Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages certain economic risks, including interest rate and foreign exchange rate risk, through the use of derivative financial instruments. 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 interest expense on variable 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	2020		2019		2018
Interest rate swaps and non-designated hedges	Interest expense	$	(14.3)	$	(3.4)	$	(2.9)

Foreign exchange forward contracts and cash flow hedges	Net sales	1.2		0.4		2.4
Foreign exchange forward contracts and cash flow hedges	Cost of sales	—		—		0.6
Foreign exchange forward contracts and cash flow hedges	Foreign exchange gain (loss), net	(30.9)		5.0		(10.4)

Total		$	(44.0)	$	2.0	$	(10.3)

FOREIGN EXCHANGE

Non-Designated Hedges. A substantial portion of the Company’s operations and revenues are international. As a result, changes in foreign exchange rates can create substantial foreign exchange gains and losses from the revaluation of non-functional currency monetary assets and liabilities. The Company’s policy allows the use of foreign exchange forward contracts with maturities of up to 24 months to mitigate the impact of currency fluctuations on those foreign currency asset and liability balances. The Company elected not to apply hedge accounting to its foreign exchange forward contracts. Thus, spot-based gains/losses offset revaluation gains/losses within foreign exchange loss, net and forward-based gains/losses represent interest expense or income. The fair value of the Company’s non-designated foreign exchange forward contracts was $0.3 and $(0.4) as of December 31, 2020 and 2019, 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 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.

Procomp Amazonia Industria Electronica S.A. is a BRL-functional-currency subsidiary of Diebold Nixdorf, Incorporated that,

on a routine basis and in the normal course of business, makes inventory purchases that are denominated in USD. Upon the

completion of customs clearance, accounts payable and inventory are recorded using the daily spot USD-BRL exchange rate,

and released to cost of goods sold as inventory is sold. Such expenses expose the Company to exchange rate fluctuations

between BRL and USD until the accounts payable and inventory is recorded. To hedge this risk, the Company enters into and

designates certain foreign currency forward contracts to sell BRL and buy USD as cash flow hedges of the Company’s USD denominated inventory purchases.

Derivative instruments 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, 2020, 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 (USD-BRL)

70.0

BRL

12.7

USD

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. 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 March 2020 and September 2019, the Company entered into multiple pay-fixed receive-variable interest rate swaps with an aggregate notional amount of $250.0 and $500.0, respectively. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in AOCI and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.

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.

As a result of the Company's refinancing activities in July 2020 (refer to Note 11: Debt), the Company terminated $625.0 of interest rate hedges for a termination payout of $6.2.

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