1-4879) |
| Ninth Amendment, dated as of July 20, 2020, by and among Diebold Nixdorf, Incorporated, as borrower, the subsidiary borrowers named therein, the guarantors party thereto from time to time, JPMorgan Chase Bank, N.A., as administrative agent and the other institutions named on the signature pages thereto – incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed on July 24, 2020 (Commission File No. 1-4879) |
| Tenth Amendment, dated as of November 6, 2020, by and among Diebold Nixdorf, Incorporated, as borrower, the subsidiary borrowers named therein, the guarantors party thereto from time to time, JPMorgan Chase Bank, N.A., as administrative agent and other institutions named on the signature pages thereto - incorporated by reference to Exhibit 10.8(xii) to Registrant's Annual Report on Form 10-K for the year ended December 31, 2020 (Commission File No. 1-4879) |
| Eleventh Amendment, dated as of March 11, 2022 by and among Diebold Nixdorf, Incorporated, as borrower, the subsidiary borrowers named therein, the guarantors party thereto from time to time, JPMorgan Chase Bank, N.A., as administrative agent and other institutions named on the signature pages thereto — incorporated by reference to Exhibit 10.8(xiii) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 20142021 (Commission File No. 1-4879) |
| Limited Waiver, dated as of October 31, 2022, among Diebold Nixdorf, Incorporated, Senior Leadership Severance Plan (For Tier I, Tier II,JPMorgan Chase Bank, N.A., a national banking association, as administrative agent, the other Subsidiary Borrowers party thereto and Tier III Executives)the Lenders party thereto — incorporated by reference to Exhibit 10.3110.1 to Registrant’s QuarterlyCurrent Report on Form 10-Q8-K filed on April 30, 2012November 7, 2022 (Commission File No. 1-4879) |
| AmendedTwelfth Amendment to Credit Agreement, dated as of December 29, 2022, among Diebold Nixdorf, Incorporated, the subsidiary borrowers party thereto, the guarantors party thereto, the lenders party thereto from time to time and Restated Senior Leadership Severance PlanJPMorgan Chase Bank, N.A., as administrative agent — incorporated by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K filed on January 5, 2023 (Commission File No. 1-4879) |
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| Credit Agreement, dated as of December 29, 2022, among Diebold Nixdorf, Incorporated, Diebold Nixdorf Holding Germany GmbH, the lenders party thereto, GLAS USA LLC, as administrative agent, and GLAS Americas LLC, as collateral agent— incorporated by reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K filed on January 5, 2023 (Commission File No. 1-4879) |
| Credit Agreement, dated as of December 29, 2022, among Diebold Nixdorf, Incorporated, the lenders party thereto, JPMorgan Chase Bank, N.A., administrative agent, and GLAS Americas LLC, as collateral agent— incorporated by reference to Exhibit 10.5 to Registrant’s Current Report on Form 8-K filed on January 5, 2023 (Commission File No. 1-4879) |
| Revolving Credit and Guaranty Agreement, dated as of December 29, 2022, among Diebold Nixdorf, Incorporated, the subsidiary borrowers and guarantors party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A. and PNC Capital Markets LLC, as joint lead arrangers and joint bookrunners, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, GLAS Americas LLC, as European collateral agent, JPMorgan Chase Bank, N.A. and PNC Bank, National Association, as co-syndication agents, and Bank of America, N.A. and Deutsche Bank, as co-documentation agents— incorporated by reference to Exhibit 10.6 to Registrant’s Current Report on Form 8-K filed on January 5, 2023 (Commission File No. 1-4879) |
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| 101.INS | Inline XBRL Instance Document |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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| * | Reflects management contract or other compensatory arrangement required to be filed as an exhibit pursuant to Item 15(b) of this annual report.report on Form 10-K. |
ITEM 16: FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DIEBOLD NIXDORF, INCORPORATED
Date: February 28, 2018March 16, 2023
By: /s/ Christopher A. ChapmanOctavio Marquez
Christopher A. ChapmanOctavio Marquez
Co-President of the Office of theChairman, President and Chief Executive Officer
By: /s/ Juergen WunramJames Barna
Juergen WunramJames Barna
Co-President of the Office of theExecutive Vice President and Chief ExecutiveFinancial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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| Signature | Title | Date |
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| /s/ Octavio Marquez | Chairman, President and Chief Executive Officer
(Principal Executive Officer) | March 16, 2023 |
| Octavio Marquez | |
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| /s/ James Barna | Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer) | March 16, 2023 |
| James Barna | |
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| * | Director | | March 16, 2023 |
| Arthur F. Anton | | | |
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| * | Director | | March 16, 2023 |
| Bruce Besanko | | | |
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| * | Director | | March 16, 2023 |
| Reynolds C. Bish | | | |
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| * | Director | | March 16, 2023 |
| William A. Borden | | | |
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Signature* | TitleDirector | Date | March 16, 2023 |
| Marjorie L. Bowen | | | |
/s/ Christopher A. Chapman | Co-President of the Office of the Chief Executive, Senior Vice President and Chief Financial Officer
(Co-Principal Executive Officer, Principal Financial and Accounting Officer)
| February 28, 2018 | | |
Christopher A. Chapman* | Director | | March 16, 2023 |
| Ellen M. Costello | | | |
/s/ Juergen Wunram
| Co-President of the Office of the Chief Executive, Senior Vice President and Chief Operating Officer
(Co-Principal Executive Officer)
| February 28, 2018 | |
Juergen Wunram* | Director | | March 16, 2023 |
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* | Director | | February 28, 2018 |
Patrick W. Allender | | | |
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* | Director | | February 28, 2018 |
| Phillip R. Cox | | | |
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| * | Director | | February 28, 2018March 16, 2023 |
Richard L. CrandallAlexander Dibelius | | | |
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* | Director | | February 28, 2018 |
Alexander Dibelius* | Director | | March 16, 2023 |
| Matthew Goldfarb | | | |
* | Director | | February 28, 2018 |
Dieter Duesedau* | Director | | March 16, 2023 |
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* | Director | | February 28, 2018 |
Gale S. Fitzgerald | | | |
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* | Director | | February 28, 2018 |
| Gary G. Greenfield | | | |
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| * | Director | | February 28, 2018March 16, 2023 |
Robert S. Prather, Jr.Emanuel R. Pearlman | | | |
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| * | Director | | February 28, 2018March 16, 2023 |
Rajesh K. SoinKent M. Stahl | | | |
| * | Director | | March 16, 2023 |
*Lauren C. States | Director | | February 28, 2018 |
Henry D.G. Wallace | | | |
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* | Director | | February 28, 2018 |
Alan J. Weber | | | |
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| * | The undersigned, by signing his name hereto, does sign and execute this Annual Report on Form 10-K pursuant to the Powers of Attorney executed by the above-named officers and directors of the Registrant and filed with the Securities and Exchange Commission on behalf of such officers and directors. |
Date: February 28, 2018March 16, 2023
*By: /s/ Jonathan B. Leiken
Jonathan B. Leiken
Attorney-in-Fact