UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September 30, 2017~~March 31, 2018

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

Commission File Number 1-37728

Donnelley Financial Solutions, Inc.

(Exact name of registrant as specified in its charter)

Delaware		36-4829638
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

35 West Wacker Drive, Chicago, Illinois		60601
(Address of principal executive offices)		(Zip code)

(844) 866-4337

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically 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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of ~~October~~April 27, ~~2017, 33.7~~2018, 33.9 million shares of common stock were outstanding.

DONNELLEY FINANCIAL SOLUTIONS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~September 30, 2017~~MARCH 31, 2018

TABLE OF CONTENTS

Part I
FINANCIAL INFORMATION		Page
Item 1:	Condensed Consolidated ~~and Combined~~ Financial Statements (unaudited)	3

	Condensed Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017	3

	Condensed Consolidated ~~and Combined Statements of Operations for the three and nine months ended September 30, 2017 and 2016~~	3

	~~Condensed Consolidated and Combined~~ Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30,~~ March 31, 2018 and 2017 ~~and 2016~~	4

	Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017	5

	Condensed Consolidated ~~and Combined~~ Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	6

	Notes to Condensed Consolidated ~~and Combined~~ Financial Statements	7

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3233

Item 3:	Quantitative and Qualitative Disclosure About Market Risk	45

Item 4:	Controls and Procedures	45

Part II
OTHER INFORMATION			Page
Item 1:	Legal Proceedings		46

Item 1A:	Risk Factors		46

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds		46

Item 4:	Mine Safety Disclosures		46

Item 6:	Exhibits		47

~~Item 4:~~		~~Controls and Procedures~~Signatures		47

~~Part II~~
~~OTHER INFORMATION~~		~~Page~~
~~Item 1:~~	~~Legal Proceedings~~	48

~~Item 1A:~~	~~Risk Factors~~	48

~~Item 2:~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	48

~~Item 4:~~	~~Mine Safety Disclosures~~	48

~~Item 6:~~	~~Exhibits~~	49

~~Signatures~~		5351

Donnelley ~~Financi~~alFinancial Solutions, Inc. and Subsidiaries (“Donnelley Financial”)

Condensed Consolidated ~~and Combined~~ Statements of Operations

For the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~

(in millions, except per share data)

(UNAUDITED)

	Three Months Ended						Nine Months Ended				Three Months Ended
	September 30,						September 30,				March 31,
	2017			2016			2017		2016		2018			2017

Services net sales	$	140.3		$	139.4		$	471.4	$	454.1	$	159.5		$	154.0
Products net sales		82.3			85.0			308.7		308.4		95.7			113.3
Total net sales		222.6			224.4			780.1		762.5		255.2			267.3
Services cost of sales (exclusive of depreciation and amortization)		81.7			64.2			240.2		214.6		85.9			77.7
Services cost of sales with R.R. Donnelley affiliates (exclusive of depreciation and amortization)*		—			8.7			19.5		29.4
Services cost of sales with R.R. Donnelley affiliates (exclusive of depreciation and amortization)*												—			9.9
Products cost of sales (exclusive of depreciation and amortization)		58.9			62.0			190.7		179.9		72.7			63.0
Products cost of sales with R.R. Donnelley affiliates (exclusive of depreciation and amortization)*		—			11.5			32.3		48.6
Products cost of sales with R.R. Donnelley affiliates (exclusive of depreciation and amortization)*												—			18.8
Total cost of sales		140.6			146.4			482.7		472.5		158.6			169.4
Selling, general and administrative expenses (exclusive of depreciation and amortization)		54.0			48.5			171.2		156.8		66.1			57.5
Restructuring, impairment and other charges-net		(0.6	)		1.7			6.4		3.6		0.7			3.8
Depreciation and amortization		10.6			9.8			31.7		30.1		10.4			10.2
Income from operations		18.0			18.0			88.1		99.5		19.4			26.4
Interest expense (income)-net		10.6			(0.1	)		32.7		0.3
Interest expense-net												9.0			11.1
Investment and other income-net												(0.8	)		(0.8	)
Earnings before income taxes		7.4			18.1			55.4		99.2		11.2			16.1
Income tax expense		2.1			7.9			22.0		39.3		3.5			6.8
Net earnings	$	5.3		$	10.2		$	33.4	$	59.9	$	7.7		$	9.3

Net earnings per share (Note 8):
Net earnings per share (Note 11):
Basic net earnings per share		0.16			0.31			1.01		1.85		0.23			0.29
Diluted net earnings per share		0.16			0.31			1.01		1.85		0.23			0.28
Weighted average number of common shares outstanding
Basic		33.6		32.4				33.0	32.4			33.7		32.6
Diluted		33.8		32.4				33.2	32.4			33.9		32.8

*Beginning in the quarter ended June 30, 2017, LSC Communications, Inc. (“LSC”) no longer qualified as a related party, therefore the amounts disclosed related to LSC are only presented for the three months ended March 31, 2017. Beginning in the quarter ended September 30, 2017, R.R. Donnelley & Sons Company ("RRD") no longer qualified as a related party, therefore the amounts disclosed related to RRD are only presented for the three months ended March 31, 2017.

Beginning in the quarter ended September 30, 2017, R.R. Donnelley & Sons Company ("RRD") no longer qualified as a related party, therefore the amounts disclosed related to RRD are presented through June 30, 2017 only.

See Notes to Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements

Donnelley Financial Solutions, Inc. and Subsidiaries (“Donnelley Financial”)

Condensed Consolidated ~~and Combined~~ Statements of Comprehensive Income

For the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~

(in millions)

(UNAUDITED)

	Three Months Ended					Nine Months Ended					Three Months Ended
	September 30,					September 30,					March 31,
	2017		2016			2017		2016			2018		2017
Net earnings	$	5.3	$	10.2		$	33.4	$	59.9		$	7.7	$	9.3

Other comprehensive income (loss), net of tax:
Other comprehensive income, net of tax:
Translation adjustments		2.2		0.2			4.6		4.2			0.7		0.1
Adjustment for net periodic pension and other postretirement benefits plan cost	0.3			(0.2	)		1.0		(0.4	)		0.5		0.4
Other comprehensive income, net of tax		2.5		—			5.6		3.8			1.2		0.5
Comprehensive income	$	7.8	$	10.2		$	39.0	$	63.7		$	8.9	$	9.8

See Notes to Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements

Donnelley Financial Solutions, Inc. and Subsidiaries (“Donnelley Financial”)

Condensed Consolidated Balance Sheets

As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017

(in millions, except per share data)

(UNAUDITED)

	September 30,			December 31,			March 31,			December 31,
	2017			2016			2018			2017
ASSETS
Cash and cash equivalents	$	32.2		$	36.2		$	12.1		$	52.0
Receivables, less allowances for doubtful accounts of $8.7 in 2017 (2016 - $6.4)		219.3			156.2
Receivables from R.R. Donnelley*		—			96.0
Receivables, less allowances for doubtful accounts of $7.7 in 2018 (2017 - $7.3)								239.0			165.2
Inventories		23.6			24.1			18.5			23.3
Prepaid expenses and other current assets		15.1			17.1			28.2			29.6
Total current assets		290.2			329.6			297.8			270.1
Property, plant and equipment-net		34.7			35.5			33.1			34.7
Goodwill		447.5			446.4			447.3			447.4
Other intangible assets-net		44.2			54.3			36.5			39.9
Software-net		41.9			41.6			41.8			41.1
Deferred income taxes		36.6			37.0			21.0			22.2
Other noncurrent assets		38.6			34.5			37.7			38.1
Total assets	$	933.7		$	978.9		$	915.2		$	893.5
LIABILITIES
Accounts payable	$	74.4		$	85.3		$	87.7		$	67.8
Accrued liabilities		110.1			100.7			91.5			119.2
Total current liabilities		184.5			186.0			179.2			187.0
Long-term debt (Note 11)		488.4			587.0
Long-term debt (Note 14)								478.8			458.3
Deferred compensation liabilities		24.6			24.4			21.8			22.8
Pension and other postretirement benefits plan liabilities		51.4			56.4			51.0			52.5
Other noncurrent liabilities		11.2			14.0			22.8			23.5
Total liabilities		760.1			867.8			753.6			744.1
Commitments and Contingencies (Note 12)
Commitments and Contingencies (Note 15)
EQUITY
Preferred stock, $0.01 par value
Authorized: 1.0 shares; Issued: None		—			—			—			—
Common stock, $0.01 par value
Authorized: 65.0 shares;
Issued: 33.8 shares in 2017 (2016 - 32.6 shares)		0.3			0.3
Treasury stock, at cost: less than 0.1 shares in 2017		(0.9	)		—
Issued: 34.0 shares in 2018 (2017 - 33.8 shares)								0.3			0.3
Treasury stock, at cost: 0.1 shares in 2018 (2017 - less than 0.1 shares)								(1.7	)		(0.9	)
Additional paid-in-capital		204.3			179.9			208.9			205.7
Retained earnings (deficit)		32.6			(0.8	)
Retained earnings								17.5			8.9
Accumulated other comprehensive loss		(62.7	)		(68.3	)		(63.4	)		(64.6	)
Total equity		173.6			111.1			161.6			149.4
Total liabilities and equity	$	933.7		$	978.9		$	915.2		$	893.5

*	~~Beginning in the quarter ended September 30, 2017, RRD no longer qualified as a related party, therefore the amounts disclosed related to RRD are presented through June 30, 2017 only.~~

See Notes to Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements

‘Donnelley Financial Solutions, Inc. and Subsidiaries (“Donnelley Financial”)

Condensed Consolidated ~~and Combined~~ Statements of Cash Flows

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~

(in millions)

(UNAUDITED)

	Nine Months Ended						Three Months Ended
	September 30,						March 31,
	2017			2016			2018			2017
OPERATING ACTIVITIES
Net earnings	$	33.4		$	59.9		$	7.7		$	9.3
Adjustments to reconcile net earnings to net cash provided by operating activities:
Impairment charges		0.2			—
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization		31.7			30.1			10.4			10.2
Provision for doubtful accounts receivable		4.3			1.7			1.0			1.8
Share-based compensation		5.2			1.2			1.8			1.1
Deferred income taxes		(2.7	)		(1.0	)		0.6			(2.2	)
Change in uncertain tax positions		(0.2	)		—
Net pension and other postretirement benefits plan income		(2.5	)		(0.4	)
Net pension plan income								(0.8	)		(0.8	)
Other		1.7			0.7			0.5			0.4
Changes in operating assets and liabilities - net of acquisitions:
Accounts receivable - net		(36.6	)		(54.6	)		(65.4	)		(66.7	)
Inventories		0.6			(2.9	)		(5.8	)		(3.4	)
Prepaid expenses and other current assets		(2.0	)		(6.3	)		(0.2	)		(4.4	)
Accounts payable		(11.7	)		17.9			20.3			15.0
Income taxes payable and receivable		3.7			(0.6	)		0.6			7.7
Accrued liabilities and other		10.3			12.2			(23.1	)		(6.1	)
Pension and other postretirement benefits plan contributions		(1.7	)		(1.1	)		(1.2	)		(0.1	)
Net cash provided by operating activities		33.7			56.8
Net cash used in operating activities								(53.6	)		(38.2	)
INVESTING ACTIVITIES
Capital expenditures		(20.0	)		(14.0	)		(6.4	)		(4.3	)
Purchases of investments		(3.4	)		(3.5	)
Purchase of investment								—			(3.4	)
Other investing activities		0.3			0.5			—			0.2
Net cash used in investing activities		(23.1	)		(17.0	)		(6.4	)		(7.5	)
FINANCING ACTIVITIES
Revolving facility borrowings		230.0			—			88.0			57.0
Payments on revolving facility borrowings		(230.0	)		—			(68.0	)		(37.0	)
Payments on long-term debt		(100.0	)		—
Debt issuance costs		(1.5	)		(9.3	)		—			(1.5	)
Separation-related payment from R.R. Donnelley		68.0			—
Net transfers related to the Separation								—			3.1
Proceeds from issuance of common stock		18.8			—			1.2			—
Proceeds from issuance of long-term debt		—			348.2
Net change in short-term debt		—			(8.8	)
Net transfers to Parent and affiliates		—			(336.2	)
Treasury stock repurchases		(0.9	)		—			(0.8	)		—
Other financing activities		0.4			—
Net cash used in financing activities		(15.2	)		(6.1	)
Net cash provided by financing activities								20.4			21.6
Effect of exchange rate on cash and cash equivalents		0.6			4.2			(0.3	)		0.2
Net (decrease) increase in cash and cash equivalents		(4.0	)		37.9
Net decrease in cash and cash equivalents								(39.9	)		(23.9	)
Cash and cash equivalents at beginning of year		36.2			15.1			52.0			36.2
Cash and cash equivalents at end of period	$	32.2		$	53.0		$	12.1		$	12.3

Supplemental non-cash disclosure:
Debt exchange with R.R. Donnelley, including $5.5 million of debt issuance costs	$	—		$	300.0
Settlement of intercompany note payable		—			29.6
Accrued debt issuance costs		—			1.6

See Notes to Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements

(in millions, except per share data, unless otherwise indicated)

Note 1. Overview and Basis of Presentation

Description of Business

Donnelley Financial Solutions, Inc. (the ~~“Company”~~ “Company”or ~~“Donnelley~~“Donnelley Financial” ) is a financial communications services company that supports global capital markets compliance and transaction needs for its corporate clients and their advisors (such as law firms and investment bankers) and global investment markets compliance and analytics needs for mutual fund companies, variable annuity providers and broker/dealers. With proprietary technology such as data storage and workflow collaboration tools, deep subject matter expertise and a global footprint, Donnelley Financial produces, manages, stores, distributes and translates documents and electronic communications in order to deliver timely financial communications to investors and documents in a manner that complies with regulatory commissions.

Donnelley Financial’s Registration Statement on Form 10, as amended, was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on September 20, 2016. On October 1, 2016, Donnelley Financial became an independent publicly traded company through the distribution by R.R. Donnelley & Sons Company (“RRD”) of approximately 26.2 million shares, or 80.75%, of Donnelley Financial common stock to RRD shareholders (the “Separation”). Holders of RRD common stock received one share of Donnelley Financial common stock for every eight shares of RRD common stock held on September 23, 2016. As part of the Separation, RRD retained approximately 6.2 million shares of Donnelley Financial common stock, or a 19.25% interest in Donnelley Financial. Donnelley Financial’s common stock began regular-way trading under the ticker symbol “DFIN” on the New York Stock Exchange on October 3, 2016. On October 1, 2016, RRD also completed the previously announced separation of LSC Communications, Inc. (“LSC”), its publishing and retail-centric print services and office products business. On March 28, 2017, RRD completed the sale of 6.2 million shares of LSC common stock (RRD’s remaining ownership stake in LSC) in an underwritten public offering. As a result, beginning in the quarter ended June 30, 2017, LSC is no longer ~~an affiliate~~qualified as a related party of the Company.

On September 14, 2016, the Company and LSC entered into a Separation and Distribution Agreement with RRD to effect the distribution of the Company’s and LSC’s common stock to RRD’s common stockholders (the “Separation and Distribution Agreement”). This agreement governs the Company’s relationship with RRD and LSC with respect to pre-Separation matters and provides for the allocation of employee benefit, litigation and other liabilities and obligations attributable to periods prior to the Separation. The Separation and Distribution Agreement also includes an agreement that the Company, RRD and LSC will provide each other with appropriate indemnities with respect to liabilities arising out of the businesses being distributed and retained by RRD in the Separation. The Separation and Distribution Agreement also addresses employee compensation and benefit matters.

In connection with the Separation, the Company entered into transition services agreements separately with RRD and LSC, under which, in exchange for the fees specified in the arrangements, RRD and LSC agree to provide certain services to the Company and the Company agrees to provide certain services to RRD, respectively, for up to 24 months following the Separation. These services include, but are not limited to, information technology, accounts receivable, accounts payable, payroll and other financial and administrative services and functions. ~~These agreements facilitate the separation by allowing the Company to operate independently prior to establishing stand-alone back office systems across its organization.~~

At the time of the Separation, the Company entered into a number of commercial and other arrangements with RRD and its subsidiaries. These include, among other things, arrangements for the provision of services, including global outsourcing and logistics services, printing and binding, digital printing, composition, premedia and access to technology. The Company also entered into a number of commercial and other arrangements with LSC and its subsidiaries, pursuant to which LSC will print and bind products for the Company. The terms of the arrangements with RRD and LSC do not exceed 24 months. Subsequent to the Separation, RRD and LSC are clients of the Company and expect to utilize financial communication software and services that the Company makes available to all of its clients.

~~Donnelley Financial Solutions, Inc.~~

~~Notes to the Unaudited Condensed Consolidated and Combined Financial Statements~~

~~(in millions, except per share data, unless otherwise indicated)~~

On March 24, 2017, pursuant to the Stockholder and Registration Rights Agreement, dated as of September 30, 2016, by and between the Company and RRD, the Company filed a Registration Statement on Form S-1 to register the offering and sale of shares of the Company’s common stock retained by RRD. The Registration Statement on Form S-1, as amended, was declared effective by the SEC on June 13, 2017. On June 21, 2017, RRD completed the sale of approximately 6.1 million shares of the Company’s common stock in an underwritten public offering. Upon the consummation of the offering, RRD retained approximately 0.1 million shares of the Company’s common stock which were subsequently sold by RRD on August 1,4, 2017. In conjunction with the underwritten public offering, the underwriters exercised their option to purchase approximately 0.9 million of the Company’s shares (the “Option Shares”). The Company received approximately $18.8 million in net proceeds from the sale of the Option Shares, after deducting estimated underwriting discounts and commissions. The proceeds were used to reduce outstanding debt under the Revolving Facility (as defined in Note ~~11,~~ 14, Debt). Beginning in the quarter ended September 30, 2017, RRD no longer qualified as a related party, therefore amounts disclosed related to RRD are presented ~~through June 30,~~only for the three months ended March 31, 2017 ~~only.~~ .

Basis of Presentation

The accompanying unaudited condensed consolidated ~~and combined~~ financial statements ~~reflect~~include the ~~consolidated financial position~~accounts of Donnelley Financial Solutions, Inc. (the“Company”or“Donnelley Financial”) and consolidated results of operations of the Company as an independent, publicly traded company for the periods after the Separation and the combined financial position and combined results of operations for the periods prior to the Separation. Prior to the Separation, the combined financial statements were prepared on a stand-alone basis and were derived from RRD’s consolidated financial statements and accounting records.

~~The unaudited condensed consolidated and combined financial statements~~ have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The financial data presented herein should be read in conjunction with the audited consolidated and combined financial statements and accompanying notes included in the Company’s latest Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 filed with the SEC on February 28, ~~2017.~~2018. In the opinion of management, the financial data presented includes all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. Results of interim periods should not be considered indicative of the results for the full year. These unaudited condensed consolidated ~~and combined~~ interim financial statements include estimates and assumptions of management that affect the amounts reported in the unaudited condensed consolidated ~~and combined~~ financial statements. Actual results could differ from these estimates.

For periods prior to the Separation, the unaudited condensed consolidated and combined financial statements include the allocation of certain assets and liabilities that were historically held at the RRD corporate level but which were specifically identifiable or attributable to the Company. Cash and cash equivalents held by RRD were not allocated to Donnelley Financial unless they were held in a legal entity that was transferred to Donnelley Financial. All intercompany transactions and accounts within Donnelley Financial have been eliminated. All intracompany transactions between RRD and Donnelley Financial are considered to be effectively settled in the unaudited condensed consolidated and combined financial statements at the time the transaction is recorded. The total net effect of the settlement of these intracompany transactions is reflected in the unaudited condensed consolidated and combined statements of cash flows as a financing activity and in the unaudited condensed consolidated and combined balance sheets as net parent company investment. Net parent company investment is primarily impacted by contributions from RRD which are the result of treasury activities and net funding provided by or distributed to RRD.

Prior to the Separation, the unaudited condensed consolidated and combined financial statements include certain expenses of RRD which were allocated to Donnelley Financial for certain functions, including general corporate expenses related to information technology, finance, legal, human resources, internal audit, treasury, tax, investor relations and executive oversight. These expenses were allocated to the Company on the basis of direct usage, when available, with the remainder allocated on the pro rata basis of revenue, employee headcount, or other measures. We consider the expense methodology and results to be reasonable for all periods presented. However these allocations may not be indicative of the actual expenses that would have been incurred as an independent public company or the costs that may be incurred in the future.

For periods prior to the Separation, the income tax amounts in the unaudited condensed consolidated and combined financial statements were calculated based on a separate income tax return methodology and presented as if the Company’s operations were separate taxpayers in the respective jurisdictions.

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements

(in millions, except per share data, unless otherwise indicated)

~~RRD maintained various benefit~~Note 2. Revenue

Revenue Recognition

The Company manages highly-customized data and ~~share-based compensation plans~~materials, such as Exchange Act, Securities Act and Investment Company Act filings with the SEC on behalf of our customers, manages virtual data rooms and performs XBRL and related services. Clients are provided with EDGAR filing services, XBRL compliance services and translation, editing, interpreting, proof-reading and multilingual typesetting services, among others. Our software-as-a-service solutions (“SaaS”) include the Venue Virtual Data Room, the FundSuiteArc software platform, ActiveDisclosure and data and analytics, among others.

Substantially all of the Company’s revenue is derived from contracts with an initial expected duration of one year or less. Generally, customer payment is due within ten days upon invoicing.

Revenue is recognized upon transfer of control of promised services or products to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services or products. The Company’s arrangements with customers often include promises to transfer multiple services or products to a customer. Determining whether services and products are considered distinct performance obligations that should be accounted for separately requires significant judgement. Certain customer arrangements have multiple performance obligations as certain promises are both capable of being distinct and are distinct within the context of the contract. Other customer arrangements have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts, and therefore are not distinct.

Revenue for the Company’s services and products is recognized either over time or at a ~~corporate level.~~ point in time, as outlined below.

Over time

The Company recognizes revenue for certain services over time.

•

The Company’s SaaS solutions, including the Venue Virtual Data Room, the FundSuiteArc software platform, ActiveDisclosure, data and analytics and others, are generally provided on a subscription basis and allow customers access to use the products over the contract period. As a result, revenue for SaaS solutions are recognized ratably over time as the customer receives the benefit throughout the contract period. The timing of invoicing varies, however the customer may be invoiced before the end of the contract period, resulting in a deferred revenue balance.

•

Revenue for warehousing services are recognized ratably over time as the customer receives the benefit throughout the storage period.

Point in time

All remaining revenue arrangements are generally recognized at a point in time and are primarily invoiced upon completion of all services or upon shipment to the customer.

•

Certain of these arrangements include multiple performance obligations and revenue is recognized upon completion of each performance obligation, such as when a document is filed with a regulatory agency and upon completion of printing the related document. For arrangements with multiple performance obligations, the transaction price is allocated to the separate performance obligations. The Company provides customer specific solutions and as such, observable standalone selling price is rarely available. Standalone selling price is more frequently determined using an estimate of the standalone selling price of each distinct service or product, taking into consideration historical selling price by customer for each distinct service or product. These estimates may vary from the final amounts invoiced to the customer and are adjusted upon completion of all performance obligations. Customers may be invoiced subsequent to the recognition of revenue for completed performance obligations, resulting in contract asset balances.

•

Revenue for arrangements which include assisting customers in completing regulatory filings for transactions, such as mergers and acquisitions or other public capital market transactions, is recognized upon completion of all promises, including the services performed and printing of the related document, if applicable.

Donnelley Financial ~~employees participated~~ Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in ~~those programs and a portion~~millions, except per share data, unless otherwise indicated)

•

Revenue for arrangements without a regulatory filing generally have a single performance obligation, as the services and products provided are not distinct within the context of the contract, and are recognized upon completion of the services performed or upon completion of printing of the related product.

•

Warehousing, fulfillment services and shipping and handling are each separate performance obligations. As a result, when the Company provides warehousing and future fulfillment services, revenue for the composition services performed and printing of the product is recognized upon completion of the performance obligation(s), as control of the inventory has transferred to the customer and the inventory is being stored at the customer’s request.

Because substantially all of the ~~cost~~Company’s products are customized, product returns are not significant; however, the Company accrues for the estimated amount of ~~those plans~~customer credits at the time of sale.

The Company records deferred revenue when amounts are invoiced but the revenue recognition criteria are not yet met. Such revenue is ~~included in Donnelley Financial’s condensed consolidated and combined financial statements for periods prior~~recognized when all criteria are subsequently met.

Certain revenues earned by the Company require significant judgment to ~~the Separation. On October 1, 2016, Donnelley Financial~~determine if revenue should be recorded ~~net pension plan liabilities of $68.3 million (consisting of~~gross, as a ~~total benefit plan liability of $317.0 million,~~principal, or net of ~~plan assets having fair market value~~related costs, as an agent. Billings for shipping and handling costs as well as certain postage costs, and out-of-pocket expenses are recorded gross. Revenue is not recognized for customer-supplied postage. The Company’s printing operations process paper that may be supplied directly by customers or may be purchased by the Company from third parties and sold to customers. Revenue is not recognized for customer-supplied paper, however revenues for Company-supplied paper are recognized on a gross basis. Revenue is recognized net of ~~$248.7 million)~~any taxes collected from customers, which are subsequently remitted to authorities.

Adoption of ASU 2014-09

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which outlines a single comprehensive model for entities to use in accounting for revenue using a five-step process that supersedes virtually all existing revenue guidance. ASU 2014-09 also requires additional quantitative and qualitative disclosures. On January 1, 2018, the Company adopted the standard and all related amendments, using the modified retrospective approach applied to contracts that were not completed as of January 1, 2018. The Company recognized the cumulative effect of applying the standard as an opening transition adjustment to retained earnings. The comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods (“Previous Revenue Standard”).

As a result of the ~~transfer~~adoption of ASU 2014-09, revenue recognition has been accelerated for certain ~~pension plan liabilities~~arrangements with multiple performance obligations as revenue is now recognized upon the completion of each performance obligation rather than upon completion of all services and ~~assets~~shipment of the related document, if applicable. Revenue has also been accelerated for certain inventory which has been invoiced but not yet shipped at the customer’s request. Additionally, certain revenues related to virtual data room services have been deferred to be recognized over the term of the contract.

As substantially all of the Company’s revenue is derived from ~~RRD~~contracts with an initial expected duration of one year or less, the Company has applied the practical expedient for performance obligations related to contracts with an initial duration of less than one year and is therefore not required to disclose information regarding remaining performance obligations at the end of the reporting period. The Company has also elected the practical expedient to recognize costs to obtain the contract, primarily commissions, as incurred.

Donnelley Financial Solutions, Inc.

Notes to the ~~Company upon~~Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

The cumulative effect of the ~~legal split of those plans. The pension plan asset allocation from RRD was finalized on June 30, 2017, which resulted in a $0.7 million decrease~~changes made to the ~~fair value~~Company’s consolidated January 1, 2018 balance sheet for the adoption of ~~plan assets transferred~~ASU 2014-09 were as follows:

	Balance at December 31, 2017		Adoption of ASU 2014-09			Balance at January 1, 2018
Assets
Receivables, less allowances for doubtful accounts	$	165.2	$	8.9		$	174.1
Inventories		23.3		(10.6	)		12.7
Deferred income taxes		22.2		(0.5	)		21.7
Total assets		893.5		(2.2	)		891.3

Liabilities
Accrued liabilities		119.2		(3.1	)		116.1
Equity
Retained earnings		8.9		0.9			9.8

Total liabilities and equity	$	893.5	$	(2.2	)	$	891.3

The impact of the adoption of ASU 2014-09 on the Company’s condensed consolidated statement of operations and condensed consolidated balance sheet was as follows:

	Three Months Ended March 31, 2018
	Previous Revenue Standard		Adoption of ASU 2014-09			As Reported

Services net sales	$	156.9	$	2.6		$	159.5
Products net sales		96.7		(1.0	)		95.7
Total net sales		253.6		1.6			255.2

Services cost of sales (exclusive of depreciation and amortization)		85.5		0.4			85.9
Products costs of sales (exclusive of depreciation and amortization)		74.1		(1.4	)		72.7
Total cost of sales		159.6		(1.0	)		158.6

Selling, general and administrative expenses (exclusive of depreciation and amortization)		65.8		0.3			66.1
Income tax expense		2.8		0.7			3.5
Net earnings	$	6.1	$	1.6		$	7.7

Earnings per share
Basic		0.18		0.05			0.23
Diluted		0.18		0.05			0.23

Donnelley Financial Solutions, Inc.

Notes to the ~~Company from RRD.~~ Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

	March 31, 2018
	Previous Revenue Standard		Adoption of ASU 2014-09			As Reported
Assets
Receivables, less allowances for doubtful accounts	$	228.3	$	10.7		$	239.0
Inventories		27.8		(9.3	)		18.5
Deferred income taxes		21.5		(0.5	)		21.0
Total assets		914.3		0.9			915.2

Liabilities
Accrued liabilities		93.0		(1.5	)		91.5
Other noncurrent liabilities		22.9		(0.1	)		22.8
Equity
Retained earnings		15.0		2.5			17.5

Total liabilities and equity	$	914.3	$	0.9		$	915.2

Disaggregation of revenue

The ~~Company also recorded a net other postretirement benefit liability~~following table disaggregates revenue by reporting unit and timing of ~~$1.5 million, as a result of the transfer of~~revenue recognition:

	Three Months Ended March 31, 2018
	Point in time		Over time		Total
U.S.
Capital Markets	$	93.5	$	24.0	$	117.5
Investment Markets		71.1		13.5		84.6
Language Solutions and other		11.0		—		11.0
Total U.S.		175.6		37.5		213.1
International		37.9		4.2		42.1
Total net sales	$	213.5	$	41.7	$	255.2

Contract Balances

Contract assets represent revenue recognized for performance obligations completed before an ~~other postretirement benefit plan from RRD~~unconditional right to ~~the Company. Refer to Note 6,~~ ~~Retirement Plans, for further details regarding the Company’s pension~~payment exists, and ~~other postretirement benefit plans.~~

Donnelley Financial generates a portion of net revenue from sales to RRD’s subsidiaries. Included in the unaudited condensed combined financial statements are net revenues from sales to RRD and affiliates of $1.1therefore invoicing has not yet occurred. Contract assets were $11.2 million and ~~$3.6~~$9.0 million ~~for~~at March 31, 2018 and January 1, 2018, respectively. Generally, the contract assets balance is impacted by the recognition of additional contract assets, offset by amounts invoiced to customers. For the three months ended March 31, 2018, final amounts invoiced to customers exceeded estimates of standalone selling price as of January 1, 2018 for the related arrangements by approximately $0.7 million. Contract assets are included in accounts receivable on the condensed consolidated balance sheet.

Contract liabilities consist of deferred revenue and ~~nine months ended September 30, 2016, respectively.~~ progress billings which are included in accrued liabilities on the condensed consolidated balance sheet. Changes in contract liabilities were as follows:


Balance at January 1, 2018	$	14.2
Deferral of revenue		9.4
Revenue recognized		(10.5	)
Balance at March 31, 2018	$	13.1

Donnelley Financial utilizes RRD for freight and logistics, production of certain printed products and outsourced business services functions. Included in the unaudited condensed combined financial statements are cost of sales to RRD and affiliates of $20.2 million and $78.0 million for the three and nine months ended September 30, 2016, respectively. Intercompany receivables and payables with RRD are reflected within net parent company investment in the accompanying unaudited condensed combined financial statements for periods priorSolutions, Inc.

Notes to the ~~Separation. See Note 13,~~ ~~Related Parties,~~ ~~for a further description of related party transactions.~~Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Note 2.3. Inventories

The components of the Company’s inventories, net of excess and obsolescence reserves for raw materials and finished goods, at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 were as follows:

	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Raw materials and manufacturing supplies	$	6.4	$	7.6	$	4.2	$	3.3
Work in process		11.4		10.8		14.3		13.7
Finished goods		5.8		5.7		—		6.3
Total	$	23.6	$	24.1	$	18.5	$	23.3

Note 3.4. Property, Plant and Equipment

The components of the Company’s property, plant and equipment at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 were as follows:

	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Land	$	10.0		$	10.0		$	10.0		$	10.0
Buildings		43.7			44.4			36.3			36.1
Machinery and equipment		104.4			109.2			104.1			104.0
		158.1			163.6			150.4			150.1
Less: Accumulated depreciation		(123.4	)		(128.1	)		(117.3	)		(115.4	)
Total	$	34.7		$	35.5		$	33.1		$	34.7

~~Depreciation~~ DuringthethreemonthsendedMarch31,2018and2017,depreciationexpensewas ~~$1.9~~ $1.9millionand ~~$1.4~~$1.3 million, ~~for the three months ended September 30, 2017 and 2016, respectively, and $5.0 million and $6.1 million for the nine months ended September 30, 2017 and 2016,~~ respectively.

Note 4.5. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill by segment for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 were as follows:

	U.S.		International			Total
Net book value as of December 31, 2017	$	429.2	$	18.2		$	447.4
Foreign exchange and other adjustments		—		(0.1	)		(0.1	)
Net book value as of March 31, 2018	$	429.2	$	18.1		$	447.3

The components of other intangible assets at March 31, 2018 and December 31, 2017 were as follows:

U.S.

International

Total

Net book value as of December 31, 2016
$
429.2

$
17.2

$
446.4

Foreign exchange and other adjustments

—

1.1

1.1

Net book value as of September 30, 2017
$
429.2

$
18.3

$
447.5

	March 31, 2018							December 31, 2017
	Gross							Gross
	Carrying		Accumulated			Net Book		Carrying		Accumulated			Net Book
	Amount		Amortization			Value		Amount		Amortization			Value

Customer relationships	$	140.9	$	(104.4	)	$	36.5	$	140.6	$	(100.7	)	$	39.9
Trade names		2.9		(2.9	)		—		2.9		(2.9	)		—
Total other intangible assets	$	143.8	$	(107.3	)	$	36.5	$	143.5	$	(103.6	)	$	39.9

Amortization expense for other intangible assets was $3.4 million and $3.6 million for the three months ended March 31, 2018 and 2017, respectively.

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements

(in millions, except per share data, unless otherwise indicated)

~~The components of other intangible assets at September 30, 2017 and December 31, 2016 were as follows:~~

September 30, 2017

December 31, 2016

Gross

Gross

Carrying

Accumulated

Net Book

Carrying

Accumulated

Net Book

Amount

Amortization

Value

Amount

Amortization

Value

Customer relationships
$
140.6

$
(97.1
)

$
43.5

$
138.8

$
(85.3
)

$
53.5

Trade names

6.3

(5.6
)

0.7

6.3

(5.5
)

0.8

Trademarks, licenses and agreements

3.2

(3.2
)

—

3.2

(3.2
)

—

Total other intangible assets
$
150.1

$
(105.9
)

$
44.2

$
148.3

$
(94.0
)

$
54.3

Amortization expense for other intangible assets was $3.6 million and $3.6 million for the three months ended September 30, 2017 and 2016, respectively, and $10.7 million and $10.8 million for the nine months ended September 30, 2017 and 2016, respectively.

The following table outlines the estimated annual amortization expense related to other intangible assets as of ~~September 30, 2017:~~March 31, 2018:

For the year ending December 31,	Amount		Amount
2017	$	14.3
2018		13.9	$	13.8
2019		13.9		13.8
2020		12.5		12.3
2021		0.1		—
2022 and thereafter		0.2
2022				—
2023 and thereafter				—
Total	$	54.9	$	39.9

Note 5.6. Restructuring, Impairment and Other Charges

Restructuring, Impairment and Other Charges recognized in Results of Operations

For the three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ the Company recorded the following net restructuring, impairment and other charges:

Three Months Ended

Employee

Other
Restructuring

Total
Restructuring

September 30, 2017

Terminations

Charges

Charges

Total

U.S.

$
0.2

$
(1.0
)

$
(0.8
)

$
(0.8
)
International

0.1

—

0.1

0.1

Corporate

0.1

—

0.1

0.1

Total

$
0.4

$
(1.0
)

$
(0.6
)

$
(0.6
)

Three Months Ended	Employee		Other Restructuring		Total Restructuring				Employee			Other Restructuring		Total Restructuring			Other
September 30, 2016	Terminations		Charges		Charges		Total
March 31, 2018									Terminations			Charges		Charges			Charges		Total
U.S.	$	1.0	$	0.4	$	1.4	$	1.4	$	0.1		$	0.5	$	0.6		$	0.1	$	0.7
International		0.3		—		0.3		0.3		(0.1	)		—		(0.1	)		—		(0.1	)
Corporate		—		—		—		—		0.1			—		0.1			—		0.1
Total	$	1.3	$	0.4	$	1.7	$	1.7	$	0.1		$	0.5	$	0.6		$	0.1	$	0.7

Three Months Ended	Employee		Other Restructuring		Total Restructuring		Other
March 31, 2017	Terminations		Charges		Charges		Charges		Total
U.S.	$	2.0	$	0.4	$	2.4	$	0.1	$	2.5
International		0.7		—		0.7		—		0.7
Corporate		0.6		—		0.6		—		0.6
Total	$	3.3	$	0.4	$	3.7	$	0.1	$	3.8

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements

(in millions, except per share data, unless otherwise indicated)

~~For the nine months ended September 30, 2017 and 2016, the Company recorded the following net restructuring, impairment and other charges:~~

Nine Months Ended

Employee

Other
Restructuring

Total
Restructuring

Other

September 30, 2017

Terminations

Charges

Charges

Impairment

Charges

Total

U.S.

$
3.2

$
0.9

$
4.1

$
0.2

$
0.1

$
4.4

International

1.3

—

1.3

—

—

1.3

Corporate

0.7

—

0.7

—

—

0.7

Total

$
5.2

$
0.9

$
6.1

$
0.2

$
0.1

$
6.4

Nine Months Ended

Employee

Other
Restructuring

Total
Restructuring

Other

September 30, 2016

Terminations

Charges

Charges

Impairment

Charges

Total

U.S.

$
1.8

$
1.2

$
3.0

$
—

$
0.1

$
3.1

International

0.5

—

0.5

—

—

0.5

Corporate

—

—

—

—

—

—

Total

$
2.3

$
1.2

$
3.5

$
—

$
0.1

$
3.6

Restructuring and Impairment Charges

For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2018, the Company recorded net restructuring charges of ~~$0.4~~$0.5 million ~~and $5.2 million, respectively,~~ for employee termination costs for 169 employees, substantially all of whom were terminated as of September 30, 2017. These charges primarily related to the reorganization of certain operations and certain administrative functions. Additionally, the Company recognized a net reversal of $1.0 million of other restructuring charges during the three months ended September 30, 2017 primarily due to the reversal of previously recognized lease termination costs associated with a facility that the Company began using during the third quarter of 2017. The Company incurred net lease termination and other restructuring ~~charges of $0.9~~ costs, $0.1million for the nine months ended September 30, 2017. For the nine months ended September 30, 2017, the Company also recorded $0.2 million of net impairment charges primarily related to leasehold improvements associated with facility closures. The nine months ended September 30, 2017 includes $0.1 million for other charges associated with the Company’s decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate.

~~For the three and nine months ended September 30, 2016, the Company recorded net restructuring charges of $1.3 million and $2.3 million, respectively,~~ for employee termination costs ~~for 22 employees. These charges primarily related to the reorganization of certain administrative functions. Additionally, the Company incurred lease termination~~ and ~~other restructuring charges of $0.4 million and $1.2 million, respectively, for the three and nine months ended September 30, 2016. The nine months ended September 30, 2016, includes $0.1~~ $0.1 million for other charges associated with the Company’s decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate.

For the three months ended March 31, 2017, the Company recorded net restructuring charges of $3.3 million for employee termination costs for 87 employees. These charges primarily related to the reorganization of certain operations. Additionally, the Company incurred $0.4 million of lease termination and other restructuring charges and $0.1 million of other charges associated with the Company’s decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate.

Restructuring Reserve

The restructuring reserve as of December 31, ~~2016~~2017 and ~~September 30, 2017,~~March 31, 2018, and changes during the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, were as follows:

					Foreign
	December 31,		Restructuring		Exchange and		Cash			September 30,
	2016		Charges		Other		Paid			2017		December 31, 2017		Restructuring Charges		Reversals			Cash Paid			March 31, 2018
Employee terminations	$	1.6	$	5.2	$	0.1	$	(5.3	)	$	1.6	$	1.3	$	0.3	$	(0.2	)	$	(0.6	)	$	0.8
Lease terminations and other		3.8		0.9		0.2		(1.5	)		3.4		2.1		0.5		—			(0.4	)		2.2
Total	$	5.4	$	6.1	$	0.3	$	(6.8	)	$	5.0	$	3.4	$	0.8	$	(0.2	)	$	(1.0	)	$	3.0

The current portion of restructuring reserves of ~~$3.2~~$2.2 million at ~~September 30, 2017~~March 31, 2018 was included in accrued liabilities, while the long-term portion of ~~$1.8~~$0.8 million, primarily related to lease termination costs, was included in other noncurrent liabilities at ~~September 30, 2017.~~March 31, 2018.

~~Donnelley Financial Solutions, Inc.~~

~~Notes to the Unaudited Condensed Consolidated and Combined Financial Statements~~

~~(in millions, except per share data, unless otherwise indicated)~~

The Company anticipates that payments associated with the employee terminations reflected in the above table will be substantially completed by ~~March 31,~~September 30, 2018.

The restructuring liabilities classified as “lease terminations and other” consisted of lease terminations, other facility closing costs and contract termination costs. Payments on certain of the lease obligations are scheduled to continue until ~~2026.~~2021. Market conditions and the Company’s ability to sublease these properties could affect the ultimate charges related to the lease obligations. Any potential recoveries or additional charges could affect amounts reported in the Company’s financial statements.

Note 6.7. Retirement Plans

~~Donnelley Financial’s Participation in RRD’s Pension and Postretirement Benefit Plans~~

RRD provided pension and other postretirement healthcare benefits to certain current and former employees of Donnelley Financial. Prior to the Separation, RRD was responsible for the net benefit plan obligations associated with these plans, and as such, these liabilities are not reflected in Donnelley Financial’s unaudited condensed consolidated and combined balance sheets.

Donnelley Financial’s unaudited condensed consolidated and combined statements of operations include expense allocations for these benefits. These allocations were funded through intercompany transactions with RRD which are reflected within net parent company investment in Donnelley Financial. Total RRD pension and postretirement benefit plan net income allocated to Donnelley Financial, related to pension cost and postretirement benefits, was $1.3 million and $4.2 million in the three and nine months ended September 30, 2016, respectively. Included in these amounts is an allocation for other postretirement benefit plans for $0.3 million and $1.0 million in the three and nine months ended September 30, 2016, respectively. These allocations are reflected in the Company’s cost of sales and selling, general and administrative expenses.

~~Donnelley Financial’s Pension and Postretirement Benefit Plans~~

On October 1, 2016, Donnelley Financial recorded net pension plan liabilities of $68.3 million (consisting of a total benefit plan liability of $317.0 million, net of plan assets having fair market value of $248.7 million), as a result of the transfer of certain pension plan liabilities and assets from RRD to the Company upon the legal split of those plans. The pension plan asset allocation from RRD was finalized on June 30, 2017, which resulted in a $0.7 million decrease to the fair value of plan assets transferred to the Company from RRD. The Company also recorded a net other postretirement benefit liability of $1.5 million, as a result of the transfer of an other postretirement benefit plan from RRD to the Company.

The components of the estimated net pension plan income for Donnelley Financial’s pension plans for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ were as follows:

	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2017			2016			2017			2016			2018			2017
Pension expense (income)
Interest cost	$	2.6		$	—		$	7.9		$	—		$	2.6		$	2.7
Expected return on assets		(4.0	)		—			(12.0	)		—			(4.0	)		(4.0	)
Amortization, net		0.6			(0.2	)		1.6			(0.4	)		0.6			0.5
Net pension income	$	(0.8	)	$	(0.2	)	$	(2.5	)	$	(0.4	)	$	(0.8	)	$	(0.8	)

1214

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements

(in millions, except per share data, unless otherwise indicated)

During the three months ended March 31, 2018, the Company adopted Accounting Standards Update No. 2017-07 “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”), which requires an employer to report the service cost component of net periodic benefit cost in the same line item(s) as other employee compensation costs arising from services rendered during the period. The other components of net periodic benefit cost are presented in the income statement separately from the line item(s) that includes the service cost and outside of any subtotal of operating income. ASU 2017-07 was adopted on a retrospective basis. The adoption of ASU 2017-07 resulted in the presentation of net pension income within investment and other income in the condensed consolidated statement of operations instead of selling, general and administrative expenses. Prior period net pension income was also reclassified.

Note 7.8. Income Taxes

The Company’s provision for income taxes for the three months ended March 31, 2018 and 2017 is based on the estimated annual effective tax rate, plus discrete items. The following table presents the provision for income taxes and the effective tax rates for the three months ended March 31, 2018 and 2017:

	2018			2017			$ Change			% Change
	(in millions, except percentages)
Earnings before income taxes	$	11.2		$	16.1		$	(4.9	)		(30.4	%)
Income tax expense		3.5			6.8			(3.3	)		(48.5	%)
Effective income tax rate		31.3	%		42.2	%

Cash payments for income taxes for U.S. states and foreign jurisdictions were $2.2 million and $1.3 million for the three months ended March 31, 2108 and 2017, respectively.

The decrease in the effective income tax rate to 31.3% for the three months ended March 31, 2018 compared to 42.2% for the three months ended March 31, 2017 was primarily due to changes in U.S. corporate tax law pursuant to the enactment of the U.S. Federal Tax Cut and Jobs Act (“the Tax Act”) on December 22, 2017. The Tax Act, effective January 1, 2018, reduced the corporate income tax rate from a maximum 35% to a flat 21% rate, broadened the tax base and created a territorial tax system, while subjecting U.S. shareholders to tax on certain earnings of foreign subsidiaries considered to be Global Intangible Low-Taxed Income (“GILTI”).

Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company made reasonable estimates of the tax effects and recorded provisional amounts in its consolidated financial statements for the year ended December 31, 2017. Staff Accounting Bulletin No. 118 (“SAB 118”) provided a measurement period of one year from the Tax Act enactment date for companies to complete their accounting for the enactment-date effects of the Tax Act that were considered provisional estimates at December 31, 2017. The following provides an update on the effects of the Tax Act that at December 31, 2017 were either incomplete, but the Company was able to determine a reasonable estimate and therefore recorded provisional amounts in its December 31, 2017 consolidated financial statements, or were incomplete and the Company was unable to determine a reasonable estimate, and therefore no provisional amounts were recorded in the December 31, 2017 consolidated financial statements.

Deemed Repatriation Transition Tax

Due to the transition to a territorial tax system under the Tax Act, the Company was deemed to repatriate and pay a mandatory tax on its foreign subsidiaries’ untaxed accumulated earnings as of December 31, 2017 (“the transition tax”). The Company was able to reasonably estimate the transition tax and recorded an initial provisional liability of $14.2 million along with a corresponding adjustment of $14.2 million to income tax expense in its consolidated financial statements for the year ended December 31, 2017. Upon further analysis of the deemed repatriation tax impact in the various U.S. states in which the Company files income tax returns, the Company recognized a measurement period adjustment of $0.4 million to decrease the transition tax liability with a corresponding $0.4 million state income tax benefit in its condensed consolidated financial statements for the three months ended March 31, 2018. The Company continues to gather additional information to more precisely compute the amount of its transition tax obligation and the accounting for this item is not yet complete due to potential refinement of the Company’s foreign untaxed accumulated earnings and foreign taxes paid, as well as guidance and regulations that may be issued by the Department of the U.S. Treasury Internal Revenue Service (“IRS”) and/or U.S state government taxing authorities and actions the Company may take as a result. The Company expects to finalize its accounting within the prescribed measurement period.

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Re-measurement of Deferred Tax Assets and Liabilities

As a result of the reduction in the U.S. corporate income tax rate from 35% to 21%, the Company was required to re-measure its U.S. net deferred tax assets at December 31, 2017. The Company estimated a reduction in the value of its net deferred tax asset of approximately $8.2 million, which was recorded as additional deferred income tax expense in the Company’s consolidated statement of operations for the year ended December 31, 2017. No incremental measurement adjustments were recognized during the three months ended March 31, 2018; however, the Company continues to gather additional information in order to finalize the accounting for this item and expects to finalize the accounting within the prescribed measurement period.

GILTI Accounting Policy Election

Along with the change to a territorial tax system, the Tax Act created the GILTI provision which taxes certain foreign income in excess of a deemed return on tangible assets of U.S. multi-nationals’ foreign subsidiary corporations. The Company may have GILTI in a given year, and the determination of whether the Company is subject to the GILTI provision will be an annual analysis of several factors under the provision, including the amount of foreign income generated by the Company’s foreign subsidiaries and whether that income is considered GILTI in such year. In addition to the immediate taxation of GILTI, the Tax Act allows a U.S. corporation a deduction for 37.5% of foreign-derived intangible income (“FDII”) and a 50% deduction of GILTI. Companies may make an accounting policy election to either account for deferred taxes related to GILTI or to treat taxes on GILTI as period costs. The Company has elected to recognize resulting tax on GILTI as a period expense in the period the tax is incurred and expects to incur such tax for the year ended December 31, 2018. Accordingly, the Company has included an estimate of approximately $0.4 million of tax on net GILTI (net of deduction for FDII) in its 2018 estimated annual effective tax rate. The Company has made sufficient progress with its GILTI and FDII provision calculations; however, as the Company continues to collect and prepare necessary data, and interprets additional guidance and regulations anticipated to be issued by the IRS and state taxing authorities, the Company may make adjustments to this estimate that could affect the Company’s estimated annual effective tax rate.

Indefinite Reinvestment Assertion

Earnings generated by a foreign subsidiary are presumed to ultimately be transferred to the parent company. Therefore, the establishment of deferred taxes may be required with respect to the excess of the investment value for financial reporting over the tax basis of investments in those foreign subsidiaries (also referred to as book-over-tax outside basis differences). A company may overcome this presumption and forgo recording a deferred tax liability in its financial statements if it can assert that management has the intent and ability to indefinitely reinvest the earnings of its foreign subsidiaries. Prior to the year ended December 31, 2017, the Company did not provide deferred U.S., foreign or local income taxes on the book-over-tax outside basis differences of its foreign subsidiaries because such excess was considered to be indefinitely reinvested in the local country businesses. As a result of the transition tax that the Company has incurred pursuant to the Tax Act, the Company now has the ability to repatriate to the U.S. parent the foreign cash associated with the foreign earnings subject to the transition tax, as these earnings have already been subject to U.S. federal taxes. The Company is currently analyzing its global working capital and cash requirements in order to determine the amount of excess cash at its foreign subsidiaries that can be repatriated to the U.S., but has not yet determined whether the Company plans to change its assertion of indefinite reinvestment on all foreign earnings and other outside basis differences. As the Company has not completed its analysis, the Company has not recorded any deferred taxes attributable to the book-over-tax outside basis differences in its foreign subsidiaries as of March 31, 2018. The Company will record the tax effects of any change in the Company’s assertion in the period that it completes its analysis; however, the Company does not anticipate incurring material foreign and/or local country taxes upon repatriation of foreign subsidiary earnings to the U.S.

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Note 9. Share Based Compensation

Share-based compensation expense

For all share-based awards granted to employees and directors following the Separation, including stock options, restricted stock units (“RSUs”), performance based restricted stock and performance share units (“PSUs”), the Company recognizes compensation expense based on estimated grant date fair values based on certain assumptions as of the grant date. The Company estimates the number of awards expected to vest based, in part, on historical forfeiture rates and also based on management’s expectations of employee turnover within the specific employee groups receiving each type of award. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates. The Company recognizes compensation costs for RSUs expected to vest, on a straight-line basis over the requisite service period of the award, which is generally the vesting term of three years. Compensation expense for performance based restricted stock awards granted in 2016, which vest on a graded basis, is recognized utilizing a graded vesting schedule. Compensation expense for performance based restricted stock awards granted in 2017, which cliff vest, is recognized on a straight-line basis over the performance period of the award. The Company recognizes compensation costs for PSUs, which cliff vest, on a straight-line basis over the performance period of the award. Compensation expense for stock options is recognized on a straight-line basis over the requisite service period of the award, which is generally the vesting term of four years.

The stock options, RSUs, performance based restricted stock and PSUs granted during 2017 and 2018 are subject to forfeiture upon termination of employment prior to vesting, subject in some cases to early vesting upon specified events, including death or permanent disability of the grantee or a change in control of the Company. In addition, upon a change in control of the Company, PSUs will be measured for attainment of the performance metrics as of the end of the Company’s fiscal quarter ending immediately prior to the fiscal quarter in which the change in control took place and the performance based restricted stock will be measured at 100% attainment of the target performance metrics. Both awards will remain subject to time based vesting until the end of the vesting period; provided that the award will vest in full if, within three months prior to or two years after the date of the change in control of the Company, the grantee’s employment is terminated without cause by the Company or for good reason by the grantee.

Total compensation expense related to all share based compensation plans was $1.8 million and $1.1 million for the three months ended March 31, 2018 and 2017, respectively.

Stock Options

The Company granted 324,500 options, with a weighted-average grant date fair market value of $5.83, during the three months ended March 31, 2018. The fair market value of each stock option award was estimated using the Black-Scholes-Merton option pricing model and the Company used the following methods to determine its underlying assumptions:

•

Expected volatility was estimated based on a weighted-average of historical volatilities for the Company’s peer group

•

The risk-free interest rate was based on the U.S Treasury yield curve in effect on the date of grant

•

The expected term was based on the simplified method of using the mid-point between the vesting term and the original contractual term

•

The expected dividend yield was based on the Company’s current dividend rate

The assumptions used to determine the fair market value of the stock options granted during the three months ended March 31, 2018 were as follows:

	2018
Expected volatility		27.75	%
Risk-free interest rate		2.71	%
Expected life (years)		6.25
Expected dividend yield		0.00	%

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Stockoptionawards outstanding asofDecember31,2017andMarch31,2018,andchangesduringthethreemonthsendedMarch31,2018,wereas follows:

						Weighted Average
						Weighted Average
				Weighted Average		Remaining Contractual		Aggregate Intrinsic
	Shares Under			Weighted Average		Remaining Contractual		Aggregate Intrinsic
	Option			Exercise		Term		Value
	(thousands)			Price		(years)		(millions)
Outstanding at December 31, 2017		459		$	22.13		5.1	$	0.8
Granted		324			17.91		9.9
Exercised		(104	)		11.95
Outstanding at March 31, 2018		679			21.67		7.9		0.0
Vested and expected to vest at March 31, 2018		649		$	21.77		7.8		0.0

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on March 31, 2018 and December 31, 2017, respectively, 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 in-the-money options on March 31, 2018 and December 31, 2017. This amount will change in future periods based on the fair market value of the Company’s stock and the number of options outstanding. Total intrinsic value of options exercised was $1.0 million for the three months ended March 31, 2018 and was de minimis for the three months ended March 31, 2017. There were no excess tax benefits on stock option exercises for the three months ended March 31, 2018 and 2017.

Compensationexpenserelatedtostockoptions was $0.1 million forthethreemonthsendedMarch31,2018 and was de minimis for the three months ended March 31,2017. AsofMarch31,2018, $2.8 million of total unrecognizedcompensationexpense related to stock options is expected to be recognized over a weighted average period of 3.6 years.

Restricted Stock Units

NonvestedrestrictedstockunitawardsasofDecember31,2017andMarch31,2018,andchangesduringthethreemonthsendedMarch31, 2018,wereasfollows:

				Weighted
	Shares			Average Grant
	(Thousands)			Date Fair Value
Nonvested at December 31, 2017		598		$	23.48
Granted		339			17.65
Vested		(142	)
Forfeited		(9	)		22.35
Nonvested at March 31, 2018		786		$	20.02

Compensation expense related to RSUs was $0.9 million and $0.6 million for the three months ended March 31, 2018 and 2017, respectively. As of March 31, 2018, there was $10.2 million of unrecognized share-based compensation expense related to 0.8 million restricted stock unit awards, with a weighted-average grant date fair value of $20.02, that are expected to vest over a weighted-average period of 2.4 years. The fair value of these awards was determined based on the Company’s stock price on the grant date, as the Company currently does not anticipate paying any cash dividends in the foreseeable future.

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Restricted Stock

There were no restricted stock awards granted during the three months ended March 31, 2018. Compensation expense for the restricted stock awards is currently being recognized based on 100% attainment of the targeted performance metrics for the restricted stock awards granted in 2017 and is being recognized based on 100% actual achievement of the performance metrics for the restricted stock awards granted in 2016. The total potential payout for awards granted during 2017 range from zero to 129,400 shares, should certain performance targets be achieved. The maximum payout of 156,159 shares was achieved as of December 31, 2017 for the restricted stock awards granted during 2016. Compensation expense for restricted stock awards was $0.6 million and $0.5 million for the three months ended March 31, 2018 and 2017, respectively. As of March 31, 2018, there was $2.7 million of unrecognized compensation expense related to restricted stock awards, which is expected to be recognized over a weighted average period of 1.7 years.

Performance Share Units

Nonvested performance share units as of December 31, 2017 and March 31, 2018, and changes during the three months ended March 31, 2018, were as follows:

			Weighted
	Shares		Average Grant
	(Thousands)		Date Fair Value
Nonvested at December 31, 2017		37	$	22.41
Granted		232		17.65
Nonvested at March 31, 2018		269	$	18.31

During the three months ended March 31, 2018, 232,300 performance share units were granted to certain executive officers and senior management, payable upon the achievement of certain established performance targets. The performance period for the shares awarded is January 1, 2018 through December 31, 2020. Distributions under these awards are payable at the end of the performance period in common stock or cash, at the Company’s discretion. The total potential payout for awards granted during the three months ended March 31, 2018 range from zero to 348,450 shares, should certain performance targets be achieved. The fair value of these awards was determined based on the Company’s stock price on the grant date.

Compensation expense for the PSUs granted in 2018 and 2017 is currently being recognized based on 100% attainment of the targeted performance metrics or 232,300 and 37,100 shares, for each respective period. Compensation expense related to PSUs was $0.2 million for the three months ended March 31, 2018 and was de minimis for the three months ended March 31, 2017. As of March 31, 2018, there was $4.4 million of unrecognized compensation expense related to PSUs, which is expected to be recognized over a weighted average period of 2.8 years.

Note 10. Equity

The Company’s equity as of December 31, 2017 and March 31, 2018, and changes during the three months ended March 31, 2018, were as follows:

	Total
	Equity
Balance at December 31, 2017	$	149.4
Net earnings		7.7
Other comprehensive income		1.2
Adoption of ASU 2014-09		0.9
Share-based compensation		1.8
Issuance of share-based awards, net of withholdings and other		0.6
Balance at March 31, 2018	$	161.6

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

The Company’s equity as of December 31, 2016 and ~~September 30,~~March 31, 2017, and changes during the ~~nine~~three months ended ~~September 30,~~March 31, 2017, were as follows:

	Total			Total
	Equity			Equity
Balance at December 31, 2016	$	111.1		$	111.1
Net earnings		33.4			9.3
Other comprehensive income		5.6			0.5
Separation-related adjustments		0.2			3.1
Share-based compensation		5.2			1.1
Issuance of common stock		18.8
Issuance of share-based awards, net of withholdings and other		(0.7	)		(0.6	)
Balance at September 30, 2017	$	173.6
Balance at March 31, 2017				$	124.5

Separation-related adjustments primarily relate to ~~adjustments arising from~~ the ~~finalization of tax returns for periods prior to the Separation as well as~~ settlement of balances due to or from RRD for activity prior to the Separation.

On June 21, 2017, the Company issued stock in conjunction with the underwritten public offering of the sale of the Company’s shares retained by RRD. The underwriters exercised their option to purchase approximately 0.9 million Option Shares. The Company received approximately $18.8 million in net proceeds from the sale of the Option Shares, after deducting estimated underwriting discounts and commissions. Refer to Note 1, ~~Overview and Basis of Presentation,~~ ~~for further details.~~

~~The Company’s equity as of December 31, 2015 and September 30, 2016, and changes during the nine months ended September 30, 2016, were as follows:~~

Accumulated

Net Parent

Other

Company

Comprehensive

Total

Investment

Loss

Equity

Balance at December 31, 2015
$
639.5

$
(16.0
)

$
623.5

Net earnings

59.9

—

59.9

Transfers from parent company, net

(598.6
)

—

(598.6
)
Other comprehensive income

—

3.8

3.8

Balance at September 30, 2016
$
100.8

$
(12.2
)

$
88.6

Note 8.11. Earnings per Share

Basic earnings per share is calculated by dividing net earnings by the weighted average number of common shares outstanding for the period. In computing diluted earnings per share, basic earnings per share is adjusted for the assumed issuance of all potentially dilutive share-based awards, including restricted stock units and restricted stock.

On October 1, 2016, RRD distributed approximately 26.2 million shares of Donnelley Financial common stock to RRD shareholders in connection with the spin-off of Donnelley Financial, with RRD retaining approximately 6.2 million shares of Donnelley Financial common stock. Holders of RRD common stock received one share of Donnelley Financial for every eight shares of RRD common stock held on September 23, 2016. Basic and diluted earnings per common share and the average number of common shares outstanding were retrospectively restated for the number of Donnelley Financial shares outstanding immediately following this transaction. For periods prior to the Separation, basic and diluted earnings per share were calculated using the number of shares distributed and retained by RRD, totaling 32.4 million. The same number of shares was used to calculate basic and diluted earnings per share since there were no Donnelley Financial equity awards outstanding prior to the spin-off.

~~Donnelley Financial Solutions, Inc.~~

~~Notes to the Unaudited Condensed Consolidated and Combined Financial Statements~~

~~(in millions, except per share data, unless otherwise indicated)~~

On June 21, 2017, RRD completed the sale of approximately 6.1 million shares of the Company’s common stock in an underwritten public offering. Upon consummation of the offering, RRD retained approximately 0.1 million shares of the Company’s common stock which were subsequently sold by RRD on August 1, 2017. Refer to Note 1, ~~Overview and Basis of Presentation, for further details.~~

As a result of the Company adopting Accounting Standards Update 2016-09 “Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” beginning in the first quarter of 2017, excess tax benefits and tax deficiencies are excluded from the calculation of assumed proceeds when using the treasury stock method in calculating diluted earnings per share.

The reconciliation of the numerator and denominator of the basic and diluted earnings per share calculation and the anti-dilutive share-based awards for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ were as follows:

	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2017		2016		2017		2016		2018		2017
Net earnings per share:
Basic	$	0.16	$	0.31	$	1.01	$	1.85	$	0.23	$	0.29
Diluted	$	0.16	$	0.31	$	1.01	$	1.85	$	0.23	$	0.28
Numerator:
Net earnings	$	5.3	$	10.2	$	33.4	$	59.9	$	7.7	$	9.3
Denominator:
Weighted average number of common shares outstanding		33.6		32.4		33.0		32.4		33.7		32.6
Dilutive awards		0.2		—		0.2		—		0.2		0.2
Diluted weighted average number of common shares outstanding		33.8		32.4		33.2		32.4		33.9		32.8
Weighted average number of anti-dilutive share-based awards:
Restricted stock units		—		—		0.2		—		0.1		0.1
Stock options		0.4		—		0.3		—		0.5		0.1
Total		0.4		—		0.5		—		0.6		0.2

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Note 9.12. Comprehensive Income

The components of other comprehensive income and income tax expense allocated to each component for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ were as follows:

	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30, 2017						September 30, 2017						March 31, 2018
	Before Tax		Income Tax		Net of Tax		Before Tax		Income Tax		Net of Tax		Before Tax			Income Tax		Net of Tax
	Amount		Expense		Amount		Amount		Expense		Amount		Amount			Expense		Amount
Translation adjustments	$	2.2	$	—	$	2.2	$	4.6	$	—	$	4.6	$	0.7	$		—	$	0.7
Adjustment for net periodic pension plan and other postretirement benefits plan cost		0.6		0.3		0.3		1.6		0.6		1.0		0.6			0.1		0.5
Other comprehensive income	$	2.8	$	0.3	$	2.5	$	6.2	$	0.6	$	5.6	$	1.3	$		0.1	$	1.2

	Three Months Ended								Nine Months Ended								Three Months Ended
	September 30, 2016								September 30, 2016								March 31, 2017
	Before Tax			Income Tax		Net of Tax			Before Tax			Income Tax		Net of Tax			Before Tax		Income Tax		Net of Tax
	Amount			Expense		Amount			Amount			Expense		Amount			Amount		Expense		Amount
Translation adjustments	$	0.2		$	—	$	0.2		$	4.2		$	—	$	4.2		$	0.1	$	—	$	0.1
Adjustment for net periodic pension plan and other postretirement benefits plan cost		(0.2	)		—		(0.2	)		(0.4	)		—		(0.4	)		0.5		0.1		0.4
Other comprehensive income	$	—		$	—	$	—		$	3.8		$	—	$	3.8		$	0.6	$	0.1	$	0.5

14Accumulated other comprehensive loss by component as of December 31, 2017 and March 31, 2018 were as follows:

	Pension and Other Postretirement Benefits Plan Cost			Translation Adjustments			Total
Balance at December 31, 2017	$	(52.9	)	$	(11.7	)	$	(64.6	)
Other comprehensive income before reclassifications		—			0.7			0.7
Amounts reclassified from accumulated other comprehensive loss		0.5			—			0.5
Net change in accumulated other comprehensive loss		0.5			0.7			1.2
Balance at March 31, 2018	$	(52.4	)	$	(11.0	)	$	(63.4	)

Accumulated other comprehensive loss by component as of December 31, 2016 and March 31, 2017 as follows:

	Pension and Other Postretirement Benefits Plan Cost			Translation Adjustments			Total
Balance at December 31, 2016	$	(52.2	)	$	(16.1	)	$	(68.3	)
Other comprehensive income before reclassifications		—			0.1			0.1
Amounts reclassified from accumulated other comprehensive loss		0.4			—			0.4
Net change in accumulated other comprehensive loss		0.4			0.1			0.5
Balance at March 31, 2017	$	(51.8	)	$	(16.0	)	$	(67.8	)

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements

(in millions, except per share data, unless otherwise indicated)

~~Accumulated other comprehensive loss by component as of December 31, 2016 and September 30, 2017 were as follows:~~

Pension and Other Postretirement Benefits Plan Cost

Translation Adjustments

Total

Balance at December 31, 2016
$
(52.2
)

$
(16.1
)

$
(68.3
)
Other comprehensive income before reclassifications

—

4.6

4.6

Amounts reclassified from accumulated other comprehensive loss

1.0

—

1.0

Net change in accumulated other comprehensive loss

1.0

4.6

5.6

Balance at September 30, 2017
$
(51.2
)

$
(11.5
)

$
(62.7
)

~~Accumulated other comprehensive loss by component as of December 31, 2015 and September 30, 2016 as follows:~~

Pension and Other Postretirement Benefits Plan Cost

Translation Adjustments

Total

Balance at December 31, 2015
$
—

$
(16.0
)

$
(16.0
)
Other comprehensive income before reclassifications

—

4.2

4.2

Amounts reclassified from accumulated other comprehensive loss

(0.4
)

—

(0.4
)
Net change in accumulated other comprehensive loss

(0.4
)

4.2

3.8

Balance at September 30, 2016
$
(0.4
)

$
(11.8
)

$
(12.2
)

Reclassifications from accumulated other comprehensive loss for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ were as follows:

	Three Months Ended					Nine Months Ended					Classification in the Condensed	Three Months Ended				Classification in the
	September 30,					September 30,					Consolidated and Combined	March 31,				Condensed Consolidated
	2017		2016			2017		2016			Statements of Operations	2018		2017		Statements of Operations
Amortization of pension and other postretirement benefits plan cost:
Net actuarial income (loss)	$	0.6	$	(0.2	)	$	1.6	$	(0.4	)	_(a)
Net actuarial income												$	0.6	$	0.5	_(a)
Reclassifications before tax		0.6		(0.2	)		1.6		(0.4	)			0.6		0.5
Income tax expense		0.3		—			0.6		—				0.1		0.1
Reclassifications, net of tax	$	0.3	$	(0.2	)	$	1.0	$	(0.4	)		$	0.5	$	0.4

(a)

These accumulated other comprehensive loss components are included in the calculation of net periodic pension and other postretirement benefits plan ~~(income) expense, a component of which was allocated to Donnelley Financial in periods prior to the Separation, and~~income recognized in ~~cost of sales~~investment and ~~selling, general and administrative expenses~~other income in the unaudited condensed consolidated ~~and combined~~ statements of operations (see Note 6, 7, Retirement Plans).

Note ~~10.~~13. Segment Information

The Company’s segments are summarized below:

United States

The U.S. segment serves capital market and investment market clients in the U.S. by delivering products and services to help create, manage, and deliver, accurate and timely financial communications to investors and regulators. The Company also provides virtual data rooms to facilitate the deal management requirements of capital markets and mergers and acquisitions transactions, and provides data and analytics services that help professionals uncover intelligence from disclosures contained within public filings made with the SEC. The U.S. segment also includes language solutions capabilities, through which the Company can translate documents and create content in up to 190 different languages for its clients, and commercial print.

~~Donnelley Financial Solutions, Inc.~~

~~Notes to the Unaudited Condensed Consolidated and Combined Financial Statements~~

~~(in millions, except per share data, unless otherwise indicated)~~

International

The International segment includes the Company’s operations in Asia, Europe, Canada and Latin America. The international business is primarily focused on working with international capital markets clients on capital markets offerings and regulatory compliance related activities into or within the United States. In addition, the international segment provides language translation services and shareholder communication services to investment market clients.

Corporate

Corporate consists of unallocated ~~selling,~~ general and administrative activities and associated expenses including, in part, executive, legal, finance, communications and certain facility costs. In addition, certain costs and earnings of employee benefit plans, such as pension and other postretirement benefit plan expense (income) and allocated costs for share-based compensation, are included in Corporate and not allocated to the operating segments.

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Information by Segment

The Company has disclosed income (loss) from operations as the primary measure of segment earnings (loss). This is the measure of profitability used by the Company’s chief operating decision-maker and is most consistent with the presentation of profitability reported within the condensed consolidated ~~and combined~~ financial statements.

								Income (Loss)			Depreciation											Income (Loss)					Depreciation
	Total		Intersegment			Net		from			and		Capital		Total		Intersegment			Net		from			Assets of		and		Capital
	Sales		Sales			Sales		Operations			Amortization		Expenditures		Sales		Sales			Sales		Operations			Operations		Amortization		Expenditures
Three Months Ended September 30, 2017
Three Months Ended March 31, 2018
U.S.	$	188.9	$	(2.8	)	$	186.1	$	22.4		$	9.2	$	7.7	$	214.6	$	(1.5	)	$	213.1	$	26.4		$	714.8	$	8.9	$	6.1
International		37.1		(0.6	)		36.5		1.5			1.4		0.1		42.7		(0.6	)		42.1		2.5			95.9		1.4		0.1
Total operating segments		226.0		(3.4	)		222.6		23.9			10.6		7.8		257.3		(2.1	)		255.2		28.9			810.7		10.3		6.2
Corporate		—		—			—		(5.9	)		—		0.2		—		—			—		(9.5	)		104.5		0.1		0.2
Total operations	$	226.0	$	(3.4	)	$	222.6	$	18.0		$	10.6	$	8.0	$	257.3	$	(2.1	)	$	255.2	$	19.4		$	915.2	$	10.4	$	6.4

Income (Loss)

Depreciation

Total

Intersegment

Net

from

and

Capital

Sales

Sales

Sales

Operations

Amortization

Expenditures

Three Months Ended
September 30, 2016

U.S.
$
193.6

$
(1.3
)

$
192.3

$
18.7

$
8.5

$
1.3

International

33.2

(1.1
)

32.1

1.1

1.1

—

Total operating segments

226.8

(2.4
)

224.4

19.8

9.6

1.3

Corporate

—

—

—

(1.8
)

0.2

0.4

Total operations
$
226.8

$
(2.4
)

$
224.4

$
18.0

$
9.8

$
1.7

Income (Loss)

Depreciation

Total

Intersegment

Net

from

Assets of

and

Capital

Sales

Sales

Sales

Operations

Operations

Amortization

Expenditures

Nine Months Ended
September 30, 2017

U.S.
$
665.8

$
(7.6
)

$
658.2

$
107.5

$
715.3

$
27.5

$
18.1

International

124.8

(2.9
)

121.9

7.6

96.0

4.2

0.8

Total operating segments

790.6

(10.5
)

780.1

115.1

811.3

31.7

18.9

Corporate

—

—

—

(27.0
)

122.4

—

1.1

Total operations
$
790.6

$
(10.5
)

$
780.1

$
88.1

$
933.7

$
31.7

$
20.0

~~Donnelley Financial Solutions, Inc.~~

~~Notes to the Unaudited Condensed Consolidated and Combined Financial Statements~~

~~(in millions, except per share data, unless otherwise indicated)~~


								Income (Loss)					Depreciation											Income (Loss)					Depreciation
	Total		Intersegment			Net		from			Assets of		and		Capital		Total		Intersegment			Net		from			Assets of		and		Capital
	Sales		Sales			Sales		Operations			Operations		Amortization		Expenditures		Sales		Sales			Sales		Operations			Operations		Amortization		Expenditures
Nine Months Ended September 30, 2016
Three Months Ended March 31, 2017
U.S.	$	666.4	$	(4.0	)	$	662.4	$	100.0		$	714.2	$	26.2	$	10.2	$	232.9	$	(2.5	)	$	230.4	$	37.0		$	740.2	$	8.8	$	3.9
International		103.9		(3.8	)		100.1		7.2			99.9		3.2		1.2		37.3		(0.4	)		36.9		0.2			94.6		1.4		0.4
Total operating segments		770.3		(7.8	)		762.5		107.2			814.1		29.4		11.4		270.2		(2.9	)		267.3		37.2			834.8		10.2		4.3
Corporate		—		—			—		(7.7	)		99.9		0.7		2.6		—		—			—		(10.8	)		189.8		—		—
Total operations	$	770.3	$	(7.8	)	$	762.5	$	99.5		$	914.0	$	30.1	$	14.0	$	270.2	$	(2.9	)	$	267.3	$	26.4		$	1,024.6	$	10.2	$	4.3

Note ~~11.~~14. Debt

~~On September 30, 2016, in connection with~~The Company’s debt as of March 31, 2018 and December 31, 2017 consisted of the ~~Separation,~~following:

	March 31,			December 31,
	2018			2017
8.25% senior notes due October 15, 2024	$	300.0		$	300.0
Term Loan Credit Facility		168.7			168.6
Borrowings under the Revolving Facility		20.0			—
Unamortized debt issuance costs		(9.9	)		(10.3	)
Total debt		478.8			458.3
Less: current portion		—			—
Long-term debt	$	478.8		$	458.3

The fair value of the senior notes, which was determined using the market approach based upon interest rates available to the Company ~~entered into~~for borrowings with similar terms and maturities, were determined to be Level 2 under the fair value hierarchy. The fair value of the Company’s senior notes was $319.0 million and $321.5 million at March 31, 2018 and December 31, 2017, respectively.

The Company has a Credit Agreement ~~(the “Credit~~(“the Credit Agreement”) ~~by and among the Company, the lenders party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent. The Credit Agreement~~which provides for ~~(i)~~ a ~~new~~$350.0 million senior secured term loan B facility ~~in an aggregate principal amount of $350.0 million~~ (the “Term Loan Credit Facility”) and ~~(ii)~~ a ~~new first lien~~$300.0 million senior secured revolving credit facility ~~in an aggregate principal amount of $300.0 million~~ (the “Revolving Facility”, and, together with the Term Loan Credit Facility, the “Credit Facilities”). The Credit Agreement contains a number of covenants, including a minimum Interest Coverage Ratio and a maximum Leverage Ratio, as defined in and calculated pursuant to the Credit Agreement, that, in part, restrict the Company’s ability to incur additional indebtedness, create liens, engage in mergers and consolidations, make restricted payments and dispose of certain assets. The Credit Agreement generally allows annual dividend payments of up to $15.0 million in the aggregate. As of ~~September 30, 2017,~~March 31, 2018, there ~~were no~~was $20.0 million in outstanding borrowings under the Revolving Facility.

Borrowings under the Term Loan Credit Facility were used to provide $340.2 million of cash to RRD, pursuant to the Separation Agreement, as of September 30, 2016. The remainder of the net proceeds was used for general corporate purposes.

~~Pursuant to the Separation and Distribution~~ A~~greement, the Company received a cash payment of $68.0 million from RRD on April 3, 2017. The proceeds were used to reduce outstanding debt under the Term Loan Credit Facility.~~

On June 21, 2017, RRD completed the sale of approximately 6.1 million shares of the Company’s common stock in an underwritten public offering. Upon the consummation of the offering, RRD retained approximately 0.1 million shares of the Company’s common stock of the offering which were subsequently sold by RRD on August 1, 2017. In conjunction with the underwritten public offering, the underwriters exercised their option to purchase approximately 0.9 million Option Shares. The Company received approximately $18.8 million in net proceeds from the sale of the Option Shares, after deducting estimated underwriting discounts and commissions. ~~The proceeds were used to reduce outstanding debt under the Revolving Facility.~~

On October 2, 2017, the Company repriced the Term Loan Credit Facility. As a result, the interest rate was reduced by 100 basis points to LIBOR plus 3.0% and the LIBOR floor was reduced by 25 basis points to .75%. Additionally, under the amended Credit Agreement, principal payments are due on a quarterly basis. Other terms, including the outstanding principal, maturity date, and debt covenants such as the minimum Interest Coverage Ratio and the maximum Leverage Ratio are consistent with the original Credit Agreement.

1723

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements

(in millions, except per share data, unless otherwise indicated)

~~On September 30, 2016, also in connection with~~The weighted average interest rate on borrowings under the ~~Separation,~~Revolving Facility was 4.8% and 4.2% for the ~~Company issued $300.0~~three months ended March 31, 2018 and 2017, respectively.

Interest paid was $2.2 million ofand $3.8 million for the three months ended March 31, 2018 and 2017, respectively.

The Company’s 8.25% senior unsecured notes due October 15, 2024 (the “Notes”). Interest on the Notes is payable semi-annually on April 15 and October 15, commencing on April 15, 2017. The issuance of the Notes was part of a debt exchange that resulted in the settlement of certain of RRD's bonds.~~The Notes~~ were issued pursuant to an indenture where certain wholly-owned domestic subsidiaries of the Company guarantee the Notes (the “Guarantors”). The Notes are jointly and severally guaranteed, on an unsecured basis, by the Guarantors, which are comprised of each of the Company’s existing and future direct and indirect wholly-owned U.S. subsidiaries that guarantee the Company’s obligations under the Credit Facilities. The Notes are not guaranteed by the Company’s foreign subsidiaries or unrestricted subsidiaries. The Notes and the related guarantees will be the Company and the Guarantors’, respective, senior unsecured obligations and will rank equally in right of payment to all present and future senior debt, including the obligations under the Company’s Credit Facilities, senior in right of payment to all present and future subordinated debt, and effectively subordinated in right of payment to any of the Company and the Guarantors’ secured debt, to the extent of the value of the assets securing such debt. The indenture governing the Notes contains certain covenants applicable to the Company and its restricted subsidiaries, including limitations on: (1) liens; (2) indebtedness; (3) mergers, consolidations and acquisitions; (4) sales, transfers and other dispositions of assets; (5) loans and other investments; (6) dividends and other distributions, stock repurchases and redemptions and other restricted payments; (7) restrictions affecting subsidiaries; (8) transactions with affiliates; and (9) designations of unrestricted subsidiaries. Each of these covenants is subject to important exceptions and qualifications.

In connection with the offering of the Notes, the Company entered into a registration rights agreement, dated as of September 30, 2016 (the “Registration Rights Agreement”), pursuant to which the Company agreed to file a registration statement with the SEC with respect to an offer to exchange the Notes for registered notes. In certain circumstances, the Company may be required to file a shelf registration statement with the SEC registering the resale of the Notes by the holders thereof, in lieu of an exchange offer to such holders. On March 10, 2017, the Company filed a Registration Statement on Form S-4 (as amended, the “Exchange Offer Registration Statement”) to offer to exchange the Notes for registered notes which have terms identical in all material respects to the Notes except that the registered notes are not subject to transfer restrictions or registration rights. The Exchange Offer Registration Statement was declared effective by the SEC on March 22, 2017. An exchange offer for the Notes was launched on March 22, 2017 and settled on April 25, 2017, resulting in the exchange of $299.9 million aggregate principal amount of outstanding Notes for registered notes.

~~The Company’s debt as of September 30, 2017 and December 31, 2016 consisted of the following:~~

September 30,

December 31,

2017

2016

8.25% senior notes due October 15, 2024
$
300.0

$
300.0

Term Loan Credit Facility

198.5

298.3

Borrowings under the Revolving Facility

—

—

Unamortized debt issuance costs

(10.1
)

(11.3
)
Total debt

488.4

587.0

Less: current portion

—

—

Long-term debt
$
488.4

$
587.0

The fair value of the senior notes, which was determined using the market approach based upon interest rates available to the Company for borrowings with similar terms and maturities, were determined to be Level 2 under the fair value hierarchy. The fair value of the Company’s senior notes was $322.2 million and $307.1 million at September 30, 2017 and December 31, 2016, respectively.

~~The weighted average interest rate on borrowings under the Revolving Facility was 4.4% at September 30, 2017.~~

Note ~~12.~~15. Commitments and Contingencies

Litigation

From time to time, the Company’s customers and others file voluntary petitions for reorganization under United States bankruptcy laws. In such cases, certain pre-petition payments received by the Company from these parties could be considered preference items and subject to return. In addition, the Company may be party to certain litigation arising in the ordinary course of business. Management believes that the final resolution of these preference items and litigation will not have a material effect on the Company’s consolidated ~~and combined~~ results of operations, financial position or cash flows.

~~Donnelley Financial Solutions, Inc.~~

~~Notes to the Unaudited Condensed Consolidated and Combined Financial Statements~~

~~(in millions, except per share data, unless otherwise indicated)~~

Note ~~13.~~16. Related Parties

On March 28, 2017, RRD completed the sale of 6.2 million shares of LSC common stock (RRD’s remaining ownership stake in LSC) in an underwritten public offering. As a result, beginning in the quarter ended June 30, 2017, LSC is no longer ~~an affiliate~~qualified as a related party of the ~~Company.~~Company and the amounts disclosed related to LSC are only presented for the three months ended March 31, 2017.

On June 21, 2017, RRD completed the sale of approximately 6.1 million shares of the Company’s common stock. RRD retained approximately 0.1 million shares of the Company’s common stock which RRD sold on August 1,4, 2017. Beginning in the quarter ended September 30, 2017, RRD no longer qualified as a related party and the amounts disclosed related to RRD are only presented ~~through June 30, 2017 only.~~for the three months ended March 31, 2017.

Transition Services Agreements

In connection with the Separation, the Company entered into transition services agreements separately with RRD and LSC, under which, in exchange for the fees specified in the arrangements, RRD and LSC agree to provide certain services to the Company and the Company agrees to provide certain services to RRD, respectively, for up to 24 months following the Separation. These services include, but are not limited to, information technology, accounts receivable, accounts payable, payroll and other financial and administrative services and functions. These agreements facilitate the separation by allowing the Company to operate independently prior to establishing stand-alone back office systems across its organization.

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Commercial Arrangements

The Company entered into a number of commercial and other arrangements with RRD and its subsidiaries. These include, among other things, arrangements for the provision of services, including global outsourcing and logistics services, printing and binding, digital printing, composition and access to technology. The ~~Company also entered into a number of commercial and other arrangements with LSC and its subsidiaries, pursuant to which LSC will print and bind products for the Company. The~~ terms of the arrangements with RRD ~~and LSC~~ do not exceed 2436 months. Subsequent to the Separation, RRD and LSC are clients of the Company and expect to utilize ~~financial communication software~~SaaS solutions and services that the Company provides to all of its clients.

~~Stockholder and Registration Rights Agreement~~

The Company and RRD entered into a Stockholder and Registration Rights Agreement with respect to the Company’s common stock retained by RRD pursuant to which the Company agrees that, upon the request of RRD, the Company will use its reasonable best efforts to effect the registration under applicable federal and state securities laws of the shares of the Company’s common stock retained by RRD after the Separation. In addition, RRD granted the Company a proxy to vote the shares of the Company’s common stock that RRD retained immediately after the Separation in proportion to the votes cast by the Company’s other stockholders. This proxy, however, will be automatically revoked as to a particular share upon any sale or transfer of such share from RRD to a person other than RRD, and neither the voting agreement nor the proxy will limit or prohibit any such sale or transfer.

Sublease Agreement

In connection with the Separation, the Company assumed an operating lease through 2024 for the Company’s headquarters. There is a related non-cancelable sublease rental to RRD for the same period. The Company remains secondarily liable under this lease in the event that the sub-lessee defaults under the sublease terms. The Company does not believe that material payments will be required as a result of the secondary liability provisions of the primary lease agreement.

~~Donnelley Financial Solutions, Inc.~~

~~Notes to the Unaudited Condensed Consolidated and Combined Financial Statements~~

~~(in millions, except per share data, unless otherwise indicated)~~

~~Related Party Receivables/Payables~~

~~Pursuant to the Separation and Distribution~~ Agreement, the Company received a cash payment of $68.0 million from RRD on April 3, 2017. The proceeds were used to reduce outstanding debt under the Term Loan Credit Facility. The Company has other amounts due to or from RRD in the normal course of business. The Company had $96.0 million of receivables from RRD and $27.1 million of payables to RRD included ~~in the condensed consolidated balance sheet~~ ~~at December 31, 2016.~~

~~Allocations from RRD~~

Prior to the Separation RRD provided Donnelley Financial with certain services, which include, but are not limited to information technology, finance, legal, human resources, internal audit, treasury, tax, investor relations and executive oversight. The financial information in these consolidated and combined financial statements does not necessarily include all the expenses that would have been incurred had Donnelley Financial been a separate, standalone entity for all periods presented. Prior to the Separation RRD charged Donnelley Financial for these services based on direct usage when possible. When specific identification was not practicable, the pro rata basis of revenue or employee headcount, or some other measure was used. These allocations were reflected as follows in the unaudited condensed consolidated and combined financial statements:

Three Months Ended

Nine Months Ended

September 30, 2016

September 30, 2016

Costs of goods sold allocation
$
8.3

$
28.0

Selling, general and administrative allocation

38.3

129.4

Depreciation and amortization

5.3

15.2

Total allocations from RRD
$
51.9

$
172.6

The Company considers the expense methodology and results to be reasonable for all periods presented. However, these allocations may not be indicative of the actual expenses that the Company would have incurred as an independent public company or the costs it may incur in the future.

~~Related Party Revenues~~

Donnelley Financial generates a portion of net revenue from sales to RRD’s subsidiaries. Net revenues from sales to RRD and affiliates of $1.1 million and $3.6 million for the three and nine months ended September 30, 2016, respectively, were included in the unaudited condensed combined statement of operations.

~~Related Party Purchases~~

Donnelley Financial utilizes RRD for freight and logistics and services as well as certain production of printed products. Cost of sales of $11.5 million and $48.6 million for the three and nine months ended September 30, 2016, respectively, were included in the unaudited condensed combined statement of operations for these purchases.

Donnelley Financial also utilizes RRD’s business process outsourcing business for certain composition, XBRL and other functions. Cost of sales of $8.7 million and $29.4 million for the three and nine months ended September 30, 2016, respectively, were included in the unaudited condensed combined statement of operations for these purchases.

For periods prior to the Separation, intercompany payables with RRD and affiliates for these purchases are reflected within net parent company investment in the unaudited condensed consolidated and combined financial statements.

~~Share-Based Compensation Prior to Separation~~

~~Prior to the Separation, certain Donnelley Financial employees participated in RRD’s share-based compensation plans, the costs~~ of which have been allocated to Donnelley Financial and recorded in selling, general and administrative expenses in the unaudited condensed combined statement of operations. Share-based compensation costs allocated to the Company were ~~$0.2 million and $1.2 million for the three and nine months ended September 30, 2016, respectively.~~

~~Donnelley Financial Solutions, Inc.~~

~~Notes to the Unaudited Condensed Consolidated and Combined Financial Statements~~

~~(in millions, except per share data, unless otherwise indicated)~~

~~Retirement Plans Prior to Separation~~

Prior to the Separation, Donnelley Financial employees participated in pension and other postretirement plans sponsored by RRD. These costs are reflected in the Company’s cost of sales and selling, general and administrative expenses in the unaudited condensed consolidated and combined statements of operations. These costs were funded through intercompany transactions with RRD which are reflected within the net parent company investment.

On October 1, 2016, Donnelley Financial recorded net pension plan liabilities of $68.3 million (consisting of a total benefit plan liability of $317.0 million, net of plan assets having fair market value of $248.7 million), as a result of the transfer of certain pension plan liabilities and assets from RRD to the Company upon the legal split of those plans. The pension plan asset allocation from RRD was finalized on June 30, 2017, which resulted in a $0.7 million decrease to the fair value of plan assets transferred to the Company from RRD. Refer to Note 6~~, Retirement Plans, for further details regarding the Company’s pension and other postretirement benefit plans.~~

~~Centralized Cash Management Prior to Separation~~

RRD used a centralized approach to cash management and financing of operations. Prior to the Separation, the majority of the Company’s foreign subsidiaries were party to RRD’s international cash pooling arrangements to maximize the availability of cash for general operating and investing purposes. As part of RRD’s centralized cash management process, cash balances were swept regularly from the Company’s accounts. Cash transfers to and from RRD’s cash concentration accounts and the resulting balances at the end of each reporting period prior to the Separation are reflected in net parent company investment in the ~~consolidated~~ ~~balance sheet.~~

~~Debt~~

RRD’s third party debt and related interest expense have not been allocated to the Company for any of the periods presented as the Company was not the legal obligor of the debt and the borrowings were not directly related to the Company’s business.

Note ~~14.~~17. New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, which outlines a single comprehensive model for entities to use in accounting for revenue using a five-step process that supersedes virtually all existing revenue guidance. ASU 2014-09 also requires additional quantitative and qualitative disclosures. In August 2015, the FASB issued Accounting Standards Update No. 2015-14 “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (“ASU 2015-14”), which deferred the effective date of ASU 2014-09 to January 1, 2018. The Company adopted the standard on January 1, 2018 using the modified retrospective approach. The Company recognized the cumulative effect of applying the standard as an opening transition adjustment to retained earnings. The comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods. Refer to Note 2, Revenue, for further information.

In March 2017, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued Accounting Standards Update No. 2017-07 “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”), which requires an employer to report the service cost component of net periodic benefit cost in the same line item(s) as other employee compensation costs arising from services rendered during the period. The other components of net periodic benefit cost will be presented in the income statement separately from the line item(s) that includes the service cost and outside of any subtotal of operating income. ASU 2017-07, ~~must be applied retrospectively and is effective in the first quarter of 2018. Early adoption is permitted; however~~which the Company ~~plans to adopt the standard~~adopted retrospectively in the first quarter of 2018. Refer to Note 6, 7, Retirement Plans, for ~~disclosure of pension income~~further information.

The following standards were also effective for and adopted by the ~~nine months ended September 30, 2017 and 2016which would be reclassified to other income upon~~Company in 2018. The adoption of these standards did not have a material impact on the ~~standard.~~Company’s consolidated financial position, results of operations or cash flows:

•

Accounting Standards Update No. 2017-09 “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”

•

Accounting Standards Update No. 2017-01 “Business Combinations (Topic 805): Clarifying the Definition of a Business”

•

Accounting Standards Update No. 2016-18 “Statement of Cash Flows (Topic 230): Restricted Cash”

•

Accounting Standards Update No. 2016-15 “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments”

•

Accounting Standards Update No. 2016-01 “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”

Recently Issued Accounting Pronouncements

In ~~January 2017,~~February 2018, the FASB issued Accounting Standards Update No. ~~2017-04 “Intangibles—Goodwill and~~2018-02 “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Income Tax Effects from Accumulated Other ~~(Topic 350): Simplifying~~ ~~the Test for Goodwill Impairment”~~Comprehensive Income” (“ASU ~~2017-04”~~2018-02”), which ~~simplifies~~provides entities the ~~accounting for goodwill impairment.~~option to reclassify tax effects stranded in accumulated other comprehensive income as a result of the Tax Act to retained earnings. ASU 2017-04 requires entities to record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (Step 1 under the current impairment test). The standard eliminates Step 2 from the current goodwill impairment test, which included determining the implied fair value of goodwill and comparing it with the carrying amount of that goodwill. ASU 2017-04 must2018-02 may be applied ~~prospectively and~~either in the period of adoption or retrospectively to each period in which the effect of the Tax Act is recognized. ASU 2018-02 is effective in the first quarter of ~~2020.~~2019. Early adoption is permitted. The Company ~~early adopted~~is evaluating the ~~standard~~ impact of ASU 2018-02.

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

(in ~~the first quarter of 2017.~~millions, except per share data, unless otherwise indicated)

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to put most leases on the balance sheet but recognize expense on the income statement in a manner similar to current accounting. For lessors, ASU 2016-02 also modifies the classification criteria and the accounting for sales-type and direct financing leases. The standard requires a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements and is effective in the first quarter of 2019. Early adoption of ASU 2016-02 is permitted; however the Company plans to adopt the standard in the first quarter of 2019. The Company is evaluating the impact of ASU 2016-02.

~~Donnelley Financial Solutions, Inc.~~

~~Notes to the Unaudited Condensed Consolidated and Combined Financial Statements~~

~~(in millions, except per share data, unless otherwise indicated)~~

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which outlines a single comprehensive model for entities to use in accounting for revenue using a five-step process that supersedes virtually all existing revenue guidance. ASU 2014-09 also requires additional quantitative and qualitative disclosures. In August 2015, the FASB issued Accounting Standards Update No. 2015-14 “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (“ASU 2015-14”), which defers the effective date of ASU 2014-09 to January 1, 2018. Early adoption of ASU 2014-09 is permitted in the first quarter of 2017. However, the Company plans to adopt the standard in the first quarter of 2018. The standard allows the option of either a full retrospective adoption, meaning the standard is applied to all periods presented, or a modified retrospective adoption, meaning the standard is applied only to the most current period. The Company is evaluating the impact of the provisions of ASU 2014-09 and currently anticipates applying the modified retrospective approach when adopting the standard.

~~Donnelley Financial Solutions, Inc.~~

~~Notes to the Unaudited Condensed Consolidated and Combined Financial Statements~~

~~(in millions, except per share data, unless otherwise indicated)~~

Note ~~15.~~18. Guarantor Financial Information

~~As described in Note 11,~~ ~~Debt, on September 30, 2016, the Company issued the Notes.~~ The Guarantors of the Notes, Donnelley Financial, LLC and DFS International Holding, Inc., entered into an agreement pursuant to which each agreed to guarantee the Company’s obligations under the Notes. All guarantees are full and unconditional and joint and several. The Guarantors are 100% directly owned subsidiaries of the Company. Refer to Note 14, Debt, for further details.

The guarantee of the Notes by a subsidiary guarantor will be automatically released under certain situations, including upon the sale or disposition of such subsidiary guarantor to a person that is not Donnelley Financial or a subsidiary guarantor of the notes, the liquidation or dissolution of such subsidiary guarantor, and if such subsidiary guarantor is released from its guarantee obligations under the Company’s Credit Facilities.

The following tables set forth condensed consolidating statements of income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ condensed consolidating statements of financial position as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, and condensed consolidating ~~and combined~~ statements of cash flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017. The principal consolidating adjustments are to eliminate the investment in subsidiaries and intercompany balances and transactions. For purposes of the tables below, the Company is referred to as “Parent” and the Guarantors are referred to as “Guarantor Subsidiaries.”

2326

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements

(in millions, except per share data, unless otherwise indicated)

Condensed Consolidating Statements of Operations

For the Three Months Ended ~~September 30, 2017~~March 31, 2018

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated

Services net sales	$	—		$	112.3		$	30.1		$	(2.1	)	$	140.3		$	—		$	128.7		$	32.1		$	(1.3	)	$	159.5
Products net sales		—			76.6			7.0			(1.3	)		82.3			—			85.9			10.6			(0.8	)		95.7
Total net sales		—			188.9			37.1			(3.4	)		222.6			—			214.6			42.7			(2.1	)		255.2
Services cost of sales (exclusive of depreciation and amortization)		—			63.6			20.1			(2.0	)		81.7			—			67.5			19.6			(1.2	)		85.9
Products cost of sales (exclusive of depreciation and amortization)		—			56.0			4.3			(1.4	)		58.9			—			65.1			8.5			(0.9	)		72.7
Total cost of sales		—			119.6			24.4			(3.4	)		140.6			—			132.6			28.1			(2.1	)		158.6
Selling, general and administrative expenses (exclusive of depreciation and amortization)		—			44.2			9.8			—			54.0			—			55.3			10.8			—			66.1
Restructuring, impairment and other charges-net		—			(0.7	)		0.1			—			(0.6	)		—			0.8			(0.1	)		—			0.7
Depreciation and amortization		—			9.2			1.4			—			10.6			—			9.0			1.4			—			10.4
Income from operations		—			16.6			1.4			—			18.0			—			16.9			2.5			—			19.4
Interest expense-net		10.2			0.4			—			—			10.6
Interest expense (income)-net																	9.2			(0.2	)		—			—			9.0
Intercompany interest (income) expense-net																	(6.6	)		6.6			—			—			—
Investment and other income-net																	—			(0.8	)		—			—			(0.8	)
Earnings (loss) before income taxes and equity in net income of subsidiaries		(10.2	)		16.2			1.4			—			7.4			(2.6	)		11.3			2.5			—			11.2
Income tax (benefit) expense		(5.1	)		8.4			(1.2	)		—			2.1			(0.8	)		3.5			0.8			—			3.5
Earnings (loss) before equity in net income of subsidiaries		(5.1	)		7.8			2.6			—			5.3			(1.8	)		7.8			1.7			—			7.7
Equity in net income of subsidiaries		10.4			2.6			—			(13.0	)		—			9.5			1.7			—			(11.2	)		—
Net earnings (loss)	$	5.3		$	10.4		$	2.6		$	(13.0	)	$	5.3
Comprehensive income (loss)	$	7.8		$	12.9		$	4.8		$	(17.7	)	$	7.8
Net earnings																$	7.7		$	9.5		$	1.7		$	(11.2	)	$	7.7
Comprehensive income																$	8.9		$	10.8		$	2.4		$	(13.2	)	$	8.9

2427

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements

(in millions, except per share data, unless otherwise indicated)

Condensed Consolidating Statements of Operations

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2017

Parent

Guarantor Subsidiaries

Non-guarantor Subsidiaries

Eliminations

Consolidated

Services net sales
$
—

$
386.7

$
91.2

$
(6.5
)

$
471.4

Products net sales

—

279.1

33.6

(4.0
)

308.7

Total net sales

—

665.8

124.8

(10.5
)

780.1

Services cost of sales (exclusive of depreciation and amortization)

—

186.9

59.2

(5.9
)

240.2

Services cost of sales with R.R. Donnelley affiliates (exclusive of depreciation and amortization)*

—

18.4

1.1

—

19.5

Products cost of sales (exclusive of depreciation and amortization)

—

174.6

20.7

(4.6
)

190.7

Products cost of sales with R.R. Donnelley affiliates (exclusive of depreciation and amortization)*

—

30.1

2.2

—

32.3

Total cost of sales

—

410.0

83.2

(10.5
)

482.7

Selling, general and administrative expenses (exclusive of depreciation and amortization)

—

142.6

28.6

—

171.2

Restructuring, impairment and other charges-net

—

5.1

1.3

—

6.4

Depreciation and amortization

—

27.5

4.2

—

31.7

Income from operations

—

80.6

7.5

—

88.1

Interest expense-net

32.7

—

—

—

32.7

Earnings (loss) before income taxes and equity in net income of subsidiaries

(32.7
)

80.6

7.5

—

55.4

Income tax (benefit) expense

(14.4
)

35.0

1.4

—

22.0

Earnings (loss) before equity in net income of subsidiaries

(18.3
)

45.6

6.1

—

33.4

Equity in net income of subsidiaries

51.7

6.1

—

(57.8
)

—

Net earnings
$
33.4

$
51.7

$
6.1

$
(57.8
)

$
33.4

Comprehensive income
$
39.0

$
57.3

$
10.7

$
(68.0
)

$
39.0

*	~~Beginning in the quarter ended September 30, 2017, RRD no longer qualified as a related party, therefore the amounts disclosed related to RRD are presented through June 30, 2017 only.~~

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries		Eliminations			Consolidated

Services net sales	$	—		$	128.6		$	27.0	$	(1.6	)	$	154.0
Products net sales		—			104.3			10.3		(1.3	)		113.3
Total net sales		—			232.9			37.3		(2.9	)		267.3
Services cost of sales (exclusive of depreciation and amortization)		—			61.3			17.9		(1.5	)		77.7
Services cost of sales with R.R. Donnelley affiliates (exclusive of depreciation and amortization)*		—			9.4			0.5		—			9.9
Products cost of sales (exclusive of depreciation and amortization)		—			57.0			7.4		(1.4	)		63.0
Products cost of sales with R.R. Donnelley affiliates (exclusive of depreciation and amortization)		—			18.7			0.1		—			18.8
Total cost of sales		—			146.4			25.9		(2.9	)		169.4
Selling, general and administrative expenses (exclusive of depreciation and amortization)*		—			48.4			9.1		—			57.5
Restructuring, impairment and other charges-net		—			3.1			0.7		—			3.8
Depreciation and amortization		—			8.8			1.4		—			10.2
Income from operations		—			26.2			0.2		—			26.4
Interest expense (income)-net		11.3			(0.2	)		—		—			11.1
Investment and other income-net		—			(0.8	)		—		—			(0.8	)
Earnings (loss) before income taxes and equity in net income of subsidiaries		(11.3	)		27.2			0.2		—			16.1
Income tax (benefit) expense		(4.7	)		11.4			0.1		—			6.8
Earnings (loss) before equity in net income of subsidiaries		(6.6	)		15.8			0.1		—			9.3
Equity in net income of subsidiaries		15.9			0.1			—		(16.0	)		—
Net earnings (loss)	$	9.3		$	15.9		$	0.1	$	(16.0	)	$	9.3
Comprehensive income (loss)	$	9.8		$	16.4		$	0.2	$	(16.6	)	$	9.8

25*Beginning in the quarter ended June 30, 2017, LSC Communications, Inc. (“LSC”) no longer qualified as a related party, therefore the amounts disclosed related to LSC are only presented for the three months ended March 31, 2017. Beginning in the quarter ended September 30, 2017, R.R. Donnelley & Sons Company ("RRD") no longer qualified as a related party, therefore the amounts disclosed related to RRD are only presented for the three months ended March 31, 2017.

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements

(in millions, except per share data, unless otherwise indicated)

Condensed Consolidating ~~Statements~~Balance Sheet

As of ~~Operations~~

~~For the Three Months Ended September 30, 2016~~March 31, 2018

Parent

Guarantor Subsidiaries

Non-guarantor Subsidiaries

Eliminations

Consolidated

Services net sales
$
—

$
115.5

$
25.5

$
(1.6
)

$
139.4

Products net sales

—

78.1

7.7

(0.8
)

85.0

Total net sales

—

193.6

33.2

(2.4
)

224.4

Services cost of sales (exclusive of depreciation and amortization)

—

49.3

16.4

(1.5
)

64.2

Services cost of sales with R.R. Donnelley affiliates (exclusive of depreciation and amortization)

—

8.2

0.5

—

8.7

Products cost of sales (exclusive of depreciation and amortization)

—

57.7

5.2

(0.9
)

62.0

Products cost of sales with R.R. Donnelley affiliates (exclusive of depreciation and amortization)

—

11.5

—

—

11.5

Total cost of sales

—

126.7

22.1

(2.4
)

146.4

Selling, general and administrative expenses (exclusive of depreciation and amortization)

—

39.9

8.6

—

48.5

Restructuring, impairment and other charges-net

—

1.4

0.3

—

1.7

Depreciation and amortization

—

8.7

1.1

—

9.8

Income from operations

—

16.9

1.1

—

18.0

Interest expense (income) –net

—

(0.2
)

0.1

—

(0.1
)
Earnings before income taxes and equity in net income of subsidiaries

—

17.1

1.0

—

18.1

Income tax (benefit) expense

—

9.5

(1.6
)

—

7.9

Earnings before equity in net income of subsidiaries

—

7.6

2.6

—

10.2

Equity in net income of subsidiaries

10.2

2.6

—

(12.8
)

—

Net earnings
$
10.2

$
10.2

$
2.6

$
(12.8
)

$
10.2

Comprehensive income
$
10.2

$
10.2

$
2.8

$
(13.0
)

$
10.2

	Parent		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	—	$	3.5	$	8.6	$	—		$	12.1
Receivables, less allowances		—		195.7		43.3		��			239.0
Intercompany receivables		—		117.6		—		(117.6	)		—
Intercompany short-term note receivable-net		—		—		32.0		(32.0	)		—
Inventories		—		13.9		4.6		—			18.5
Prepaid expenses and other current assets		34.5		14.4		3.5		(24.2	)		28.2
Total current assets		34.5		345.1		92.0		(173.8	)		297.8
Property, plant and equipment-net		—		29.9		3.2		—			33.1
Goodwill		—		429.2		18.1		—			447.3
Other intangible assets-net		—		29.6		6.9		—			36.5
Software-net		—		41.4		0.4		—			41.8
Deferred income taxes		0.4		40.0		4.4		(23.8	)		21.0
Intercompany long-term note receivable, net		376.0		—		—		(376.0	)		—
Other noncurrent assets		3.2		29.7		4.8		—			37.7
Investments in consolidated subsidiaries		366.2		86.2		—		(452.4	)		—
Total assets	$	780.3	$	1,031.1	$	129.8	$	(1,026.0	)	$	915.2
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	—	$	73.1	$	14.6	$	—		$	87.7
Intercompany payables		107.9		—		9.7		(117.6	)		—
Intercompany short-term note payable-net		32.0		—		—		(32.0	)		—
Accrued liabilities		—		99.8		15.9		(24.2	)		91.5
Total current liabilities		139.9		172.9		40.2		(173.8	)		179.2
Long-term debt		478.8		—		—		—			478.8
Intercompany long-term note payable, net		—		376.0		—		(376.0	)		—
Deferred compensation liabilities		—		21.8		—		—			21.8
Pension and other postretirement benefits plan liabilities		—		49.9		1.1		—			51.0
Other noncurrent liabilities		—		44.3		2.3		(23.8	)		22.8
Total liabilities		618.7		664.9		43.6		(573.6	)		753.6
Total equity		161.6		366.2		86.2		(452.4	)		161.6
Total liabilities and equity	$	780.3	$	1,031.1	$	129.8	$	(1,026.0	)	$	915.2

2629

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements

(in millions, except per share data, unless otherwise indicated)

Condensed Consolidating ~~Statements~~Balance Sheet

As of ~~Operations~~

~~For the Nine Months Ended September 30, 2016~~December 31, 2017

Parent

Guarantor Subsidiaries

Non-guarantor Subsidiaries

Eliminations

Consolidated

Services net sales
$
—

$
381.9

$
77.3

$
(5.1
)

$
454.1

Products net sales

—

284.5

26.6

(2.7
)

308.4

Total net sales

—

666.4

103.9

(7.8
)

762.5

Services cost of sales (exclusive of depreciation and amortization)

—

170.0

49.4

(4.8
)

214.6

Services cost of sales with R.R. Donnelley affiliates (exclusive of depreciation and amortization)

—

27.8

1.6

—

29.4

Products cost of sales (exclusive of depreciation and amortization)

—

164.6

18.3

(3.0
)

179.9

Products cost of sales with R.R. Donnelley affiliates (exclusive of depreciation and amortization)

—

48.6

—

—

48.6

Total cost of sales

—

411.0

69.3

(7.8
)

472.5

Selling, general and administrative expenses (exclusive of depreciation and amortization)

—

133.1

23.7

—

156.8

Restructuring, impairment and other charges-net

—

3.1

0.5

—

3.6

Depreciation and amortization

—

26.9

3.2

—

30.1

Income from operations

—

92.3

7.2

—

99.5

Interest expense-net

—

0.2

0.1

—

0.3

Earnings before income taxes and equity in net income of subsidiaries

—

��

92.1

7.1

—

99.2

Income tax expense

—

38.6

0.7

—

39.3

Earnings before equity in net income of subsidiaries

—

53.5

6.4

—

59.9

Equity in net income of subsidiaries

59.9

6.4

—

(66.3
)

—

Net earnings
$
59.9

$
59.9

$
6.4

$
(66.3
)

$
59.9

Comprehensive income
$
63.7

$
63.7

$
10.6

$
(74.3
)

$
63.7

	Parent		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	8.3	$	27.9	$	15.8	$	—		$	52.0
Receivables, less allowances		—		131.3		33.9		—			165.2
Intercompany receivables		—		146.4		—		(146.4	)		—
Intercompany short-term note receivable-net		—		—		30.0		(30.0	)		—
Inventories		—		21.3		2.0		—			23.3
Prepaid expenses and other current assets		37.1		14.8		2.8		(25.1	)		29.6
Total current assets		45.4		341.7		84.5		(201.5	)		270.1
Property, plant and equipment-net		—		31.2		3.5		—			34.7
Goodwill		—		429.2		18.2		—			447.4
Other intangible assets-net		—		32.4		7.5		—			39.9
Software-net		—		40.6		0.5		—			41.1
Deferred income taxes		—		40.5		3.4		(21.7	)		22.2
Other noncurrent assets		3.4		30.0		4.7		—			38.1
Investments in consolidated subsidiaries		728.4		85.2		—		(813.6	)		—
Total assets	$	777.2	$	1,030.8	$	122.3	$	(1,036.8	)	$	893.5
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable	$	—	$	57.9	$	9.9	$	—		$	67.8
Intercompany payable		139.5		—		6.9		(146.4	)		—
Intercompany short-term note payable-net		30.0		—		—		(30.0	)		—
Accrued liabilities		—		127.6		16.7		(25.1	)		119.2
Total current liabilities		169.5		185.5		33.5		(201.5	)		187.0
Long-term debt		458.3		—		—		—			458.3
Deferred compensation liabilities		—		22.8		—		—			22.8
Pension and other postretirement benefits plan liabilities		—		51.3		1.2		—			52.5
Other noncurrent liabilities		—		42.8		2.4		(21.7	)		23.5
Total liabilities		627.8		302.4		37.1		(223.2	)		744.1
Total equity		149.4		728.4		85.2		(813.6	)		149.4
Total liabilities and equity	$	777.2	$	1,030.8	$	122.3	$	(1,036.8	)	$	893.5

2730

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements

(in millions, except per share data, unless otherwise indicated)

Condensed Consolidating ~~Balance Sheet~~Statements of Cash Flows

~~As of September 30, 2017~~For the Three Months Ended March 31, 2018

Parent

Guarantor Subsidiaries

Non-guarantor Subsidiaries

Eliminations

Consolidated

ASSETS

Cash and cash equivalents
$
0.2

$
21.3

$
10.7

$
—

$
32.2

Receivables, less allowances

—

177.7

41.6

—

219.3

Intercompany receivables

—

80.5

—

(80.5
)

—

Intercompany short-term note receivable

—

—

35.0

(35.0
)

—

Inventories

—

21.2

2.4

—

23.6

Prepaid expenses and other current assets

7.3

7.1

3.6

(2.9
)

15.1

Total current assets

7.5

307.8

93.3

(118.4
)

290.2

Property, plant and equipment-net

—

31.4

3.3

—

34.7

Goodwill

—

429.2

18.3

—

447.5

Other intangible assets-net

—

35.2

9.0

—

44.2

Software-net

—

41.5

0.4

—

41.9

Deferred income taxes

—

32.6

4.0

—

36.6

Other noncurrent assets

3.7

30.2

4.7

—

38.6

Investments in consolidated subsidiaries

750.3

85.2

—

(835.5
)

—

Total assets
$
761.5

$
993.1

$
133.0

$
(953.9
)

$
933.7

LIABILITIES AND EQUITY

Accounts payable
$
—

$
61.5

$
12.9

$
—

$
74.4

Intercompany payable

64.5

—

16.0

(80.5
)

—

Intercompany short-term note payable

35.0

—

—

(35.0
)

—

Accrued liabilities

—

97.9

15.1

(2.9
)

110.1

Total current liabilities

99.5

159.4

44.0

(118.4
)

184.5

Long-term debt

488.4

—

—

—

488.4

Deferred compensation liabilities

—

24.6

—

—

24.6

Pension and other postretirement benefits plan liabilities

—

50.2

1.2

—

51.4

Other noncurrent liabilities

—

8.6

2.6

—

11.2

Total liabilities

587.9

242.8

47.8

(118.4
)

760.1

Total equity

173.6

750.3

85.2

(835.5
)

173.6

Total liabilities and equity
$
761.5

$
993.1

$
133.0

$
(953.9
)

$
933.7

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
OPERATING ACTIVITIES
Net cash used in operating activities	$	(30.7	)	$	(18.1	)	$	(4.8	)	$	—		$	(53.6	)
INVESTING ACTIVITIES
Capital expenditures		—			(6.3	)		(0.1	)		—			(6.4	)
Intercompany note receivable, net		—			—			(2.0	)		2.0			—
Net cash used in investing activities		—			(6.3	)		(2.1	)		2.0			(6.4	)
FINANCING ACTIVITIES
Revolving facility borrowings		88.0			—			—			—			88.0
Payments on revolving facility borrowings		(68.0	)		—			—			—			(68.0	)
Intercompany note payable, net		2.0			—			—			(2.0	)		—
Proceeds from issuance of common stock		1.2			—			—			—			1.2
Treasury stock repurchases		(0.8	)		—			—			—			(0.8	)
Net cash provided by financing activities		22.4			—			—			(2.0	)		20.4
Effect of exchange rate on cash and cash equivalents		—			—			(0.3	)		—			(0.3	)
Net decrease in cash and cash equivalents		(8.3	)		(24.4	)		(7.2	)		—			(39.9	)
Cash and cash equivalents at beginning of year		8.3			27.9			15.8			—			52.0
Cash and cash equivalents at end of period	$	—		$	3.5		$	8.6		$	—		$	12.1

Supplemental non-cash disclosure:
Intercompany debt allocation	$	(376.0	)	$	376.0		$	—		$	—		$	—

2831

Donnelley Financial Solutions, Inc.

Notes to the Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements

(in millions, except per share data, unless otherwise indicated)

~~Condensed Consolidating Balance Sheet~~

~~As of December 31, 2016~~

Parent

Guarantor Subsidiaries

Non-guarantor Subsidiaries

Eliminations

Consolidated

ASSETS

Cash and cash equivalents
$
—

$
21.8

$
16.8

$
(2.4
)

$
36.2

Receivables, less allowances

—

119.9

36.3

—

156.2

Receivables from R.R. Donnelley

68.0

28.0

—

—

96.0

Intercompany receivables

—

63.0

—

(63.0
)

—

Intercompany short-term note receivable

—

—

15.3

(15.3
)

—

Inventories

—

22.7

1.4

—

24.1

Prepaid expenses and other current assets

4.3

8.1

4.7

—

17.1

Total current assets

72.3

263.5

74.5

(80.7
)

329.6

Property, plant and equipment-net

—

32.4

3.1

—

35.5

Goodwill

—

429.2

17.2

—

446.4

Other intangible assets-net

—

44.0

10.3

—

54.3

Software-net

—

41.0

0.6

—

41.6

Deferred income taxes

—

34.2

2.8

—

37.0

Other noncurrent assets

4.4

27.7

2.4

—

34.5

Investments in consolidated subsidiaries

692.2

65.1

—

(757.3
)

—

Total assets
$
768.9

$
937.1

$
110.9

$
(838.0
)

$
978.9

LIABILITIES AND EQUITY

Accounts payable
$
3.4

$
72.8

$
11.5

$
(2.4
)

$
85.3

Intercompany payable

43.9

—

18.6

(62.5
)

—

Intercompany short-term note payable

15.3

—

—

(15.3
)

—

Accrued liabilities

8.2

81.4

11.6

(0.5
)

100.7

Total current liabilities

70.8

154.2

41.7

(80.7
)

186.0

Long-term debt

587.0

—

—

—

587.0

Deferred compensation liabilities

—

24.4

—

—

24.4

Pension and other postretirement benefits plan liabilities

—

55.3

1.1

—

56.4

Other noncurrent liabilities

—

11.0

3.0

—

14.0

Total liabilities

657.8

244.9

45.8

(80.7
)

867.8

Total equity

111.1

692.2

65.1

(757.3
)

111.1

Total liabilities and equity
$
768.9

$
937.1

$
110.9

$
(838.0
)

$
978.9

~~Donnelley Financial Solutions, Inc.~~

~~Notes to the Unaudited Condensed Consolidated and Combined Financial Statements~~

~~(in millions, except per share data, unless otherwise indicated)~~

Condensed Consolidating Statements of Cash Flows

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2017

Parent

Guarantor Subsidiaries

Non-guarantor Subsidiaries

Eliminations

Consolidated

OPERATING ACTIVITIES

Net cash (used in) provided by operating activities
$
(4.3
)

$
21.8

$
13.8

$
2.4

$
33.7

INVESTING ACTIVITIES

Capital expenditures

—

(19.2
)

(0.8
)

—

(20.0
)
Purchase of investment

—

(3.4
)

—

—

(3.4
)
Intercompany note receivable

—

—

(19.7
)

19.7

—

Other investing activities

—

0.3

—

—

0.3

Net cash provided by (used in) investing activities

—

(22.3
)

(20.5
)

19.7

(23.1
)
FINANCING ACTIVITIES

Revolving facility borrowings

230.0

—

—

—

230.0

Payments on revolving facility borrowings

(230.0
)

—

—

—

(230.0
)
Payments on long-term debt

(100.0
)

—

—

—

(100.0
)
Debt issuance costs

(1.5
)

—

—

—

(1.5
)
Separation-related payment from R.R. Donnelley

68.0

—

—

—

68.0

Proceeds from the issuance of common stock

18.8

—

—

—

18.8

Treasury stock repurchases

(0.9
)

—

—

—

(0.9
)
Intercompany note payable

19.7

—

—

(19.7
)

—

Other financing activities

0.4

—

—

—

0.4

Net cash provided by (used in) financing activities

4.5

—

—

(19.7
)

(15.2
)
Effect of exchange rate on cash and cash equivalents

—

—

0.6

—

0.6

Net (decrease) increase in cash and cash equivalents

0.2

(0.5
)

(6.1
)

2.4

(4.0
)
Cash and cash equivalents at beginning of year

—

21.8

16.8

(2.4
)

36.2

Cash and cash equivalents at end of period
$
0.2

$
21.3

$
10.7

$
—

$
32.2

~~Donnelley Financial Solutions, Inc.~~

~~Notes to the Unaudited Condensed Consolidated and Combined Financial Statements~~

~~(in millions, except per share data, unless otherwise indicated)~~

~~Condensed Consolidating Statements of Cash Flows~~

~~For the Nine Months Ended September 30, 2016~~

	Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries				Eliminations		Consolidated			Parent			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated
OPERATING ACTIVITIES
Net cash provided by operating activities	$	—		$	52.6		$	4.2			$	—	$	56.8
Net cash (used in) provided by operating activities																$	(27.3	)	$	4.5		$	(0.6	)	$	(14.8	)	$	(38.2	)
INVESTING ACTIVITIES
Capital expenditures		—			(12.8	)		(1.2	)			—		(14.0	)		—			(3.9	)		(0.4	)		—			(4.3	)
Purchase of investment		—			(3.5	)		—				—		(3.5	)		—			(3.4	)		—			—			(3.4	)
Other investing activities		—			—			0.5				—		0.5			—			0.2			—			—			0.2
Net cash used in investing activities		—			(16.3	)		(0.7	)			—		(17.0	)		—			(7.1	)		(0.4	)		—			(7.5	)
FINANCING ACTIVITIES
Revolving facility borrowings																	57.0			—			—			—			57.0
Payments on revolving facility borrowings																	(37.0	)		—			—			—			(37.0	)
Debt issuance costs		(9.3	)		—			—				—		(9.3	)		(1.5	)		—			—			—			(1.5	)
Proceeds from issuance of long-term debt		348.2			—			—				—		348.2
Net change in short-term debt		—			—			(8.8	)			—		(8.8	)
Net transfers to Parent and affiliates		(338.9	)		(9.1	)		11.8				—		(336.2	)
Net cash (used in) provided by financing activities		—			(9.1	)		3.0		��		—		(6.1	)
Intercompany note payable (receivable)																	5.7			—			(5.7	)		—			—
Net transfers related to the Separation																	3.1			—			—			—			3.1
Net cash provided by (used in) financing activities																	27.3			—			(5.7	)		—			21.6
Effect of exchange rate on cash and cash equivalents		—			—			4.2				—		4.2			—			—			0.2			—			0.2
Net increase in cash and cash equivalents		—			27.2			10.7				—		37.9
Net decrease in cash and cash equivalents																	—			(2.6	)		(6.5	)		(14.8	)		(23.9	)
Cash and cash equivalents at beginning of year		—			0.1			15.0				—		15.1			—			21.8			16.8			(2.4	)		36.2
Cash and cash equivalents at end of period	$	—		$	27.3		$	25.7			$	—	$	53.0		$	—		$	19.2		$	10.3		$	(17.2	)	$	12.3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Company Overview

Donnelley Financial Solutions, Inc. (“Donnelley Financial,” or the “Company”) is a financial communications services company that supports global capital markets compliance and transaction needs for its corporate clients and their advisors (such as law firms and investment bankers) and global investment management compliance and analytics needs for mutual fund companies, variable annuity providers and broker/dealers. The Company provides content management, multi-channel content distribution, data management and analytics services, collaborative workflow and business reporting tools, and translations and other language services in support of its clients’ communications requirements. The Company operates in two business segments:

~~United States~~. The U.S. segment is comprised of three reporting units: capital markets, investment markets, and language solutions and other. The Company services capital market and investment market clients in the U.S by delivering products and services to help create, manage and deliver financial communications to investors and regulators. The Company provides capital market and investment market clients with communication tools and services to allow them to comply with their ongoing regulatory filings. In addition, the U.S. segment provides clients with communications services to create, manage and deliver registration statements, prospectuses, proxies and other communications to regulators and investors. The U.S. segment also includes language solutions and commercial printing capabilities.

•

United States. The U.S. segment is comprised of three reporting units: capital markets, investment markets, and language solutions and other. The Company services capital market and investment market clients in the U.S by delivering products and services to help create, manage and deliver financial communications to investors and regulators. The Company provides capital market and investment market clients with communication tools and services to allow them to comply with their ongoing regulatory filings. In addition, the U.S. segment provides clients with communications services to create, manage and deliver registration statements, prospectuses, proxies and other communications to regulators and investors. The U.S. segment also includes language solutions and commercial printing capabilities.

~~International~~. The International segment includes operations in Asia, Europe, Canada and Latin America. The international business is primarily focused on working with international capital markets clients on capital markets offerings and regulatory compliance related activities within the United States. In addition, the International segment provides services to international investment market clients to allow them to comply with applicable U.S. Securities and Exchange Commission (“SEC”) regulations, as well as language solutions to international clients.

•

International. The International segment includes operations in Asia, Europe, Canada and Latin America. The international business is primarily focused on working with international capital markets clients on capital markets offerings and regulatory compliance related activities within the United States. In addition, the International segment provides services to international investment market clients to allow them to comply with applicable U.S. Securities and Exchange Commission (“SEC”) regulations, as well as language solutions to international clients.

The Company reports certain unallocated ~~selling,~~ general and administrative activities and associated expenses within “Corporate”, including, in part, executive, legal, finance, marketing and certain facility costs. In addition, certain costs and earnings of employee benefit plans, such as pension income and share-based compensation, are included in Corporate and are not allocated to the reportable segments. ~~Prior to the Separation (as defined below), many of these costs were based on allocations from R.R. Donnelley & Sons Company (“RRD”); however, the Company now incurs such costs directly.~~

For the Company’s financial results and the presentation of certain other financial information by segment, see Note ~~10,~~ 13, Segment Information, to the Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements.

Products and Services

The Company separately reports its net sales and related cost of sales for its products and services offerings. The Company’s services offerings consist of all non-print offerings, including document composition, compliance related EDGAR filing services, transaction solutions, language solutions and the Company’s software-as-a-service solutions (“SaaS”), including Venue Virtual Data Room, the FundSuiteArc software platform, ActiveDisclosure and data and analytics, ~~content storage services and language solutions.~~among others. The Company’s product offerings primarily consist of conventional and digital printed products and related ~~distribution~~shipping costs.

Spin-off Transaction

On October 1, 2016, Donnelley Financial became an independent publicly traded company through the distribution by RRD of approximately 26.2 million shares, or 80.75%, of Donnelley Financial common stock to RRD shareholders (the “Separation”). Holders of RRD common stock received one share of Donnelley Financial common stock for every eight shares of RRD common stock held on September 23, 2016. RRD retained approximately 6.2 million shares of Donnelley Financial common stock, or a 19.25% interest (as of the Separation date) in Donnelley Financial, as part of the Separation.

Donnelley Financial’s common stock began regular-way trading under the ticker symbol “DFIN” on the New York Stock Exchange on October 3, 2016. On October 1, 2016, RRD also completed the previously announced separation of LSC Communications, Inc. (“LSC”), its publishing and retail-centric print services and office products business. On March 28, 2017, RRD completed the sale of 6.2 million shares of LSC common stock (RRD’s remaining ownership stake in LSC) in an underwritten public offering. As a result, beginning in the quarter ended June 30, 2017, LSC is no longer ~~an affiliate~~qualified as a related party of the Company.

On March 24, 2017, pursuant to the Stockholder and Registration Rights Agreement, the Company filed a Registration Statement on Form S-1 to register the offering and sale of the Company’s common stock retained by RRD. The Registration Statement on Form S-1, as amended, was declared effective by the SEC on June 13, 2017. On June 21, 2017, RRD completed the sale of approximately 6.1 million shares of the Company’s common stock in an underwritten public offering. RRD retained approximately 0.1 million shares of the Company’s common stock upon consummation of the offering which were subsequently sold by RRD on August 1,4, 2017. In conjunction with the underwritten public offering, the underwriters exercised their option to purchase approximately 0.9 million of the Company’s shares (the “Option Shares”). The Company received approximately $18.8 million in net proceeds from the sale of the Option Shares, after deducting estimated underwriting discounts and commissions. The proceeds were used to reduce outstanding debt under the Revolving Facility (as defined in Liquidity and Capital Resources).

Beginning in the quarter ended September 30, 2017, RRD no longer qualified as a related party, therefore amounts disclosed related to RRD are only presented ~~through June 30,~~for the three months ended March 31, 2017 ~~only.~~.

Executive Overview

~~Third~~First Quarter Overview

Net sales decreased by ~~$1.8~~$12.1 million, or ~~0.8%~~4.5%, for the ~~third~~first quarter of ~~2017~~2018 compared to the same period in the prior year. There was a ~~$0.3~~$2.5 million, or ~~0.1%~~0.9%, increase due to changes in foreign exchange ~~rates.~~rates and a $1.6 million, or 0.6%, increase due to the adoption of the new revenue recognition standard. Net sales decreased ~~primarily~~ due to lower ~~volumes in capital markets transactions, partially offset by higher volumes in~~ mutual fund print and ~~print-related~~capital markets compliance volumes, partially offset by an increase in translations services and ~~capital markets compliance.~~virtual data room services.

~~Non-GAAP Measures~~

On January 1, 2018, the Company adopted Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09” or “the new revenue recognition standard”). The Company ~~believes that certain Non-GAAP measures, such~~recognized the cumulative effect of applying the standard as ~~Non-GAAP adjusted EBITDA, provide useful information about~~an opening transition adjustment to retained earnings, which increased retained earnings at January 1, 2018 by $0.9 million. The comparative periods have not been restated and continue to be reported under the Company’s operating results and enhance the overall ability to assess the Company’s financial performance. The Company uses these measures, together with other measures of performance under GAAP, to compare the relative performance of operationsaccounting standards in ~~planning, budgeting and reviewing the performance of its business. Non-GAAP adjusted EBITDA allows investors to make~~effect for those periods.

As a more meaningful comparison between the Company’s core business operating results over different periods of time. The Company believes that Non-GAAP adjusted EBITDA, when viewed with the Company’s results under GAAP and the accompanying reconciliations, provides useful information about the Company’s business without regard to potential distortions. By eliminating potential differences in results of operations between periods caused by factors such as depreciation and amortization methods, historic cost and age of assets, financing and capital structures, taxation positions or regimes, restructuring, impairment and other charges and gain or loss on certain equity investments and asset sales, the Company believes that Non-GAAP adjusted EBITDA can provide a useful additional basis for comparing the current performanceresult of the ~~underlying operations being evaluated.~~

~~Non-GAAP adjusted EBITDA~~adoption of ASU 2014-09, revenue recognition has been accelerated for certain arrangements with multiple performance obligations as revenue is ~~not presented in accordance with GAAP~~now recognized upon the completion of each performance obligation rather than upon completion of all services and ~~has important limitations as an analytical tool. These measures should not be considered as a substitute for analysis~~shipment of the ~~Company’s results as reported under GAAP. In addition, these measures are defined differently by different companies in our industry and, accordingly, such measures may~~related document, if applicable. Revenue has also been accelerated for certain inventory which has been invoiced but not yet shipped at the customer’s request. Additionally, certain revenues related to virtual data room services have been deferred to be ~~comparable~~recognized over the term of the contract. Refer to ~~similarly-titled measures of other companies.~~

~~In addition~~Note 2, Revenue, to the ~~factors listed above, the following items are excluded from Non-GAAP adjusted EBITDA:~~

~~Share-based compensation expense~~. Although share-based compensation is a key incentive offered to certain of the Company’s employees, business performance is evaluated excluding share-based compensation expenses. Depending upon the size, timing and the terms of grants, non-cash compensation expense may vary but will recur in future periods. Prior periods have been revised to reflect this adjustment.

~~Spin-off related transaction expenses.~~ The Company has incurred expenses related to the Separation to operate as a standalone publicly traded company. These expenses include third-party consulting fees, employee retention payments, legal fees and other costs related to the Separation. Management does not believe that these expenses are reflective of ongoing operating results. This adjustment does not include expenses incurred prior to the Separation.

~~A reconciliation of GAAP net earnings to Non-GAAP adjusted EBITDA~~Unaudited Condensed Consolidated Financial Statements for ~~the three and nine months ended September 30, 2017 and 2016 for these adjustments is presented in the following table:~~

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

(in millions)

Net earnings
$
5.3

$
10.2

$
33.4

$
59.9

Restructuring, impairment and other charges—net

(0.6
)

1.7

6.4

3.6

Share-based compensation expense

1.7

0.2

5.2

1.2

Spin-off related transaction expenses

2.6

—

9.8

—

Depreciation and amortization

10.6

9.8

31.7

30.1

Interest expense (income)—net

10.6

(0.1
)

32.7

0.3

Income tax expense

2.1

7.9

22.0

39.3

Non-GAAP adjusted EBITDA
$
32.3

$
29.7

$
141.2

$
134.4

~~2017 Restructuring, impairment and other charges—net~~. The three months ended September 30, 2017 included $0.4 million for employee termination costs and a $1.0 million net reversal of other restructuring charges, primarily related to the reversal of previously recognized lease termination costs associated with a facility that the Company began using during the third quarter of 2017. The nine months ended September 30, 2017 included $5.2 million for employee termination costs, $0.9 million of net lease termination and other restructuring costs, $0.2 million of net impairment charges of long-lived assets and $0.1 million for other charges associated with the Company’s decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate.

~~2016 Restructuring, impairment and other charges—net~~. The three months ended September 30, 2016 included $1.3 million for employee termination costs and $0.4 million of lease termination and other restructuring costs. The nine months ended September 30, 2016 included $2.3 million for employee termination costs, $1.2 million of lease termination and other restructuring costs and $0.1 million for other charges associated with the Company’s decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate.

~~Share-based compensation expense.~~ Included pre-tax charges of $1.7 million and $0.2 million for the three months ended September 30, 2017 and 2016, respectively, and $5.2 million and $1.2 million for the nine months ended September 30, 2017 and 2016, respectively.

~~Spin-off related transaction expenses.~~ Included pre-tax charges of $2.6 million and $9.8 million related to third-party consulting fees, legal fees and other costs related to the Separation for the three months and nine months ended September 30, 2017, respectively.further information.

OUTLOOK

Competition

Technological and regulatory changes, including the electronic distribution of documents and data hosting of media content, continue to impact the market for our products and services. One of the Company’s competitive strengths is that it offers a wide array of communications products, compliance services and technologies, a global platform, exceptional sales and service and regulatory domain expertise, which provide differentiated solutions for its clients.

The financial communications services industry, in general, is highly competitive and barriers to entry have decreased as a result of technology innovation. Despite some consolidation in recent years, the industry remains highly fragmented in the United States and even more so internationally with many in-country alternative providers. The Company expects competition to increase from existing competitors, as well as new and emerging market entrants. In addition, as the Company expands its product and service offerings, it may face competition from new and existing competitors. The Company competes primarily on product quality and functionality, service levels, subject matter regulatory expertise, security and compliance characteristics, price and reputation.

The impact of digital technologies has been felt in many print products, most acutely in the Company’s mutual fund, variable annuity and public company compliance business offerings. ~~Historically,~~While the Company ~~has been~~maintains a high-touch, service oriented ~~business. Technology~~business technology changes have provided alternatives to the Company’s clients that allow them to manage more of the financial disclosure process ~~themselves through collaborative document management solutions.~~themselves. For years, the Company has invested in its own applications, ActiveDisclosure, FundSuiteArc and Venue Virtual Data Room (“Venue”) to serve clients and increase retention and has invested to expand capabilities and address new market sectors. The future impact of technology on the business is difficult to predict and could result in additional expenditures to restructure impacted operations or develop new technologies. In addition, the Company has made targeted acquisitions and investments in its existing business to offer clients innovative services and solutions, including acquisitions of EDGAR Online and MultiCorpora and investments in ~~Soxhub,~~AuditBoard (formerly known as Soxhub), Mediant, Peloton and eBrevia that ~~further solidify~~support the Company’s position as a technology service leader in the industry.

The Company’s competitors for SEC filing services for ~~capital markets~~public company compliance clients include full service financial communications providers, technology point solution providers focused on financial communications and general technology providers. The Company’s competitors for SEC filing services for investment markets clients include full service traditional providers, small niche technology providers and local and regional print providers that bid against the Company for printing, mailing and fulfillment services. Language solutions competes with global and local language service providers and language/globalization software vendors.

Market Volatility/Cyclicality

The Company is subject to market volatility in the United States and world economy, as the success of the transactional offering is largely dependent on the global market for IPOs, secondary offerings, mergers and acquisitions, public and private debt offerings, leveraged buyouts, spinouts and other transactions. The International segment is particularly susceptible to capital market volatility as most of the International business is capital markets transaction focused. The Company mitigates some of that risk by offering services in higher demand during a down market, like document management tools for the bankruptcy/restructuring process, and also moving upstream from the filing process with products like Venue, the Company’s data room solution. The Company also attempts to balance this volatility through supporting the quarterly/annual public company reporting process through its EDGAR filing services and ActiveDisclosure product, its investment markets regulatory and shareholder communications offering and continues to expand into adjacent growth businesses like language solutions and data and analytics, which have recurring revenues and are not as susceptible to market volatility and cycles. This quarterly/annual public company reporting process work also subjects the Company to filing seasonality shortly after the end of each fiscal quarter, with peak periods during the course of the year that have operational implications. Such operational implications include the need to increase staff during peak periods through a combined strategy of hiring additional full-time and temporary personnel, increasing the premium time of existing staff, and outsourcing production for a number of services. Additionally, clients and their financial advisors have begun to increasingly rely on web-based services which allow clients to autonomously file and distribute compliance documents with regulatory agencies, such as the SEC. While the Company believes that its ActiveDisclosure and FundSuiteArc solutions are competitive in this space, competitors are continuing to develop technologies that aim to improve clients’ ability to autonomously produce and file documents to meet their regulatory obligations. The Company continues to remain focused on driving recurring revenue in order to mitigate market volatility.

Raw Materials

The primary raw materials used in the Company’s printed products are paper and ink. The paper and ink supply is sourced from a small set of select suppliers in order to ensure consistent quality that meets the Company’s performance expectations and provides for continuity of supply. The Company believes that the risk of incurring material losses as a result of a shortage in raw materials is unlikely and that the losses, if any, would not have a materially negative impact on the Company’s business.

Distribution

The Company’s products are distributed to end-users through the U.S or foreign postal services, through retail channels, electronically or by direct shipment to customer facilities. ~~Postal costs~~

Significant Accounting Policies and Critical Estimates

The preparation of financial statements in conformity with GAAP requires the extensive use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. The Company’s significant accounting policies and critical estimates are ~~a significant component of many customers’ cost structures and postal rate changes can influence the number of pieces that~~disclosed in the Company’s ~~customers~~Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on February 28, 2018. Significant changes to the Company’s significant accounting policies and critical estimates due to the adoption of the new revenue recognition standard are ~~willing~~included in Note 2, Revenue, to ~~print and mail.~~the Unaudited Condensed Consolidated Financial Statements.

Financial Review

In the financial review that follows, the Company discusses its unaudited condensed consolidated ~~and combined~~ results of operations, cash flows and certain other information. In periods prior to the Separation, the combined financial statements were prepared on a stand-alone basis and were derived from RRD’s consolidated financial statements and accounting records. There are limitations inherent in the preparation of all carve out financial statements due to the fact that the Company’s business was previously part of a larger organization. This discussion should be read in conjunction with the Company’s unaudited condensed consolidated ~~and combined~~ financial statements and the related notes.

Results of Operations for the Three Months Ended ~~September 30, 2017~~March 31, 2018 as Compared to the Three Months Ended ~~September 30, 2016~~March 31, 2017

The following table shows the results of operations for the three months ended March 31, 2018 and 2017:

	2018		2017		$ Change			% Change
	(in millions, except percentages)
Services net sales	$	159.5	$	154.0	$	5.5			3.6	%
Products net sales		95.7		113.3		(17.6	)		(15.5	%)
Net sales		255.2		267.3		(12.1	)		(4.5	%)
Services cost of sales (exclusive of depreciation and amortization)		85.9		77.7		8.2			10.6	%
Services cost of sales with RRD affiliates (exclusive of depreciation and amortization)*		—		9.9		(9.9	)		(100.0	%)
Products cost of sales (exclusive of depreciation and amortization)		72.7		63.0		9.7			15.4	%
Products cost of sales with RRD affiliates (exclusive of depreciation and amortization)*		—		18.8		(18.8	)		(100.0	%)
Cost of sales		158.6		169.4		(10.8	)		(6.4	%)
Selling, general and administrative expenses (exclusive of depreciation and amortization)		66.1		57.5		8.6			15.0	%
Restructuring, impairment and other charges-net		0.7		3.8		(3.1	)		(81.6	%)
Depreciation and amortization		10.4		10.2		0.2			2.0	%
Income from operations	$	19.4	$	26.4	$	(7.0	)		(26.5	%)

*Beginning in the quarter ended June 30, 2017, LSC no longer qualified as a related party, therefore the amounts disclosed related to LSC are only presented for the three months ended March 31, 2017. Beginning in the quarter ended September 30, 2017, ~~and 2016 :~~RRD no longer qualified as a related party, therefore the amounts disclosed related to RRD are only presented for the three months ended March 31, 2017.

2017

2016

$ Change

% Change

(in millions, except percentages)

Services net sales
$
140.3

$
139.4

$
0.9

0.6
%
Products net sales

82.3

85.0

(2.7
)

(3.2
%)
Net sales

222.6

224.4

(1.8
)

(0.8
%)
Services cost of sales (exclusive of depreciation and amortization)

81.7

64.2

17.5

27.3
%
Services cost of sales with RRD affiliates (exclusive of depreciation and amortization)*

—

8.7

(8.7
)

(100.0
%)
Products cost of sales (exclusive of depreciation and amortization)

58.9

62.0

(3.1
)

(5.0
%)
Products cost of sales with RRD affiliates (exclusive of depreciation and amortization)*

—

11.5

(11.5
)

(100.0
%)
Cost of sales

140.6

146.4

(5.8
)

(4.0
%)
Selling, general and administrative expenses (exclusive of depreciation and amortization)

54.0

48.5

5.5

11.3
%
Restructuring, impairment and other charges-net

(0.6
)

1.7

(2.3
)

(135.3
%)
Depreciation and amortization

10.6

9.8

0.8

8.2
%
Income from operations
$
18.0

$
18.0

$
-

0.0
%

*	~~Beginning in the quarter ended September 30, 2017, RRD no longer qualified as a related party, therefore the amounts disclosed related to RRD are presented through June 30, 2017 only.~~

Consolidated ~~and Combined~~

Net sales of services for the three months ended ~~September 30, 2017~~March 31, 2018 increased ~~$0.9~~$5.5 million, or ~~0.6%~~3.6%, to ~~$140.3~~$159.5 million, versus the three months ended ~~September 30, 2016,~~March 31, 2017, including a ~~$0.2~~$2.8 million, or ~~0.1%~~1.8%, increase due to changes in foreign exchange rates. Net sales of services increased due to higher ~~mutual fund print-related~~translations services and virtual data room services and a $2.6 million, or 1.7%, increase due to the adoption of the new revenue recognition standard, partially offset by lower volumes in both capital markets transactions and compliance ~~and mutual fund content management~~ volumes.

Net sales of products for the three months ended ~~September 30, 2017~~March 31, 2018 decreased ~~$2.7~~$17.6 million, or ~~3.2%~~15.5%, to ~~$82.3~~$95.7 million versus the three months ended ~~September 30, 2016,~~March 31, 2017, including a ~~$0.1~~$0.3 million, or ~~0.1%~~0.3%, ~~increase~~decrease due to changes in foreign exchange ~~rates.~~rates and a $1.0 million or 0.9% decrease due to the adoption of the new revenue recognition standard. Net sales of products decreased due to lower ~~capital markets transactions~~mutual fund print volumes and ~~healthcare print volumes, partially offset by higher~~ capital markets compliance volumes.

Services cost of sales ~~increased $8.8~~decreased $1.7 million, or ~~12.1%~~1.9%, for the three months ended ~~September 30, 2017,~~March 31, 2018, versus the three months ended ~~September 30, 2016.~~March 31, 2017. Services cost of sales ~~increased~~decreased due to ~~higher volumes in mutual fund print-related services, an increase in the allocation of information technology expenses from selling, general~~sales mix and ~~administrative expenses to~~ cost ~~of sales,~~control initiatives, partially offset by ~~cost control initiatives.~~a $0.4 million, or 0.5%, increase due to the adoption of the new revenue recognition standard. As a percentage of net sales, services cost of sales ~~increased 5.9%~~decreased 3.0% primarily due to ~~unfavorable mix from lower capital markets transaction volumes and increased information technology expenses.~~favorable sales mix.

Products cost of sales decreased ~~$14.6~~$9.1 million, or ~~19.9%~~11.1%, for the three months ended ~~September 30, 2017,~~March 31, 2018, versus the three months ended ~~September 30, 2016.~~March 31, 2017, including a $1.4 million, or 1.7%, decrease due to the adoption of the new revenue recognition standard. Products cost of sales decreased due to lower volumes in mutual fund print and capital markets compliance and cost control initiatives. As a percentage of net sales, products cost of sales ~~decreased 14.9%. Products cost of sales decreased~~increased 3.8% primarily due to ~~a favorable mix of products sales and cost control initiatives.~~unfavorable mix.

Selling, general and administrative expenses increased ~~$5.5~~$8.6 million, or ~~11.3%~~15.0%, to ~~$54.0~~$66.1 million, for the three months ended ~~September 30, 2017,~~March 31, 2018, as compared to the three months ended ~~September 30, 2016,~~March 31, 2017, primarily due to an increase in ~~expenses incurred to operate as an independent public company, including employee compensation costs and~~ spin-off related transaction ~~expenses, partially offset by an increase in the allocation of information technology expenses from selling, general and administrative expenses to cost of sales.~~expenses. As a percentage of net sales, selling, general, and administrative expenses increased from ~~21.6%~~21.5% for the three months ended ~~September 30, 2016~~March 31, 2017 to ~~24.3%~~25.9% for the three months ended ~~September 30, 2017 due to increased costs of operating as an independent public company.~~

For the three months ended September 30, 2017, the Company recorded a net restructuring reversal of $0.6 million, as compared to $1.7 million in expense for the three months ended September 30, 2016. In 2017, the net restructuring reversal included a $1.0 million net restructuring reversal of other restructuring charges, primarily related to the reversal of previously recognized lease termination charges associated with a facility that the Company began using during the third quarter of September 30, 2017 partially offset by $0.4 million of employee termination costs for 21 employees. In 2016, these charges included $1.3 million of employee termination costs for 22 employees and $0.4 million of lease termination and other restructuring costs.

Depreciation and amortization increased $0.8 million, or 8.2%, to $10.6 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. Depreciation and amortization included $3.6 million and $3.6 million of amortization of other intangible assets related to customer relationships, trade names and non-compete agreements for the three months ended September 30, 2017 and 2016, respectively.

Income from operations for the three months ended September 30, 2017 was consistent at $18.0 million as compared to the three months ended September 30, 2016, due to cost control initiatives and higher volumes in capital markets compliance, mutual fund print-related services and virtual data room services, partially offset by lower volumes in capital markets transactions and healthcare print, an increase in expenses incurred to operate as an independent public company, including employee compensation costs and spin-off related transaction expenses.

2017

2016

$ Change

% Change

(in millions, except percentages)
Interest expense (income)-net
$
10.6

$
(0.1
)

$
10.7

nm

~~Net interest expense increased $10.7 million for the three months ended September 30, 2017 versus the same period in 2016, due to the issuance of debt in connection with the Separation.~~

2017

2016

$ Change

% Change

(in millions, except percentages)

Earnings before income taxes
$
7.4

$
18.1

$
(10.7
)

(59.1
%)
Income tax expense

2.1

7.9

(5.8
)

(73.4
%)
Effective income tax rate

28.4
%

43.6
%

The effective income tax rate was 28.4% for the three months ended September 30, 2017 compared to 43.6% for the three months ended September 30, 2016. For the quarter ended September 30, 2017, the effective income tax rate is lower due to a decrease in the estimated full-year income tax rate, which was driven by a favorable change in jurisdictional mix of income, as well as the positive settlement of previous years’ tax disputes.

~~Information by Segment~~

~~The following tables summarize net sales, income (loss) from operations and certain items impacting comparability within each of the operating segments and Corporate.~~

~~U.S.~~

Three Months Ended September 30,

2017

2016

(in millions, except percentages)

Net sales
$
186.1

$
192.3

Income from operations

22.4

18.7

Operating margin

12.0
%

9.7
%
Restructuring, impairment and other charges-net

(0.8
)

1.4

Spin-off related transaction expenses

2.2

—

Net Sales for the Three Months

Ended September 30,

Reporting unit
2017

2016

$ Change

% Change

(in millions, except percentages)

Capital Markets
$
93.8

$
98.4

$
(4.6
)

(4.7
%)
Investment Markets

81.7

84.1

(2.4
)

(2.9
%)
Language Solutions and other

10.6

9.8

0.8

8.2
%
Total U.S.
$
186.1

$
192.3

$
(6.2
)

(3.2
%)

Net sales for the U.S. segment for the three months ended September 30, 2017 were $186.1 million, a decrease of $6.2 million, or 3.2%, compared to the three months ended September 30, 2016. Net sales decreased due to lower volumes in capital markets transactions and healthcare print, partially offset by higher capital markets compliance volumes, mutual fund print-related services, and virtual data room services. An analysis of net sales by reporting unit follows:

~~Capital Markets:~~ ~~Sales decreased due to lower transactions volumes, partially offset by higher compliance volumes, and virtual data room services.~~

~~Investment Markets:~~ ~~Sales decreased due to lower healthcare and content management volumes partially offset by higher mutual fund print-related services.~~

~~Language Solutions and other:~~ ~~Sales increased primarily due to higher volumes in commercial print.~~

U.S. segment income from operations increased $3.7 million, or 19.8%, for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016, primarily due to an increase in capital markets compliance volumes, mutual fund print-related services, cost control initiatives, and lower restructuring, impairment and other charges, partially offset by lower volumes in capital markets transactions, spin-off related transaction expenses and lower healthcare volumes.

Operating margins increased from 9.7% for the three months ended September 30, 2016 to 12.0% for the three months ended September 30, 2017 due to cost control initiatives, partially offset by an increase in selling expenses and incentive compensation expense.

~~International~~

Three Months Ended September 30,

2017

2016

(in millions, except percentages)

Net sales
$
36.5

$
32.1

Income from operations

1.5

1.1

Operating margin

4.1
%

3.4
%
Restructuring, impairment and other charges-net

0.1

0.3

Net sales for the International segment for the three months ended September 30, 2017 were $36.5 million, an increase of $4.4 million, or 13.7%, compared to the three months ended September 30, 2016 including a $0.3 million, or 0.9%, increase due to changes in foreign exchange rates. Net sales increased due to higher mutual fund print-related services and translation services.

International segment income from operations increased $0.4 million, or 36.4%, for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016, due to an increase in mutual fund print-related services and translation services and lower restructuring, impairment and other charges, partially offset by an increase in allocated expenses, including information technology expenses.

Operating margins increased from 3.4% for the three months ended September 30, 2016 to 4.1% for the three months ended September 30, 2017 due to an increase in overall sales volume for the segment, partially offset by an increase in allocated expenses, including information technology expenses.

~~Corporate~~

~~The following table summarizes unallocated operating expenses and certain items impacting comparability within the activities presented as Corporate:~~

Three Months Ended September 30,

2017

2016

(in millions)

Operating expenses
$
5.9

$
1.8

Spin-off related transaction expenses

0.4

—

Share-based compensation expense

1.7

0.2

Restructuring, impairment and other charges-net

0.1

—

Corporate operating expenses for the three months ended September 30, 2017 increased $4.1 million versus the same period in 2016 due to higher employee compensation costs incurred to operate as an independent public company, an increase in share-based compensation expense and spin-off related transaction expenses.

~~Results of Operations for the Nine Months Ended September 30, 2017 as Compared to the Nine Months Ended September 30, 2016~~

~~The following table shows the results of operations for the nine months ended September 30, 2017 and 2016 :~~

2017

2016

$ Change

% Change

(in millions, except percentages)

Services net sales
$
471.4

$
454.1

$
17.3

3.8
%
Products net sales

308.7

308.4

0.3

0.1
%
Net sales

780.1

762.5

17.6

2.3
%
Services cost of sales (exclusive of depreciation and amortization)

240.2

214.6

25.6

11.9
%
Services cost of sales with RRD affiliates (exclusive of depreciation and amortization)*

19.5

29.4

(9.9
)

(33.7
%)
Products cost of sales (exclusive of depreciation and amortization)

190.7

179.9

10.8

6.0
%
Products cost of sales with RRD affiliates (exclusive of depreciation and amortization)*

32.3

48.6

(16.3
)

(33.5
%)
Cost of sales

482.7

472.5

10.2

2.2
%
Selling, general and administrative expenses (exclusive of depreciation and amortization)

171.2

156.8

14.4

9.2
%
Restructuring, impairment and other charges-net

6.4

3.6

2.8

77.8
%
Depreciation and amortization

31.7

30.1

1.6

5.3
%
Income from operations
$
88.1

$
99.5

$
(11.4
)

(11.5
%)

*	~~Beginning in the quarter ended September 30, 2017, RRD no longer qualified as a related party, therefore the amounts disclosed related to RRD are presented through June 30, 2017 only.~~

~~Consolidated and Combined~~

Net sales of services for the nine months ended September 30, 2017 increased $17.3 million, or 3.8%, to $471.4 million, versus the nine months ended September 30, 2016, including a $2.4 million, or 0.5%, decrease due to changes in foreign exchange rates. Net sales of services increased due to higher volumes in mutual fund print-related services, virtual data room services and content management, partially offset by lower capital markets transactions and compliance volumes.

Net sales of products for the nine months ended September 30, 2017 increased $0.3 million, or 0.1%, to $308.7 million versus the nine months ended September 30, 2016, including a $1.0 million, or 0.3%, decrease due to changes in foreign exchange rates. Net sales of products increased due to higher capital markets compliance and mutual fund print-volumes, partially offset by lower capital markets transactions volumes and healthcare volumes.

Services cost of sales increased $15.7 million, or 6.4%, for the nine months ended September 30, 2017, versus the nine months ended September 30, 2016. Services cost of sales increased due to higher mutual fund print-related services, and content management volumes, an increase in the allocation of information technology expenses from selling, general and administrative expenses to cost of sales and an increase in incentive compensation expense, partially offset by cost control initiatives. As a percentage of net sales, services cost of sales increased 1.4% due to unfavorable mix and the increased information technology expense.

Products cost of sales decreased $5.5 million, or 2.4%, for the nine months ended September 30, 2017, versus the nine months ended September 30, 2016. As a percentage of net sales, products cost of sales decreased 1.9%. Products cost of sales decreased due to a favorable mix of product sales and cost control initiatives.

Selling, general and administrative expenses increased $14.4 million, or 9.2%, to $171.2 million, for the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016, primarily due to an increase in expenses incurred to operate as an independent public company, including selling expenses, employee compensation costs and spin-off related transaction expenses, partially offset by an increase in the allocation of information technology expenses from selling, general and administrative expenses to cost of sales. As a percentage of net sales, selling, general, and administrative expenses increased from 20.6% for the nine months ended September 30, 2016 to 21.9% for the nine months ended September 30, 2017March 31, 2018 primarily due to increased ~~costs of operating as an independent public company, including~~ spin-off related transaction expenses.

For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, the Company recorded net restructuring, impairment and other charges of ~~$6.4~~$0.7 million, as compared to ~~$3.6~~$3.8 million for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. In ~~2017,~~2018, these charges included ~~$5.2 million of employee termination costs for 169 employees, $0.9~~$0.5 million of lease termination and other restructuring costs, ~~$0.2~~$0.1 million of ~~impairment charges for long-lived assets,~~employee termination costs, and $0.1 million for other charges associated with the Company’s decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate. In ~~2016, these~~2017, the Company incurred lease termination and other restructuring charges ~~included $2.3~~of $3.3 million of employee termination costs for 7487 employees, ~~$1.2~~$0.4 million of lease termination and other restructuring costs and $0.1 million for other charges associated with the Company’s decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate.

Depreciation and amortization increased ~~$1.6~~$0.2 million, or ~~5.3%~~2.0%, to ~~$31.7~~$10.4 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 compared to the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. Depreciation and amortization included ~~$10.7~~$3.4 million and ~~$10.8~~$3.6 million of amortization of other intangible assets related to customer relationships, trade names and non-compete agreements for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively.

Income from operations for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 decreased ~~$11.4~~$7.0 million, or ~~11.5%~~26.5%, to ~~$88.1~~$19.4 million versus the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, due to ~~lower volumes in capital markets transactions and healthcare print and~~ an increase in ~~expenses incurred to operate as an independent public company, including selling expenses, employee compensation costs and~~ spin-off related transaction expenses and lower sales volumes, partially offset by cost control initiatives and ~~higher volumes~~a decrease in ~~mutual funds print-related, capital markets compliance, mutual fund print, virtual data room services,~~restructuring, impairment and ~~content management.~~other charges.

2017

2016

$ Change

% Change

(in millions, except percentages)
Interest expense-net
$
32.7

$
0.3

$
32.4

nm

	2018		2017		$ Change			% Change
	(in millions, except percentages)
Interest expense-net	$	9.0	$	11.1	$	(2.1	)		(18.9	%)

Net interest expense ~~increased $32.4~~decreased $2.1 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 versus the same period in ~~2016,~~2017, primarily due to ~~the issuance of debt~~a decrease in ~~connection with the Separation.~~average outstanding debt.

	2017			2016			$ Change			% Change			2018			2017			$ Change			% Change
	(in millions, except percentages)												(in millions, except percentages)
Earnings before income taxes	$	55.4		$	99.2		$	(43.8	)		(44.2	%)	$	11.2		$	16.1		$	(4.9	)		(30.4	%)
Income tax expense		22.0			39.3			(17.3	)		(44.0	%)		3.5			6.8			(3.3	)		(48.5	%)
Effective income tax rate		39.7	%		39.6	%								31.3	%		42.2	%

The effective income tax rate was ~~39.7%~~31.3% for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 compared to ~~39.6%~~42.2% for the ~~nine~~three months ended ~~September 30, 2016.~~ March 31, 2017. The decrease in the effective tax rate was primarily due to changes in U.S. corporate tax law pursuant to the enactment of the U.S. Federal Tax Cut and Jobs Act (“the Tax Act”) on December 22, 2017. Refer to Note 8, Income Taxes, to the Unaudited Condensed Consolidated Financial Statements for additional information on the impact of the Tax Act to the Company’s financial statements.

Information by Segment

The following tables summarize net sales, income (loss) from operations and certain items impacting comparability within each of the operating segments and Corporate.

U.S.

	Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2018			2017
	(in millions, except percentages)						(in millions, except percentages)
Net sales	$	658.2		$	662.4		$	213.1		$	230.4
Income from operations		107.5			100.0			26.4			37.0
Operating margin		16.3	%		15.1	%		12.4	%		16.1	%
Restructuring, impairment and other charges-net		4.4			3.1			0.7			2.5
Spin-off related transaction expenses		4.0			—			6.3			—

	Net Sales for the Nine Months										Net Sales for the Three Months
	Ended September 30,										Ended March 31,
Reporting unit	2017		2016		$ Change			% Change			2018		2017		$ Change			% Change
	(in millions, except percentages)										(in millions, except percentages)
Capital Markets	$	349.8	$	369.5	$	(19.7	)		(5.3	%)	$	117.5	$	119.1	$	(1.6	)		(1.3	%)
Investment Markets		276.0		263.7		12.3			4.7	%		84.6		100.1		(15.5	)		(15.5	%)
Language Solutions and other		32.4		29.2		3.2			11.0	%		11.0		11.2		(0.2	)		(1.8	%)
Total U.S.	$	658.2	$	662.4	$	(4.2	)		(0.6	%)	$	213.1	$	230.4	$	(17.3	)		(7.5	%)

Net sales for the U.S. segment for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 were ~~$658.2~~$213.1 million, a decrease of ~~$4.2~~$17.3 million, or ~~0.6%~~7.5%, compared to the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017, including a $1.0 million, or 0.4%, increase due to the adoption of the new revenue recognition standard. Net sales decreased due to lower mutual fund, capital markets ~~transactions~~compliance and ~~healthcare~~transactions volumes, partially offset by higher ~~volumes in capital markets compliance, mutual fund print-related services, mutual fund print volumes,~~ virtual data room services volumes and ~~content management.~~the adoption of the new revenue recognition standard. An analysis of net sales by reporting unit follows:

~~Capital Markets:~~ ~~Sales decreased due to lower transactions volumes, partially offset by increased compliance volumes and virtual data room services.~~

•

Capital Markets: Sales decreased due to lower transactions and compliance volumes, partially offset by a $6.9 million increase due to the adoption of the new revenue recognition standard and higher volumes in virtual data room services.

~~Investment Markets:~~ ~~Sales increased due to higher mutual fund print and print-related services, mutual fund print, and content management volumes, partially offset by lower healthcare volumes.~~

•

Investment Markets: Sales decreased due to lower mutual fund print volumes and a $5.9 million decrease due to the adoption of the new revenue recognition standard.

~~Language Solutions and other:~~ ~~Sales increased primarily due to higher volumes in commercial print.~~

•

Language Solutions and other: Sales decreased slightly due to lower volumes in commercial print.

U.S. segment income from operations ~~increased $7.5~~decreased $10.6 million, or ~~7.5%~~28.6%, for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 as compared to the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, due to increased spin-off related transaction expenses and lower volumes in mutual fund print, capital markets transactions and compliance, partially offset by cost control initiatives, lower restructuring, impairment and other charges and the impact from the adoption of the new revenue recognition standard.

Operating margins decreased from 16.1% for the three months ended March 31, 2017 to 12.4% for the three months ended March 31, 2018 of which 3.0 percentage points was due to an increase in spin-off related transaction expenses. Operating margins were also impacted by lower volumes, partially offset by cost control initiatives and lower restructuring, impairment and other charges which impacted margins by 0.8 percentage points.

International

	Three Months Ended March 31,
	2018			2017
	(in millions, except percentages)
Net sales	$	42.1		$	36.9
Income from operations		2.5			0.2
Operating margin		5.9	%		0.5	%
Restructuring, impairment and other charges-net		(0.1	)		0.7

Net sales for the International segment for the three months ended March 31, 2018 were $42.1 million, an increase of $5.2 million, or 14.1%, compared to the three months ended March 31, 2017 including a $2.5 million, or 6.8%, increase due to changes in foreign exchange rates and a $0.6 million, or 1.6%, increase due to the adoption of the new revenue recognition standard. Net sales increased due to higher volumes in ~~capital markets compliance, mutual fund print-related~~translations services, ~~mutual fund print volumes, virtual data room services and content management, partially offset by lower~~ capital markets transactions and ~~healthcare volumes~~mutual funds.

International segment income from operations increased $2.3 million compared to the three months ended March 31, 2017, due to higher sales volume and ~~an increase in selling expenses, spin-off related transaction expenses, incentive compensation expense, and~~lower restructuring, impairment and other charges.

Operating margins increased from ~~15.1%~~0.5% for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 to ~~16.3%~~5.9% for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 due to ~~cost control initiatives. The increase in operating margins was partially offset by spin-off related transaction expenses~~favorable sales mix and ~~higher~~lower restructuring, impairment and other charges which impacted margins by ~~0.6 and 0.2~~2.1 percentage ~~points, respectively, and an increase in selling expenses and incentive compensation expense.~~

~~International~~

Nine Months Ended September 30,

2017

2016

(in millions, except percentages)

Net sales
$
121.9

$
100.1

Income from operations

7.6

7.2

Operating margin

6.2
%

7.2
%
Restructuring, impairment and other charges-net

1.3

0.5

Net sales for the International segment for the nine months ended September 30, 2017 were $121.9 million, an increase of $21.8 million, or 21.8%, compared to the nine months ended September 30, 2016 including a $3.4 million, or 3.4%, decrease due to changes in foreign exchange rates. Net sales increased due to higher volumes in capital markets transactions, mutual funds, virtual data room, and translation services.

International segment income from operations was $7.6 million and $7.2 million for the nine months ended September 30, 2017 and 2016, respectively, due to the increase from the higher volumes in capital markets transactions, mutual funds, virtual data room and translation services and cost control initiatives, mostly offset by an increase in allocated expenses, including information technology expenses and an increase in incentive compensation expense and restructuring, impairment and other charges.

Operating margins decreased from 7.2% for the nine months ended September 30, 2016 to 6.2% for the nine months ended September 30, 2017 of which 0.6 percentage points were due to higher restructuring, impairment and other charges. Operating margins were also impacted by an increase in allocated expenses, including information technology expenses partially offset by cost control initiatives.points.

Corporate

The following table summarizes unallocated operating expenses and certain items impacting comparability within the activities presented as Corporate:

	Nine Months Ended September 30,				Three Months Ended March 31,
	2017		2016		2018		2017
	(in millions)				(in millions)
Operating expenses	$	27.0	$	7.7	$	9.5	$	10.8
Share-based compensation expense						1.8		1.1
Spin-off related transaction expenses		5.8		—		1.5		2.7
Share-based compensation expense		5.2		1.2
Restructuring, impairment and other charges-net		0.7		—		0.1		0.6
Acquisition-related expenses						0.2		—

Corporate operating expenses for the ~~nine~~three months ended ~~September 30, 2017 increased $19.3~~March 31, 2018 decreased $1.3 million versus the ~~same period in 2016~~three months ended March 31, 2017, primarily due to ~~higher employee compensation costs incurred to operate as an independent public company,~~lower spin-off related transaction expenses and restructuring, impairment and other charges, offset by an increase in share-based compensation expense.

Non-GAAP Measures

The Company believes that certain Non-GAAP measures, such as Non-GAAP adjusted EBITDA, provide useful information about the Company’s operating results and ~~bad debt~~enhance the overall ability to assess the Company’s financial performance. The Company uses these measures, together with other measures of performance under GAAP, to compare the relative performance of operations in planning, budgeting and reviewing the performance of its business. Non-GAAP adjusted EBITDA allows investors to make a more meaningful comparison between the Company’s core business operating results over different periods of time. The Company believes that Non-GAAP adjusted EBITDA, when viewed with the Company’s results under GAAP and the accompanying reconciliations, provides useful information about the Company’s business without regard to potential distortions. By eliminating potential differences in results of operations between periods caused by factors such as depreciation and amortization methods, historic cost and age of assets, financing and capital structures, taxation positions or regimes, restructuring, impairment and other charges, acquisition-related expenses and gain or loss on certain equity investments and asset sales, the Company believes that Non-GAAP adjusted EBITDA can provide a useful additional basis for comparing the current performance of the underlying operations being evaluated.

Non-GAAP adjusted EBITDA is not presented in accordance with GAAP and has important limitations as an analytical tool. These measures should not be considered as a substitute for analysis of the Company’s results as reported under GAAP. In addition, these measures are defined differently by different companies in our industry and, accordingly, such measures may not be comparable to similarly-titled measures of other companies.

In addition to the factors listed above, the following items are excluded from Non-GAAP adjusted EBITDA:

•

Share-based compensation expense. Although share-based compensation is a key incentive offered to certain of the Company’s employees, business performance is evaluated excluding share-based compensation expenses. Depending upon the size, timing and the terms of grants, non-cash compensation expense may vary but will recur in future periods. Prior periods have been revised to reflect this adjustment.

•

Spin-off related transaction expenses. The Company has incurred expenses related to the Separation to operate as a standalone publicly traded company. These expenses include third-party consulting fees, information technology expenses, employee retention payments, legal fees and other costs related to the Separation, including system implementation expenses related to transitioning from transition services agreements with RRD and LSC. Management does not believe that these expenses are reflective of ongoing operating results. This adjustment does not include expenses incurred prior to the Separation.

A reconciliation of GAAP net earnings to Non-GAAP adjusted EBITDA for the three months ended March 31, 2018 and 2017 for these adjustments is presented in the following table:

	Three Months Ended March 31,
	2018			2017
	(in millions)
Net earnings	$	7.7		$	9.3
Restructuring, impairment and other charges—net		0.7			3.8
Share-based compensation expense		1.8			1.1
Spin-off related transaction expenses		7.8			2.7
Acquisition-related expenses		0.2			—
Depreciation and amortization		10.4			10.2
Interest expense—net		9.0			11.1
Investment and other income—net		(0.8	)		(0.8	)
Income tax expense		3.5			6.8
Non-GAAP adjusted EBITDA	$	40.3		$	44.2

2018 Restructuring, impairment and other charges—net. The three months ended March 31, 2018 included $0.5 million for lease termination and other restructuring costs, $0.1 million for employee termination costs and $0.1 million for other charges associated with the Company’s decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate.

2017 Restructuring, impairment and other charges—net. The three months ended March 31, 2017 included $3.3 million for employee termination costs, $0.4 million of lease termination and other restructuring costs and $0.1 million for other charges associated with the Company’s decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate.

Share-based compensation expense.Included pre-tax charges of $1.8 million and $1.1 million for the three months ended March 31, 2018 and 2017, respectively.

Spin-off related transaction expenses. Included pre-tax charges of $7.8 million and $2.7 million related to third-party consulting fees, information technology expenses, legal fees and other costs related to the Separation for the three months ended March 31, 2018, and 2017, respectively.

Acquisition-related expenses. Included pre-tax charges of $0.2 million primarily related to legal expenses for the three months ended March 31, 2018 associated with contemplated acquisitions.

Liquidity and Capital Resources

Prior to the Separation, RRD provided financing, cash management and other treasury services to Donnelley Financial. The Company’s cash balances were swept by RRD and the Company received funding from RRD for operating and investing needs. Cash transferred to and from RRD was recorded as intercompany payables and receivables which are reflected in the net parent company investment in the consolidated and combined financial statements. Subsequent to the Separation, the Company no longer participates in cash management and funding arrangements with RRD.

The Company believes it has sufficient liquidity to support its ongoing operations and to invest in future growth to create value for its shareholders. Cash on hand, operating cash flows and the Company’s $300.0 million senior secured revolving credit facility (the “Revolving Facility”) are the primary sources of liquidity and are expected to be used for, among other things, payment of interest and principal on the Company’s debt obligations, capital expenditures necessary to support productivity improvement and growth, acquisitions and completion of restructuring programs.

The following describes the Company’s cash flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017.

Cash Flows Used For Operating Activities

Operating cash inflows are largely attributable to sales of the Company’s services and products. Operating cash outflows are largely attributable to recurring expenditures for labor, rent, raw materials and other operating activities. For periods prior to the Separation, allocations of operating expenses from RRD are also reflected as operating cash inflows or outflows, including those for pension costs and current income taxes payable.

Net cash ~~provided by~~used in operating activities was ~~$33.7~~$53.6 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 compared to ~~$56.8~~$38.2 million for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. The ~~decrease~~increase in net cash ~~provided by~~used in operating activities reflected higher payments for incentive compensation costs, partially offset by lower payments related to ~~interest and the timing of payments for suppliers and employee-related liabilities, offset by the timing of customer payments.~~interest.

Cash Flows Used For Investing Activities

Net cash used in investing activities was ~~$23.1~~$6.4 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 compared to ~~$17.0~~$7.5 million for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. Capital expenditures were ~~$20.0~~$6.4 million during the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, an increase of ~~$6.0~~$2.1 million as compared to the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. The Company expects that capital expenditures for ~~2017~~2018 will be approximately ~~$30.0~~$40.0 million to ~~$35.0~~$45.0 million, compared to ~~$26.2~~$27.8 million in ~~2016.~~2017. For the three months ended March 31, 2017, cash used in investing activities included $3.4 million for the purchase of an investment in AuditBoard.

Cash Flows Provided By Financing Activities

Net cash ~~used in~~provided by financing activities for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 was ~~$15.2~~$20.4 million compared to ~~$6.1~~$21.6 million for the ~~nine~~three months ended September 30, 2016. The increase in net cash used in financing activities reflected $100.0 million in payments on long-term debt partially offset by a $68.0 million Separation-related payment from RRD and $18.8March 31, 2017. During the three months ended March 31, 2018, the Company received $88.0 million of proceeds from ~~the issuance of common stock as compared to $348.2~~revolving facility borrowings, offset by $68.0 million of payments on revolving facility borrowings. During the three months ended March 31, 2017, the Company received $20.0 million of net proceeds from ~~issuance of long-term debt during the nine months ended September 30, 2016, mostly offset by $336.2~~revolving facility borrowings and $3.1 million in net transfers from RRD and its affiliates in connection with the Separation.

Contractual Cash Obligations and Other Commitments and Contingencies

In connection with the Separation, the Company entered into transition services agreements separately with RRD ~~covering~~and LSC, under which, in exchange for the fees specified in the arrangements, RRD and LSC agree to provide certain ~~support and back office~~ services ~~that~~to the Company ~~has historically received from RRD. Under~~and the ~~terms of~~Company agrees to provide certain services to RRD, respectively, for up to 24 months following the ~~agreements, RRD will provide various~~Separation. These services ~~including~~include, but are not limited to, information technology, accounts receivable, accounts payable, payroll and other financial and administrative services and functions. The Company also entered into a transition services agreement with LSC, pursuant to which LSC will provide certain services to the Company. The services under the transition services agreements generally extend for up to 24 months following the Separation.

See discussion in Liquidity related to the Company's debt obligations.

Liquidity

Cash and cash equivalents of ~~$32.2~~$12.1 million at ~~September 30, 2017~~March 31, 2018 included ~~$21.5~~$3.5 million in the U.S. and ~~$10.7~~$8.6 million at international locations. The Company has not recognized deferred tax liabilities related to taxes on foreign earnings as foreign earnings are considered to be indefinitely reinvested. ~~Certain~~As a result of the transition tax that the Company will incur pursuant to the Tax Act, the Company now has the ability to repatriate to the U.S. parent the foreign cash ~~balances of~~associated with the foreign ~~subsidiaries may be~~earnings subject to the transition tax, as these earnings have already been subject to U.S. ~~or local country taxes if~~federal taxes. The Company is currently analyzing its global working capital and cash requirements in order to determine the amount of excess cash at its foreign subsidiaries that can be repatriated to the U.S. ~~In addition, repatriation~~with minimal additional taxes, but has not yet determined whether the Company plans to change its assertion of ~~some~~indefinite reinvestment on all foreign ~~cash balances is further restricted by local laws.~~earnings and other outside basis differences. Management regularly evaluates whether foreign earnings are expected to be indefinitely reinvested. This evaluation requires judgment about the future operating and liquidity needs of the Company and its foreign subsidiaries. Changes in economic and business conditions, foreign or U.S. tax laws, or the ~~Company’s~~Company��s financial situation could result in changes to these judgments and the need to record additional tax liabilities.

On October 2, 2017, the Company repriced the Term Loan Credit Facility. As a result, the interest rate was reduced by 100 basis points to LIBOR plus 3.0% and the LIBOR floor was reduced by 25 basis points to 0.75%. Additionally, under the amended Credit Agreement, principal payments are due on a quarterly basis. Other terms, including the outstanding principal, maturity date, and debt covenants such as the minimum interest coverage ratio and the maximum leverage ratio are consistent with the original Credit Agreement.

On June 21, 2017, RRD completed the sale of approximately 6.1 million shares of the Company’s common stock in an underwritten public offering. RRD retained approximately 0.1 million shares of the Company’s common stock upon consummation of the offering which were subsequently sold by RRD on August 1,4, 2017. In conjunction with the underwritten public offering, the underwriters exercised their option to purchase approximately 0.9 million Option Shares. The Company received approximately $18.8 million in net proceeds from the sale of the Option Shares, after deducting estimated underwriting discounts and commissions. The proceeds were used to reduce outstanding debt under the Revolving Facility.

The Company’s debt maturity schedule as of ~~September 30, 2017~~March 31, 2018 is shown in the table below:

	Debt Maturity Schedule														Debt Maturity Schedule
	Total		2017		2018		2019		2020		2021		Thereafter		Total		2018		2019		2020		2021		2022		Thereafter
Notes ^(a)	$	300.0	$	—	$	—	$	—	$	—	$	—	$	300.0	$	300.0	$	—	$	—	$	—	$	—	$	—	$	300.0
Borrowings under the Term Loan Credit Facility ^(b)		200.0		—		—		—		—		—		200.0		170.0		—		—		2.5		10.0		10.0		147.5
Borrowings under the Revolving Facility		—		—		—		—		—		—		—		20.0		—		—		—		20.0		—		—
Total	$	500.0	$	—	$	—	$	—	$	—	$	—	$	500.0	$	490.0	$	—	$	—	$	2.5	$	30.0	$	10.0	$	447.5

(a)	Excludes unamortized debt issuance costs of ~~$5.8~~$5.5 million which do not represent contractual commitments with a fixed amount or maturity date.

(b)	Excludes unamortized debt issuance costs of ~~$4.3~~$4.4 million and a discount of ~~$1.5~~$1.3 million which do not represent contractual commitments with a fixed amount or maturity date.

On October 2, 2017, the Company repriced the Term Loan Credit Facility. As a result, the interest rate was reduced by 100 basis points to LIBOR plus 3.0% and the LIBOR floor was reduced by 25 basis points to .75%. Additionally, under the amended Credit Agreement, principal payments are due on a quarterly basis. Other terms, including the outstanding principal, maturity date, and debt covenants such as the minimum interest coverage ratio and the maximum leverage ratio are consistent with the original Credit Agreement. If the debt maturity schedule above as of September 30, 2017 reflected the impact of the amended Credit Agreement, the Company would reflect the following amounts for Borrowings under the Term Loan Credit Facility:

Total

2017

2018

2019

2020

2021

Thereafter

Borrowings under the Term Loan Credit Facility
$
200.0

$
2.5

$
9.7

$
9.2

$
8.8

$
8.3

$
161.5

The Credit Agreement contains a number of covenants, including, but not limited to, a minimum Interest Coverage Ratio and the Consolidated Leverage Ratio, as defined in and calculated pursuant to the Credit Agreement, that, in part, restrict the Company’s ability to incur additional indebtedness, create liens, engage in mergers and consolidations, make restricted payments and dispose of certain assets. The Credit Agreement generally allows annual dividend payments of up to $15.0 million in aggregate, though additional dividends may be allowed subject to certain conditions. Each of these covenants is subject to important exceptions and qualifications.

The indenture governing the Notes contains certain covenants applicable to the Company and its restricted subsidiaries, including limitations on: (1) liens; (2) indebtedness; (3) mergers, consolidations and acquisitions; (4) sales, transfers and other dispositions of assets; (5) loans and other investments; (6) dividends and other distributions, stock repurchases and redemptions and other restricted payments; (7) restrictions affecting subsidiaries; (8) transactions with affiliates; and (9) designations of unrestricted subsidiaries. Each of these covenants is subject to important exceptions and qualifications.

As of ~~September 30, 2017,~~March 31, 2018, there ~~were no~~was $20.0 million of outstanding borrowings under the Revolving Facility. Based on the Company’s results of operations for the ~~twelve~~three months ended ~~September 30, 2017~~March 31, 2018 and existing debt, the Company would have had the ability to utilize ~~$261.0~~$199.8 million of the $300.0 million Revolving Facility and not have been in violation of the terms of the agreement. The current availability under the Revolving Facility and net available liquidity as of ~~September 30, 2017~~March 31, 2018 is shown in the table below:

	September 30, 2017			March 31, 2018
Availability	(in millions)			(in millions)
Revolving Facility	$	300.0		$	300.0
Availability reduction from covenants		(39.0	)		80.2
	$	261.0		$	219.8
Usage
Borrowings under the Revolving Facility		—			20.0
Impact on availability related to outstanding letters of credit		—			—
	$	—		$	20.0

Current availability at September 30, 2017	$	261.0
Current availability at March 31, 2018				$	199.8
Cash		32.2			12.1
Net Available Liquidity	$	293.2		$	211.9

The Company was in compliance with its debt covenants as of ~~September 30, 2017,~~March 31, 2018, and expects to remain in compliance based on management’s estimates of operating and financial results for ~~2017~~2018 and the foreseeable future. However, declines in market and economic conditions or demand for certain of the Company’s products and services could impact the Company’s ability to remain in compliance with its debt covenants in future periods. As of ~~September 30, 2017,~~March 31, 2018, the Company met all the conditions required to borrow under the Credit Agreement and management expects the Company to continue to meet the applicable borrowing conditions.

The failure of a financial institution supporting the Revolving Facility would reduce the size of the Company’s committed facility unless a replacement institution was added. As of ~~September 30, 2017,~~March 31, 2018, the Revolving Facility is supported by seventeen U.S. and international financial institutions.

As of ~~September 30, 2017,~~March 31, 2018, the Company had ~~$4.2~~$4.5 million in outstanding letters of credit and bank guarantees, of which ~~there was no reduction to~~none reduced the availability under the Revolving Facility.

~~The Company’s liquidity may be affected by its credit ratings. The Company’s S&P and Moody’s credit ratings as of September 30, 2017 are shown in the table below:~~

	~~S&P~~	~~Moody's~~
~~Ratings~~
~~Long-term corporate credit rating~~	~~BB-~~	B1
~~Senior unsecured debt~~	B	B3
~~Credit Agreement~~	~~BB+~~	~~Ba2~~
~~Outlook~~	~~Stable~~	~~Stable~~

Debt Issuances

~~On September 30, 2016, the Company entered into the Credit Agreement, which provided for the Term Loan Credit Facility and the Revolving Facility.~~ The ~~Term Loan Facility will mature on September 30, 2023 and the Revolving Credit Facility will mature on September 30, 2021.~~

~~On September 30, 2016, the Company issued $300.0 million of~~Company’s 8.250% Senior Notes (the “Notes”) ~~due October 15, 2024. Interest on the Notes is due semi-annually on April 15 and October 15, commencing on April 15, 2017.~~

~~The Notes~~ were issued pursuant to an indenture where certain wholly-owned domestic subsidiaries of the Company guarantee the Notes (the “Guarantors”). In connection with the offering of the Notes, the Company entered into a registration rights agreement, dated as of September 30, 2016 (the “Registration Rights Agreement”), pursuant to which the Company agreed to file a registration statement with the SEC with respect to an offer to exchange the Notes for registered notes. On March 10, 2017, the Company filed a Registration Statement on Form S-4 (as amended, the “Exchange Offer Registration Statement”) to offer to exchange the Notes for registered notes which have terms identical in all material respects to the Notes except that the registered notes are not subject to transfer restrictions or registration rights. The Exchange Offer Registration Statement was declared effective by the SEC on March 22, 2017. An exchange offer for the Notes was launched on March 22, 2017 and settled on April 25, 2017, resulting in the exchange of $299.9 million aggregate principal amount of outstanding Notes for registered notes.

Risk Management

The Company is exposed to interest rate risk on its variable debt. At ~~September 30, 2017,~~March 31, 2018, the Company’s exposure to rate fluctuations on variable-interest borrowings was ~~$198.5~~$190.0 million.

The Company assesses market risk based on changes in interest rates utilizing a sensitivity analysis that measures the potential loss in earnings, fair values and cash flows based on a hypothetical 10% change in interest rates. Using this sensitivity analysis, such changes would not have a material effect on interest income or expense and cash flows. A hypothetical 10% change in yield would change the fair values of fixed-rate debt at ~~September 30, 2017~~March 31, 2018 by approximately ~~$11.7~~$11.1 million, or ~~3.9%~~3.7%.

The Company is exposed to the impact of foreign currency fluctuations in certain countries in which it operates. The exposure to foreign currency movements is limited in many countries because the operating revenues and expenses of its various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent that borrowings, sales, purchases, revenues, expenses or other transactions are not in the local currency of the subsidiary, the Company is exposed to currency risk and may enter into foreign exchange spot and forward contracts to hedge the currency risk. The Company does not use derivative financial instruments for trading or speculative purposes.

OTHER INFORMATION

Litigation and Contingent Liabilities

For a discussion of certain litigation involving the Company, see Note ~~12,~~ 15, Commitments and Contingencies, to the Unaudited Condensed ~~Consolidated~~ and ~~Combined~~Consolidated Financial Statements.

New Accounting Pronouncements and Pending Accounting Standards

Recently issued accounting standards and their estimated effect on the Company’s ~~combined~~consolidated financial statements are described in Note ~~14,~~ 17, New Accounting Pronouncements, to the Unaudited Condensed Consolidated ~~and Combined~~ Financial Statements.

CAUTIONARY STATEMENT

The Company has made forward-looking statements in this Quarterly Report on Form 10-Q within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of the Company. Generally, forward-looking statements include information concerning possible or assumed future actions, events, or results of operations of the Company.

These statements may include words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “continues,” “believes,” “may,” “will,” “goals” and variations of such words and similar expressions are intended to identify our forward-looking statements.

Forward-looking statements are not guarantees of performance. ~~The following~~These forward-looking statements are subject to a number of important factors, including those factors discussed in ~~addition to those discussed~~detail in “Item 1A: Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, that could cause our actual results to differ materially from those indicated in any such forward-looking statements. These factors include, but are not limited to:

~~the volatility of the global economy and financial markets, and its impact on transactional volume;~~

•

the volatility of the global economy and financial markets, and its impact on transactional volume;

~~failure to offer high quality customer support and services;~~

•

failure to offer high quality customer support and services;

~~the retention of existing, and continued attraction of additional clients and key employees;~~

•

the retention of existing, and continued attraction of additional clients and key employees;

~~the growth of new technologies with which we may be able to adequately compete;~~

•

the growth of new technologies with which we may be able to adequately compete;

~~our inability to maintain client referrals;~~

•

our inability to maintain client referrals;

~~vulnerability to adverse events as a result of becoming a stand-alone company following the Separation from RRD, including the inability to obtain as favorable of terms from third-party vendors;~~

•

vulnerability to adverse events as a result of becoming a stand-alone company following the Separation from RRD, including the inability to obtain as favorable of terms from third-party vendors;

~~the competitive market for our products and industry fragmentation affecting our prices;~~

•

the competitive market for our products and industry fragmentation affecting our prices;

~~the ability to gain client acceptance of our new products and technologies;~~

•

the ability to gain client acceptance of our new products and technologies;

~~delay in market acceptance of our products and services due to undetected errors or failures found in our products and services;~~

•

delay in market acceptance of our products and services due to undetected errors or failures found in our products and services;

~~failure to maintain the confidentiality, integrity and availability of our systems, software and solutions;~~

•

failure to maintain the confidentiality, integrity and availability of our systems, software and solutions;

~~failure to properly use and protect client and employee information and data;~~

•

failure to properly use and protect client and employee information and data;

~~the effect of a material breach of security or other performance issues of any of our or our vendors’ systems;~~

•

the effect of a material breach of security or other performance issues of any of our or our vendors’ systems;

~~factors that affect client demand, including changes in economic conditions, national or international regulations and clients’ budgetary constraints;~~

~~our ability to access debt and the capital markets due to adverse credit market conditions;~~

~~the effect of increasing costs of providing healthcare and other benefits to our employees~~

~~changes in the availability or costs of key materials (such as ink and paper) or in prices received for the sale of by-products;~~

~~failure to protect our proprietary technology;~~

~~failure to successfully integrate acquired businesses into our business;~~

~~availability to maintain our brands and reputation;~~

•

factors that affect client demand, including changes in economic conditions, national or international regulations and clients’ budgetary constraints;

•

our ability to access debt and the capital markets due to adverse credit market conditions;

•

the effect of increasing costs of providing healthcare and other benefits to our employees;

•

the impact of the U.S. Tax Cuts and Jobs Act;

•

changes in the availability or costs of key materials (such as ink and paper) or in prices received for the sale of by-products;

•

failure to protect our proprietary technology;

•

failure to successfully integrate acquired businesses into our business;

•

availability to maintain our brands and reputation;

•

the retention of existing, and continued attraction of, key employees, including management;

~~the effects of operating in international markets, including fluctuations in currency exchange rates;~~

•

the effects of operating in international markets, including fluctuations in currency exchange rates;

~~the effect of economic and political conditions on a regional, national or international basis;~~

•

the effect of economic and political conditions on a regional, national or international basis;

~~lack of market for our common stock;~~

•

lack of market for our common stock;

~~lack of history as an operating company and costs associated with being an independent company;~~

•

lack of history as an operating company and costs associated with being an independent company;

~~failure to achieve certain intended benefits of the Separation; and~~

•

failure to achieve certain intended benefits of the Separation; and

~~failure of RRD or LSC to satisfy their respective obligations under transition services agreements or other agreements entered into in connection with the Separation.~~

•

failure of RRD or LSC to satisfy their respective obligations under transition services agreements or other agreements entered into in connection with the Separation.

Because forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Undue reliance should not be placed on such statements, which speak only as of the date of this document or the date of any document that may be incorporated by reference into this document.

Consequently, readers of the Quarterly Report on Form 10-Q should consider these forward looking statements only as the Company’s current plans, estimates and beliefs. The Company does not undertake and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. The Company undertakes no obligation to update or revise any forward-looking statements in this Quarterly Report on Form 10-Q to reflect any new events or any change in conditions or circumstances.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Refer to Item 2 of Part I under “Risk Management.” There have been no significant changes to the Company’s market risk since December 31, ~~2016.~~2017. For a discussion of exposure to market risk, refer to Part II, Item 7A – Quantitative and Qualitative Disclosures about Market Risk, of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, as filed with the SEC on February 28, ~~2017.~~2018.

Item 4. Controls and Procedures

(a)	Disclosure controls and procedures.

Management, together with the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules ~~13a-15(e)~~13a-15(b) and Rule 15d-15(e) of the Securities Exchange Act of 1934) as of ~~September 30, 2017.~~March 31, 2018. Based on that evaluation the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~September 30, 2017.~~March 31, 2018.

(b)	Changes in internal control over financial reporting.

~~Under the rules and regulations of the Securities and Exchange Commission, Donnelley~~Changes in Internal Control Over Financial is not required to comply with the requirements of Section 404 of the Sarbanes Oxley Act of 2002 until its Annual Report on Form 10-K for the year ending December 31, 2017. In its Annual Report on Form 10-K for the year ending December 31, 2017, management and the Company’s independent registered public accounting firm will be required to provide an assessment as to the effectiveness of the Company’s internal control over financial reporting.

Reporting.There ~~have not been any~~were no changes in the ~~Company’s~~Company's internal control over financial reporting (as defined in ~~Rules~~Rule 13a-15(f) and 15d-15(f) under the ~~Securities~~ Exchange ~~Act of 1934) that occurred~~Act) during the quarter ended ~~September 30, 2017~~March 31, 2018 that ~~had~~have materially affected or ~~were~~are reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting.

PART II — ~~OTHE~~ROTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of certain litigation involving the Company, see Note ~~12,~~ 15, Commitments and Contingencies, to the Condensed Consolidated ~~and Combined~~ Financial Statements.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, as filed with the SEC on February 28, ~~2017.~~2018.

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

~~None.~~

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased (a)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
January 1, 2018 - January 31, 2018	—		$	—	—	$	—
February 1, 2018 - February 28, 2018	—		—		—	$	—
March 1, 2018 - March 31, 2018		45,054		17.65	—	$	—
Total		45,054	$	17.65	—

(a)

Shares withheld for tax liabilities upon vesting of equity awards

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

I~~tem~~Item 6. E~~xhibits~~Exhibits

2.1		Separation and Distribution Agreement, dated as of September 14, 2016, by and among R. R. Donnelley & Sons Company, LSC Communications, Inc. and Donnelley Financial Solutions, Inc. (the “Separation Agreement”) (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

2.2		Transition Services Agreement, dated as of September 14, 2016, between Donnelley Financial Solutions, Inc. and R. R. Donnelley & Sons Company (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

2.3		Transition Services Agreement, dated as of September 14, 2016, between LSC Communications, Inc. and Donnelley Financial Solutions, Inc. (incorporated by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

2.4		Tax Disaffiliation Agreement, dated as of September 14, 2016, between Donnelley Financial Solutions, Inc. and R. R. Donnelley & Sons Company (incorporated by reference to Exhibit 2.4 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

2.5		Patent Assignment and License Agreement, dated as of September 27, 2016, between Donnelley Financial, LLC and R. R. Donnelley & Sons Company (incorporated by reference to Exhibit 2.5 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

2.6		Trademark Assignment and License Agreement, dated as of September 27, 2016, between Donnelley Financial, LLC and R. R. Donnelley & Sons Company (incorporated by reference to Exhibit 2.6 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

2.7		Data Assignment and License Agreement, dated as of September 27, 2016, between Donnelley Financial, LLC and R. R. Donnelley & Sons Company (incorporated by reference to Exhibit 2.7 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

2.8		Software, Copyright and Trade Secret Assignment and License Agreement, dated as of September 27, 2016, between Donnelley Financial, LLC and R. R. Donnelley & Sons Company (incorporated by reference to Exhibit 2.8 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

3.1		Amended and Restated Certificate of Incorporation of Donnelley Financial Solutions, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

3.2		Amended and Restated By-laws of Donnelley Financial Solutions, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

4.1		Stockholder and Registration Rights Agreement, dated as of September 14, 2016, between Donnelley Financial Solutions, Inc. and R. R. Donnelley & Sons Company (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

4.2		Indenture, dated as of September 30, 2016, among Donnelley Financial Solutions, Inc., the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

4.3		Registration Rights Agreement, dated as of September 30, 2016, by and among Donnelley Financial Solutions, Inc., the subsidiary guarantors party thereto and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and MUFG Securities Americas Inc., as Representatives (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

10.1		Credit Agreement, dated as of September 30, 2016, among Donnelley Financial Solutions, Inc., as Borrower, the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)*

10.2		Amendment No. 1 to Credit Agreement, dated as of October 2, 2017, among Donnelley Financial Solutions, Inc., as Borrower, the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent ~~(filed herewith)~~(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q dated September 30, 2017, filed on November 2, 2017)

10.3		2016 Donnelley Financial Solutions, Inc. Performance Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)*

10.4	Amended and Restated Donnelley Financial Solutions, Inc. 2016 Performance Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 18, 2017, filed on May 23, 2017)*

10.5	Donnelley Financial Solutions, Inc. Non-Employee Director Compensation Plan (incorporated by reference to Exhibit ~~10.3~~10.5 to the Company’s ~~Current~~Annual Report on Form ~~8-K~~10-K dated ~~September 30, 2016,~~December 31, 2017, filed on ~~October 3, 2016)~~February 28, 2018)*

10.6	Policy on Retirement Benefits, Phantom Stock Grants and Stock Options for Directors (incorporated by reference to Exhibit 10.1 to R.R Donnelley & Sons Company Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed on August 6, 2008)*

10.7	Donnelley Financial Solutions, Inc. Nonqualified Deferred Compensation Plan, dated as of September 22, 2016 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)*

10.8	Donnelley Financial Unfunded Supplemental Pension Plan effective October 1, 2016 (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)*

10.9	Donnelley Financial Solutions, Inc. Executive Severance Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 30, 2017, filed on June 5, 2017)*

10.10	Letter Agreement to Employment Agreement, dated as of April 20, 2018, between the Company and Daniel N. Leib (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 10, 2018, filed on April 16, 2018)*

10.11	Amended and Restated Employment Agreement, dated as of July 13, 2017, between the Company and Daniel N. Leib (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 13, 2017, filed on July 14, 2017)*

~~10.11~~10.12	Assignment of Employment Agreement and Acceptance of Assignment, dated as of September 29, 2016, between Donnelley Financial Solutions, Inc., R. R. Donnelley & Sons Company and Thomas F. Juhase (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)*

~~10.12~~10.13	Waiver of Severance Benefits, dated as of June 1, 2017, by and between Thomas F. Juhase and the Company (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 30, 2017, filed on June 5, 2017)*

~~10.13~~10.14	Assignment of Employment Agreement and Acceptance of Assignment, dated as of September 29, 2016, between Donnelley Financial Solutions, Inc., R. R. Donnelley & Sons Company and David A. Gardella (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)*

~~10.14~~10.15	Waiver of Severance Benefits, dated as of June 1, 2017, by and between David A. Gardella and the Company (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated May 30, 2017, filed on June 5, 2017)*

~~10.15~~10.16	Assignment of Severance Agreement and Acceptance of Assignment, dated as of September 29, 2016, between Donnelley Financial Solutions, Inc., R. R. Donnelley & Sons Company and Jennifer B. Reiners (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)*

~~10.16~~10.17	Waiver of Severance Benefits, dated as of June 1, 2017, by and between Jennifer B. Reiners and the Company (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated May 30, 2017, filed on June 5, 2017)*

~~10.17~~10.18	Written Description of the 2016 Annual Incentive Plan of the Company with respect to the period from October 1, 2016 to December 31, 2016 (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)*

~~10.18~~		2017 Annual Incentive Plan (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)*

10.19	Donnelley Financial Solutions Annual Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated March 2, 2018, filed on March 13, 2018)*

10.20	Form of Founders Award (Restricted Stock) Agreement (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)*


~~10.20~~10.21		Form of Performance Restricted Stock Award Agreement (for 2017) (incorporated by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q dated March 31, 2017, filed on May 4, 2017)*

~~10.21~~10.22		Form of Amendment to Performance Restricted Stock Award Agreement (for 2017) (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated May 30, 2017, filed on June 5, 2017)*

~~10.22~~10.23		Form of Performance Share Unit Award Agreement (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K dated December 31, 2017, filed on February 28, 2018)*

10.24		Form of Performance Share Unit Award Agreement (for 2017) (incorporated by reference to Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q dated March 31, 2017, filed on May 4, 2017)*


~~10.23~~10.25		Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.18 to the Company’s Quarterly Report on Form 10-Q dated March 31, 2017, filed on May 4, 2017)*

~~10.24~~10.26		Form of Stock Option Award Agreement (incorporated by reference to Exhibit 10.19 to the Company’s Quarterly Report on Form 10-Q dated March 31, 2017, filed on May 4, 2017)*


~~10.25~~10.27		Form of Performance Share Unit Award Agreement (for 2015) converted from R. R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.19 to the R.R. Donnelley & Sons Company Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 7, 2015)*

~~10.26~~10.28		Form of Restricted Stock Unit Award Agreement for certain executive officers (for 2015 and 2016) converted from R. R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.12 to the R.R. Donnelley & Sons Company Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 7, 2015)*

~~10.27~~10.29		Form of Cash Award Agreement (for 2014) converted from R. R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)*

~~10.28~~10.30		Form of Cash Award Agreement (for 2015) converted from R. R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)*

~~10.29~~10.31		Form of Cash Award Agreement (for 2016) converted from R. R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)*

~~10.30~~10.32		Form of Amendment to Cash Retention Awards (for 2014) converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.1 to the R.R. Donnelley & Sons Company Current Report on Form 8-K dated March 2, 2016, filed on March 2, 2016)*

~~10.31~~10.33		Agreement regarding title and retention bonus for Thomas Juhase dated March 21, 2016 converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)*

~~10.32~~10.34		Form of Director Restricted Stock Unit Award (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)*

~~10.33~~10.35		Form of Restricted Stock Unit Award Agreement for directors converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.21 to the R.R. Donnelley & Sons Company Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed on March 14, 2005)*

~~10.34~~10.36		Form of Restricted Stock Unit Award Agreement for directors converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.25 to the R.R. Donnelley & Sons Company Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed on February 27, 2008)*

~~10.35~~10.37		Form of Restricted Stock Unit Award Agreement for directors converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.23 to the R.R. Donnelley & Sons Company Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on February 25, 2009)*

~~10.36~~10.38		Form of Amendment to Director Restricted Stock Unit Awards converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.22 to the R.R. Donnelley & Sons Company Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on February 25, 2009)*


~~10.37~~10.39		Form of Amendment to Director Restricted Stock Unit Awards dated May 21, 2009 converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.23 to the R.R. Donnelley & Sons Company Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, filed on August 5, 2009)*

~~10.38~~10.40		Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q dated September 30, 2016, filed on November 9, 2016)


14.1		Code of Ethics for the Chief Executive Officer and Senior Financial Officers (incorporated by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)

21.1		Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K dated December 31, ~~2016,~~2017, filed on February 28, ~~2017)~~2018)

31.1		Certification by Daniel N. Leib, President and Chief Executive Officer, required by Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith)

31.2		Certification by David A. Gardella, Executive Vice President and Chief Financial Officer, required by Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith)

32.1		Certification by Daniel N. Leib, President and Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code (filed herewith)

32.2		Certification by David A. Gardella, Executive Vice President and Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code (filed herewith)

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101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

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*	Management contract or compensatory plan or arrangement.

~~SIGNATURES~~SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DONNELLEY FINANCIAL SOLUTIONS, INC.

By:		/s/ DAVID A. GARDELLA
		David A. Gardella
		Executive Vice President and Chief Financial Officer

Date: ~~November~~May 2, ~~2017~~2018

5351

				Accumulated
	Net Parent			Other
	Company			Comprehensive			Total
	Investment			Loss			Equity
Balance at December 31, 2015	$	639.5		$	(16.0	)	$	623.5
Net earnings		59.9			—			59.9
Transfers from parent company, net		(598.6	)		—			(598.6	)
Other comprehensive income		—			3.8			3.8
Balance at September 30, 2016	$	100.8		$	(12.2	)	$	88.6

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017		2016
	(in millions)
Net earnings	$	5.3		$	10.2		$	33.4	$	59.9
Restructuring, impairment and other charges—net		(0.6	)		1.7			6.4		3.6
Share-based compensation expense		1.7			0.2			5.2		1.2
Spin-off related transaction expenses		2.6			—			9.8		—
Depreciation and amortization		10.6			9.8			31.7		30.1
Interest expense (income)—net		10.6			(0.1	)		32.7		0.3
Income tax expense		2.1			7.9			22.0		39.3
Non-GAAP adjusted EBITDA	$	32.3		$	29.7		$	141.2	$	134.4

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