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, 20172019
OR
☐ | 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.) | |
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35 West Wacker Drive, Chicago, Illinois |
| 60601 | |
(Address of principal executive offices) |
| (Zip code) |
(844) 866-4337
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class | Trading Symbol(s) | Name of each exchange on which registered | |||
Common Stock (Par Value $0.01) | DFIN | NYSE |
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.
Large Accelerated filer |
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| Accelerated filer |
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Non-Accelerated filer |
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| Smaller reporting company |
| ☐ | |
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Emerging growth company |
| ☐ |
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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 27, 2017, 33.7November 1, 2019, 34.3 million shares of common stock were outstanding.
DONNELLEY FINANCIAL SOLUTIONS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SeptemberSEPTEMBER 30, 20172019
TABLE OF CONTENTS
Part I | |||
FINANCIAL INFORMATION |
| Page | |
Item 1: | Condensed Consolidated | ||
| 3 | ||
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| 4 | ||
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| Condensed Consolidated Balance Sheets as of September 30, |
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Condensed Consolidated Statements of Equity for the nine months ended September 30, 2019 and 2018 | 8 | ||
9 | |||
Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3: |
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| 49 | |
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Item 4: | 49 |
Part II | ||||
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Item 1: | 50 | |||
Item 1A: | 50 | |||
Item 2: | 50 | |||
Item 4: | 50 | |||
Item 6: | 51 | |||
54 |
Donnelley FinancialFinancial Solutions, Inc. and Subsidiaries (“Donnelley Financial”DFIN”)
Condensed Consolidated and Combined Statements of Operations
For the Three and Nine Months Ended September 30, 20172019 and 20162018
(in millions, except per share data)
(UNAUDITED)
| Three Months Ended |
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| Nine Months Ended |
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| September 30, |
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| September 30, |
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| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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Services net sales | $ | 140.3 |
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| $ | 139.4 |
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| $ | 471.4 |
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| $ | 454.1 |
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Products net sales |
| 82.3 |
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| 85.0 |
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| 308.7 |
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| 308.4 |
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Total net sales |
| 222.6 |
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| 224.4 |
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| 780.1 |
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| 762.5 |
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Services cost of sales (exclusive of depreciation and amortization) |
| 81.7 |
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| 64.2 |
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| 240.2 |
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| 214.6 |
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Services cost of sales with R.R. Donnelley affiliates (exclusive of depreciation and amortization)* |
| — |
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| 8.7 |
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| 19.5 |
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| 29.4 |
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Products cost of sales (exclusive of depreciation and amortization) |
| 58.9 |
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| 62.0 |
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| 190.7 |
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| 179.9 |
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Products cost of sales with R.R. Donnelley affiliates (exclusive of depreciation and amortization)* |
| — |
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| 11.5 |
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| 32.3 |
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| 48.6 |
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Total cost of sales |
| 140.6 |
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| 146.4 |
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| 482.7 |
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| 472.5 |
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Selling, general and administrative expenses (exclusive of depreciation and amortization) |
| 54.0 |
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| 48.5 |
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| 171.2 |
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| 156.8 |
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Restructuring, impairment and other charges-net |
| (0.6 | ) |
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| 1.7 |
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| 6.4 |
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| 3.6 |
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Depreciation and amortization |
| 10.6 |
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| 9.8 |
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| 31.7 |
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| 30.1 |
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Income from operations |
| 18.0 |
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| 18.0 |
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| 88.1 |
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| 99.5 |
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Interest expense (income)-net |
| 10.6 |
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| (0.1 | ) |
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| 32.7 |
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| 0.3 |
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Earnings before income taxes |
| 7.4 |
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| 18.1 |
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| 55.4 |
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| 99.2 |
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Income tax expense |
| 2.1 |
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| 7.9 |
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| 22.0 |
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| 39.3 |
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Net earnings | $ | 5.3 |
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| $ | 10.2 |
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| $ | 33.4 |
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| $ | 59.9 |
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Net earnings per share (Note 8): |
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Basic net earnings per share |
| 0.16 |
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| 0.31 |
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| 1.01 |
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| 1.85 |
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Diluted net earnings per share |
| 0.16 |
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| 0.31 |
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| 1.01 |
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| 1.85 |
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Weighted average number of common shares outstanding |
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Basic |
| 33.6 |
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| 32.4 |
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| 33.0 |
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| 32.4 |
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Diluted |
| 33.8 |
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| 32.4 |
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| 33.2 |
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| 32.4 |
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| Three Months Ended |
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| Nine Months Ended |
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| September 30, |
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| September 30, |
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| 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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Services net sales | $ | 130.4 |
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| $ | 138.5 |
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| $ | 419.5 |
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| $ | 485.9 |
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Products net sales |
| 65.5 |
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| 78.4 |
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| 264.9 |
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| 276.8 |
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Total net sales |
| 195.9 |
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| 216.9 |
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| 684.4 |
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| 762.7 |
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Services cost of sales (exclusive of depreciation and amortization) |
| 66.9 |
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| 75.5 |
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| 217.9 |
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| 253.4 |
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Products cost of sales (exclusive of depreciation and amortization) |
| 54.4 |
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| 57.8 |
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| 206.3 |
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| 204.1 |
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Total cost of sales |
| 121.3 |
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| 133.3 |
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| 424.2 |
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| 457.5 |
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Selling, general and administrative expenses (exclusive of depreciation |
| 46.2 |
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| 62.6 |
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| 159.0 |
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| 203.8 |
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Restructuring, impairment and other charges-net |
| 2.8 |
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| 0.8 |
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| 8.7 |
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| 4.1 |
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Depreciation and amortization |
| 12.7 |
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| 11.6 |
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| 36.8 |
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| 33.1 |
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Other operating income |
| (19.2 | ) |
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| (53.5 | ) |
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| (16.4 | ) |
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| (53.5 | ) |
Income from operations |
| 32.1 |
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| 62.1 |
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| 72.1 |
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| 117.7 |
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Interest expense-net |
| 8.6 |
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| 8.4 |
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| 26.6 |
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| 27.2 |
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Investment and other income-net |
| (0.5 | ) |
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| (14.0 | ) |
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| (1.6 | ) |
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| (15.6 | ) |
Earnings before income taxes |
| 24.0 |
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| 67.7 |
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| 47.1 |
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| 106.1 |
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Income tax expense |
| 9.3 |
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| 19.7 |
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| 16.5 |
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| 31.5 |
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Net earnings | $ | 14.7 |
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| $ | 48.0 |
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| $ | 30.6 |
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| $ | 74.6 |
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Net earnings per share (Note 10): |
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Basic net earnings per share |
| 0.43 |
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| 1.42 |
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| 0.90 |
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| 2.21 |
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Diluted net earnings per share |
| 0.43 |
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| 1.40 |
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| 0.89 |
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| 2.19 |
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Weighted average number of common shares outstanding |
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Basic |
| 34.2 |
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| 33.9 |
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| 34.1 |
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| 33.8 |
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Diluted |
| 34.3 |
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| 34.2 |
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| 34.2 |
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| 34.0 |
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See Notes to Unaudited Condensed Consolidated and Combined Financial Statements
Donnelley Financial Solutions, Inc. and Subsidiaries (“Donnelley Financial”DFIN”)
Condensed Consolidated and Combined Statements of Comprehensive Income
For the Three and Nine Months Ended September 30, 20172019 and 20162018
(in millions)
(UNAUDITED)
| Three Months Ended |
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| Nine Months Ended |
| Three Months Ended |
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| Nine Months Ended |
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| September 30, |
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| September 30, |
| September 30, |
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| September 30, |
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| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
| 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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Net earnings | $ | 5.3 |
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| $ | 10.2 |
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| $ | 33.4 |
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| $ | 59.9 |
| $ | 14.7 |
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| $ | 48.0 |
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| $ | 30.6 |
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| $ | 74.6 |
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Other comprehensive income (loss), net of tax: |
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Other comprehensive income, net of tax: |
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Translation adjustments |
| 2.2 |
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| 0.2 |
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| 4.6 |
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| 4.2 |
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| (0.4 | ) |
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| 0.4 |
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| 2.3 |
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| (2.3 | ) |
Adjustment for net periodic pension and other postretirement benefits plan cost | 0.3 |
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| (0.2 | ) |
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| 1.0 |
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| (0.4 | ) |
| 0.3 |
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| 0.4 |
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| 1.0 |
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| 1.4 |
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Other comprehensive income, net of tax |
| 2.5 |
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| — |
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| 5.6 |
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| 3.8 |
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Other comprehensive (loss) income, net of tax |
| (0.1 | ) |
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| 0.8 |
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| 3.3 |
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| (0.9 | ) | |||||||||||||||
Comprehensive income | $ | 7.8 |
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| $ | 10.2 |
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| $ | 39.0 |
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| $ | 63.7 |
| $ | 14.6 |
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| $ | 48.8 |
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| $ | 33.9 |
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| $ | 73.7 |
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See Notes to Unaudited Condensed Consolidated and Combined Financial Statements
Donnelley Financial Solutions, Inc. and Subsidiaries (“Donnelley Financial”DFIN”)
Condensed Consolidated Balance Sheets
As of September 30, 20172019 and December 31, 20162018
(in millions, except per share data)
(UNAUDITED)
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| September 30, |
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| December 31, |
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| 2017 |
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| 2016 |
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ASSETS |
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Cash and cash equivalents |
| $ | 32.2 |
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| $ | 36.2 |
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Receivables, less allowances for doubtful accounts of $8.7 in 2017 (2016 - $6.4) |
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| 219.3 |
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| 156.2 |
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Receivables from R.R. Donnelley* |
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| — |
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| 96.0 |
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Inventories |
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| 23.6 |
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| 24.1 |
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Prepaid expenses and other current assets |
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| 15.1 |
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| 17.1 |
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Total current assets |
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| 290.2 |
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| 329.6 |
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Property, plant and equipment-net |
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| 34.7 |
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| 35.5 |
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Goodwill |
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| 447.5 |
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| 446.4 |
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Other intangible assets-net |
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| 44.2 |
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| 54.3 |
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Software-net |
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| 41.9 |
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| 41.6 |
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Deferred income taxes |
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| 36.6 |
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| 37.0 |
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Other noncurrent assets |
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| 38.6 |
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| 34.5 |
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Total assets |
| $ | 933.7 |
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| $ | 978.9 |
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LIABILITIES |
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Accounts payable |
| $ | 74.4 |
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| $ | 85.3 |
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Accrued liabilities |
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| 110.1 |
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| 100.7 |
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Total current liabilities |
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| 184.5 |
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| 186.0 |
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Long-term debt (Note 11) |
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| 488.4 |
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| 587.0 |
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Deferred compensation liabilities |
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| 24.6 |
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| 24.4 |
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Pension and other postretirement benefits plan liabilities |
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| 51.4 |
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| 56.4 |
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Other noncurrent liabilities |
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| 11.2 |
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| 14.0 |
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Total liabilities |
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| 760.1 |
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| 867.8 |
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Commitments and Contingencies (Note 12) |
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EQUITY |
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Preferred stock, $0.01 par value |
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Authorized: 1.0 shares; Issued: None |
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| — |
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| — |
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Common stock, $0.01 par value |
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Authorized: 65.0 shares; |
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Issued: 33.8 shares in 2017 (2016 - 32.6 shares) |
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| 0.3 |
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| 0.3 |
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Treasury stock, at cost: less than 0.1 shares in 2017 |
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| (0.9 | ) |
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| — |
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Additional paid-in-capital |
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| 204.3 |
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| 179.9 |
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Retained earnings (deficit) |
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| 32.6 |
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| (0.8 | ) |
Accumulated other comprehensive loss |
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| (62.7 | ) |
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| (68.3 | ) |
Total equity |
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| 173.6 |
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| 111.1 |
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Total liabilities and equity |
| $ | 933.7 |
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| $ | 978.9 |
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| September 30, |
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| December 31, |
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| 2019 |
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| 2018 |
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ASSETS |
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Cash and cash equivalents |
| $ | 32.1 |
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| $ | 47.3 |
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Receivables, less allowances for doubtful accounts of $9.3 in 2019 (2018 - $7.9) |
|
| 201.2 |
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| 172.9 |
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Inventories |
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| 13.7 |
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| 12.1 |
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Prepaid expenses and other current assets |
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| 21.0 |
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| 16.7 |
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Total current assets |
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| 268.0 |
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| 249.0 |
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Property, plant and equipment-net |
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| 25.0 |
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| 32.2 |
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Right-of-use assets |
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| 85.7 |
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| — |
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Software-net |
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| 53.6 |
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| 47.8 |
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Goodwill |
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| 450.2 |
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| 450.0 |
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Other intangible assets-net |
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| 26.3 |
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| 37.2 |
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Deferred income taxes |
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| 10.8 |
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| 9.7 |
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Other noncurrent assets |
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| 42.7 |
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| 42.8 |
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Total assets |
| $ | 962.3 |
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| $ | 868.7 |
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LIABILITIES |
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Accounts payable |
| $ | 50.6 |
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| $ | 72.4 |
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Accrued liabilities |
|
| 142.9 |
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| 126.0 |
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Total current liabilities |
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| 193.5 |
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| 198.4 |
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Long-term debt (Note 13) |
|
| 364.1 |
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|
| 362.7 |
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Deferred compensation liabilities |
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| 19.8 |
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| 19.5 |
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Pension and other postretirement benefits plan liabilities |
|
| 47.7 |
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| 51.3 |
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Noncurrent lease liabilities |
|
| 63.2 |
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|
| — |
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Other noncurrent liabilities |
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| 7.9 |
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|
| 10.8 |
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Total liabilities |
|
| 696.2 |
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|
| 642.7 |
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Commitments and Contingencies (Note 14) |
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EQUITY |
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Preferred stock, $0.01 par value |
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Authorized: 1.0 shares; Issued: NaN |
|
| — |
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| — |
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Common stock, $0.01 par value |
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Authorized: 65.0 shares; |
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Issued: 34.5 shares in 2019 (2018 - 34.2 shares) |
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| 0.3 |
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| 0.3 |
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Treasury stock, at cost: 0.2 shares in 2019 (2018 - 0.1 shares) |
|
| (3.7 | ) |
|
| (2.4 | ) |
Additional paid-in-capital |
|
| 224.0 |
|
|
| 216.5 |
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Retained earnings |
| �� | 124.9 |
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|
| 94.3 |
|
Accumulated other comprehensive loss |
|
| (79.4 | ) |
|
| (82.7 | ) |
Total equity |
|
| 266.1 |
|
|
| 226.0 |
|
Total liabilities and equity |
| $ | 962.3 |
|
| $ | 868.7 |
|
See Notes to Unaudited Condensed Consolidated and Combined Financial Statements
‘Donnelley Financial Solutions, Inc. and Subsidiaries (“Donnelley Financial”DFIN”)
Condensed Consolidated and Combined Statements of Cash Flows
For the Nine Months Ended September 30, 20172019 and 20162018
(in millions)
(UNAUDITED)
| Nine Months Ended |
| Nine Months Ended |
| ||||||||||
| September 30, |
| September 30, |
| ||||||||||
| 2017 |
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| 2016 |
| 2019 |
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| 2018 |
| ||||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings | $ | 33.4 |
|
| $ | 59.9 |
| $ | 30.6 |
|
| $ | 74.6 |
|
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) provided by operating activities: |
|
|
|
|
|
|
| |||||||
Depreciation and amortization |
| 31.7 |
|
|
| 30.1 |
|
| 36.8 |
|
|
| 33.1 |
|
Provision for doubtful accounts receivable |
| 4.3 |
|
|
| 1.7 |
|
| 3.3 |
|
|
| 4.5 |
|
Share-based compensation |
| 5.2 |
|
|
| 1.2 |
|
| 7.7 |
|
|
| 7.2 |
|
Deferred income taxes |
| (2.7 | ) |
|
| (1.0 | ) |
| (1.6 | ) |
|
| 6.4 |
|
Change in uncertain tax positions |
| (0.2 | ) |
|
| — |
| |||||||
Net pension and other postretirement benefits plan income |
| (2.5 | ) |
|
| (0.4 | ) | |||||||
Changes in uncertain tax positions |
| — |
|
|
| (0.2 | ) | |||||||
Net pension plan income |
| (1.5 | ) |
|
| (2.4 | ) | |||||||
Gain on change in fair value of investment |
| — |
|
|
| (11.8 | ) | |||||||
Gain on sale of building |
| (19.2 | ) |
|
| — |
| |||||||
Loss (gain) on disposition |
| 2.8 |
|
|
| (53.5 | ) | |||||||
Other |
| 1.7 |
|
|
| 0.7 |
|
| 23.0 |
|
|
| 0.6 |
|
Changes in operating assets and liabilities - net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable - net |
| (36.6 | ) |
|
| (54.6 | ) |
| (31.9 | ) |
|
| (70.8 | ) |
Inventories |
| 0.6 |
|
|
| (2.9 | ) |
| (1.6 | ) |
|
| (2.7 | ) |
Prepaid expenses and other current assets |
| (2.0 | ) |
|
| (6.3 | ) |
| 0.9 |
|
|
| 2.5 |
|
Accounts payable |
| (11.7 | ) |
|
| 17.9 |
|
| (22.3 | ) |
|
| 3.4 |
|
Income taxes payable and receivable |
| 3.7 |
|
|
| (0.6 | ) |
| (3.2 | ) |
|
| 17.2 |
|
Accrued liabilities and other |
| 10.3 |
|
|
| 12.2 |
|
| (27.2 | ) |
|
| 4.0 |
|
Pension and other postretirement benefits plan contributions |
| (1.7 | ) |
|
| (1.1 | ) |
| (0.8 | ) |
|
| (1.7 | ) |
Net cash provided by operating activities |
| 33.7 |
|
|
| 56.8 |
| |||||||
Net cash (used in) provided by operating activities |
| (4.2 | ) |
|
| 10.4 |
| |||||||
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
| (20.0 | ) |
|
| (14.0 | ) |
| (35.1 | ) |
|
| (22.8 | ) |
Purchases of investments |
| (3.4 | ) |
|
| (3.5 | ) | |||||||
Other investing activities |
| 0.3 |
|
|
| 0.5 |
| |||||||
Net cash used in investing activities |
| (23.1 | ) |
|
| (17.0 | ) | |||||||
Proceeds from sale of building |
| 30.6 |
|
|
| — |
| |||||||
Acquisition of business, net of cash acquired |
| (2.6 | ) |
|
| — |
| |||||||
(Purchase) sale of investment |
| (2.3 | ) |
|
| 3.1 |
| |||||||
Proceeds from disposition |
| — |
|
|
| 77.1 |
| |||||||
Net cash (used in) provided by investing activities |
| (9.4 | ) |
|
| 57.4 |
| |||||||
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving facility borrowings |
| 230.0 |
|
|
| — |
|
| 413.0 |
|
|
| 255.0 |
|
Payments on revolving facility borrowings |
| (230.0 | ) |
|
| — |
|
| (413.0 | ) |
|
| (255.0 | ) |
Payments on long-term debt |
| (100.0 | ) |
|
| — |
|
| — |
|
|
| (62.5 | ) |
Proceeds from the issuance of common stock |
| — |
|
|
| 1.2 |
| |||||||
Treasury share repurchases |
| (1.3 | ) |
|
| (0.8 | ) | |||||||
Debt issuance costs |
| (1.5 | ) |
|
| (9.3 | ) |
| (0.2 | ) |
|
| — |
|
Separation-related payment from R.R. Donnelley |
| 68.0 |
|
|
| — |
| |||||||
Proceeds from issuance of common stock |
| 18.8 |
|
|
| — |
| |||||||
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 | ) |
|
| — |
| |||||||
Other financing activities |
| 0.4 |
|
|
| — |
| |||||||
Net cash used in financing activities |
| (15.2 | ) |
|
| (6.1 | ) |
| (1.5 | ) |
|
| (62.1 | ) |
Effect of exchange rate on cash and cash equivalents |
| 0.6 |
|
|
| 4.2 |
| |||||||
Net (decrease) increase in cash and cash equivalents |
| (4.0 | ) |
|
| 37.9 |
| |||||||
Cash and cash equivalents at beginning of year |
| 36.2 |
|
|
| 15.1 |
| |||||||
Cash and cash equivalents at end of period | $ | 32.2 |
|
| $ | 53.0 |
| |||||||
Effect of exchange rate on cash, cash equivalents and restricted cash |
| 2.2 |
|
|
| (1.5 | ) | |||||||
Net (decrease) increase in cash, cash equivalents and restricted cash |
| (12.9 | ) |
|
| 4.2 |
| |||||||
Cash, cash equivalents and restricted cash at beginning of year |
| 47.4 |
|
|
| 52.0 |
| |||||||
Cash, cash equivalents and restricted cash at end of period | $ | 34.5 |
|
| $ | 56.2 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
| |||||||
Supplemental cash flow information |
|
|
|
|
|
|
| |||||||
Income taxes paid (net of refunds) | $ | 23.7 |
|
| $ | 7.6 |
| |||||||
Interest paid | $ | 19.0 |
|
| $ | 19.9 |
| |||||||
|
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated and Combined Financial Statements
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Condensed Consolidated Statements of Equity
For the Three Months Ended September 30, 2019 and 2018
(in millions)
(UNAUDITED)
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-in-Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total |
| ||||||||||||||
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at June 30, 2019 |
| 34.5 |
|
| $ | 0.3 |
|
|
| 0.2 |
|
| $ | (3.7 | ) |
| $ | 221.6 |
|
| $ | 110.2 |
|
| $ | (79.3 | ) |
| $ | 249.1 |
|
Net earnings |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14.7 |
|
|
| — |
|
|
| 14.7 |
|
Other comprehensive loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.1 | ) |
|
| (0.1 | ) |
Share-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.6 |
|
|
| — |
|
|
| — |
|
|
| 2.6 |
|
Issuance of share-based awards, net of withholdings |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.2 | ) |
|
| — |
|
|
| — |
|
|
| (0.2 | ) |
Balance at September 30, 2019 |
| 34.5 |
|
| $ | 0.3 |
|
|
| 0.2 |
|
| $ | (3.7 | ) |
| $ | 224.0 |
|
| $ | 124.9 |
|
| $ | (79.4 | ) |
| $ | 266.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-in-Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total |
| ||||||||||||||
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at June 30, 2018 |
| 34.1 |
|
| $ | 0.3 |
|
|
| 0.1 |
|
| $ | (1.7 | ) |
| $ | 212.1 |
|
| $ | 36.4 |
|
| $ | (66.3 | ) |
| $ | 180.8 |
|
Net earnings |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 48.0 |
|
|
| — |
|
|
| 48.0 |
|
Other comprehensive income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.8 |
|
|
| 0.8 |
|
Share-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.1 |
|
|
| — |
|
|
| — |
|
|
| 2.1 |
|
Balance at September 30, 2018 |
| 34.1 |
|
| $ | 0.3 |
|
|
| 0.1 |
|
| $ | (1.7 | ) |
| $ | 214.2 |
|
| $ | 84.4 |
|
| $ | (65.5 | ) |
| $ | 231.7 |
|
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Condensed Consolidated Statements of Equity
For the Nine Months Ended September 30, 2019 and 2018
(in millions)
(UNAUDITED)
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-in-Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total |
| ||||||||||||||
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at December 31, 2018 |
| 34.2 |
|
| $ | 0.3 |
|
|
| 0.1 |
|
| $ | (2.4 | ) |
| $ | 216.5 |
|
| $ | 94.3 |
|
| $ | (82.7 | ) |
| $ | 226.0 |
|
Net earnings |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 30.6 |
|
|
| — |
|
|
| 30.6 |
|
Other comprehensive income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3.3 |
|
|
| 3.3 |
|
Share-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7.7 |
|
|
| — |
|
|
| — |
|
|
| 7.7 |
|
Issuance of share-based awards, net of withholdings |
| 0.3 |
|
|
| — |
|
|
| 0.1 |
|
|
| (1.3 | ) |
|
| (0.2 | ) |
|
| — |
|
|
| — |
|
|
| (1.5 | ) |
Balance at September 30, 2019 |
| 34.5 |
|
| $ | 0.3 |
|
|
| 0.2 |
|
| $ | (3.7 | ) |
| $ | 224.0 |
|
| $ | 124.9 |
|
| $ | (79.4 | ) |
| $ | 266.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-in-Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Loss |
|
| Total |
| ||||||||||||||
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at December 31, 2017 |
| 33.8 |
|
| $ | 0.3 |
|
|
| — |
|
| $ | (0.9 | ) |
| $ | 205.7 |
|
| $ | 8.9 |
|
| $ | (64.6 | ) |
| $ | 149.4 |
|
Net earnings |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 74.6 |
|
|
| — |
|
|
| 74.6 |
|
Other comprehensive loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.9 | ) |
|
| (0.9 | ) |
Adoption of ASU 2014-09 |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.9 |
|
|
| — |
|
|
| 0.9 |
|
Share-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7.2 |
|
|
| — |
|
|
| — |
|
|
| 7.2 |
|
Issuance of share-based awards, net of withholdings |
| 0.3 |
|
|
| — |
|
|
| 0.1 |
|
|
| (0.8 | ) |
|
| 1.3 |
|
|
| — |
|
|
| — |
|
|
| 0.5 |
|
Balance at September 30, 2018 |
| 34.1 |
|
| $ | 0.3 |
|
|
| 0.1 |
|
| $ | (1.7 | ) |
| $ | 214.2 |
|
| $ | 84.4 |
|
| $ | (65.5 | ) |
| $ | 231.7 |
|
6
8
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(“DFIN,” or the “Company” or “Donnelley Financial” ) is a financial communicationsleading global risk and compliance solutions company. The Company provides regulatory filing and deal solutions via its software-as-a-service (“SaaS”), technology-enabled services company that supports globaland print and distribution solutions to public and private companies, mutual funds and other regulated investment firms, to serve their regulatory and compliance needs. For corporate clients within its 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 fundofferings, the Company offers technology-enabled filing solutions that allow U.S. public 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 compliescomply with regulatory commissions.
Donnelley Financial’s Registration Statement on Form 10, as amended, was declared effective by theapplicable U.S. Securities and Exchange Commission (the “SEC”(“SEC”) on September 20, 2016. On October 1, 2016, Donnelley Financial became an independent publicly traded company throughregulations including filing agent services, digital document creation and online content management tools that support their corporate financial transactions and regulatory reporting; solutions to facilitate clients’ communications with their shareholders; and virtual data rooms and other deal management solutions. For 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 publishinginvestment markets, including alternative investment 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 of the Company.
On September 14, 2016,insurance investment companies, the Company provides technology-enabled filing solutions including cloud-based tools for creating and LSC entered intofiling high-quality regulatory documents and solutions for investors designed to improve the speed and accuracy of their access to investment information. Throughout 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 thatcompany’s life cycle, the Company RRDserves its clients’ regulatory and LSC will provide each other with appropriate indemnities with respectcompliance needs. The Company’s deep industry and regulatory expertise and a commitment to liabilities arising out of the businesses being distributedexceptional service guides our clients to navigate a high-stakes 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.
7
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, 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, 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, 2017 only. ever-changing regulatory environment.
Basis of Presentation
The accompanying unaudited condensed consolidated and combined financial statements reflectinclude the consolidated financial positionaccounts of DFIN 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, 20162018 filed with the SEC on February 28, 2017.27, 2019. 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 priorCash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash at September 30, 2019 and December 31, 2018 reported within the condensed consolidated balance sheets to the Separation,total cash, cash equivalents and restricted cash presented in the unaudited condensed consolidated statement of cash flows.
| September 30, 2019 |
|
| December 31, 2018 |
| ||
Cash and cash equivalents | $ | 32.1 |
|
| $ | 47.3 |
|
Restricted cash - current (a) |
| 2.4 |
|
|
| 0.1 |
|
Total cash, cash equivalents and restricted cash | $ | 34.5 |
|
| $ | 47.4 |
|
(a) | Included within prepaid expenses and other current assets within the condensed consolidated balance sheets |
Note 2. Revenue
Revenue Recognition
The Company manages highly-customized data and combined financial statementsmaterials, such as Exchange Act, Securities Act and Investment Company Act filings with the SEC on behalf of its 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. The Company’s SaaS offerings include the allocation of certain assetsVenue Virtual Data Room (“Venue”), the FundSuiteArc software platform, ActiveDisclosure and liabilities that were historically held at the RRD corporate level but which were specifically identifiable or attributable to the Company. Cashdata 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. analytics, among others.
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.
89
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated and Combined Financial Statements
(in millions, except per share data, unless otherwise indicated)
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.
RRD maintained various benefitRevenue 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 share-based compensation plansproducts are considered distinct performance obligations that should be accounted for separately requires significant judgment. 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 Venue, 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 is 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 is 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. |
• | 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. |
10
Donnelley Financial employees participated Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in those programs and a portionmillions, except per share data, unless otherwise indicated)
Because substantially all of the costCompany’s products are customized, product returns are not significant; however, the Company accrues for the estimated amount of those planscustomer 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 priorrecognized when all criteria are subsequently met.
Certain revenues earned by the Company require significant judgment to the Separation. On October 1, 2016, Donnelley Financialdetermine if revenue should be recorded net pension plan liabilities of $68.3 million (consisting ofgross, as a total benefit plan liability of $317.0 million,principal, or net of plan assets having fair market value of $248.7 million),related costs, as a result of the transfer ofan agent. Billings for shipping and handling costs as well as certain pension plan liabilitiespostage costs, and assets from RRD to the Company upon the legal split of those plans.out-of-pocket expenses are recorded gross. Revenue is not recognized for customer-supplied postage. 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 toCompany’s printing operations process paper that may be supplied directly by customers or may be purchased by the Company from RRD. 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 any taxes collected from customers, which are subsequently remitted to authorities.
Disaggregation of revenue
The Company also recorded a net other postretirement benefit liabilityfollowing tables disaggregate revenue by reporting unit and timing of $1.5 million, as a result of the transfer of an other postretirement benefit plan from RRD to the Company. Refer to Note 6, Retirement Plans, for further details regarding the Company’s pension 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 $1.1 million and $3.6 million for the three months and nine months ended September 30, 2016, respectively. 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 millionrecognition for the three and nine months ended September 30, 2016,2019 and 2018:
| Three Months Ended September 30, 2019 |
| |||||||||
| Point in time |
|
| Over time |
|
| Total |
| |||
U.S. |
|
|
|
|
|
|
|
|
|
|
|
Capital Markets | $ | 72.0 |
|
| $ | 25.1 |
|
| $ | 97.1 |
|
Investment Markets |
| 65.5 |
|
|
| 11.1 |
|
|
| 76.6 |
|
Total U.S. |
| 137.5 |
|
|
| 36.2 |
|
|
| 173.7 |
|
International |
| 14.5 |
|
|
| 7.7 |
|
|
| 22.2 |
|
Total net sales | $ | 152.0 |
|
| $ | 43.9 |
|
| $ | 195.9 |
|
| Three Months Ended September 30, 2018 |
| |||||||||
| Point in time |
|
| Over time |
|
| Total |
| |||
U.S. |
|
|
|
|
|
|
|
|
|
|
|
Capital Markets | $ | 78.1 |
|
| $ | 24.4 |
|
| $ | 102.5 |
|
Investment Markets |
| 70.1 |
|
|
| 11.7 |
|
|
| 81.8 |
|
Language Solutions |
| 1.2 |
|
|
| — |
|
|
| 1.2 |
|
Total U.S. |
| 149.4 |
|
|
| 36.1 |
|
|
| 185.5 |
|
International |
| 26.7 |
|
|
| 4.7 |
|
|
| 31.4 |
|
Total net sales | $ | 176.1 |
|
| $ | 40.8 |
|
| $ | 216.9 |
|
11
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
| Nine Months Ended September 30, 2019 |
| |||||||||
| Point in time |
|
| Over time |
|
| Total |
| |||
U.S. |
|
|
|
|
|
|
|
|
|
|
|
Capital Markets | $ | 259.6 |
|
| $ | 75.5 |
|
| $ | 335.1 |
|
Investment Markets |
| 226.9 |
|
|
| 37.7 |
|
|
| 264.6 |
|
Total U.S. |
| 486.5 |
|
|
| 113.2 |
|
|
| 599.7 |
|
International |
| 64.2 |
|
|
| 20.5 |
|
|
| 84.7 |
|
Total net sales | $ | 550.7 |
|
| $ | 133.7 |
|
| $ | 684.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, 2018 |
| |||||||||
| Point in time |
|
| Over time |
|
| Total |
| |||
U.S. |
|
|
|
|
|
|
|
|
|
|
|
Capital Markets | $ | 292.1 |
|
| $ | 72.5 |
|
| $ | 364.6 |
|
Investment Markets |
| 224.2 |
|
|
| 38.6 |
|
|
| 262.8 |
|
Language Solutions |
| 13.7 |
|
|
| — |
|
|
| 13.7 |
|
Total U.S. |
| 530.0 |
|
|
| 111.1 |
|
|
| 641.1 |
|
International |
| 107.9 |
|
|
| 13.7 |
|
|
| 121.6 |
|
Total net sales | $ | 637.9 |
|
| $ | 124.8 |
|
| $ | 762.7 |
|
Contract Balances
Contract assets represent revenue recognized for performance obligations completed before an unconditional right to payment exists, and therefore invoicing has not yet occurred. Contract assets were $5.0 million at September 30, 2019 and $8.7 million at December 31, 2018, respectively. Intercompany receivablesGenerally, the contract assets balance is impacted by the recognition of additional contract assets, offset by amounts invoiced to customers. For the nine months ended September 30, 2019, final amounts invoiced to customers exceeded estimates of standalone selling price as of January 1, 2019 for the related arrangements by approximately $1.5 million. Contract assets are included in accounts receivable on the condensed consolidated balance sheet.
Contract liabilities consist of deferred revenue and payablesprogress billings which are included in accrued liabilities on the condensed consolidated balance sheet. Changes in contract liabilities for the nine months ended September 30, 2019 and 2018, respectively, were as follows:
Balance at January 1, 2019 | $ | 12.0 |
|
Deferral of revenue |
| 37.5 |
|
Revenue recognized |
| (37.3 | ) |
Balance at September 30, 2019 | $ | 12.2 |
|
Balance at January 1, 2018 | $ | 14.2 |
|
Deferral of revenue |
| 35.4 |
|
Revenue recognized |
| (35.9 | ) |
Disposition |
| (1.6 | ) |
Balance at September 30, 2018 | $ | 12.1 |
|
12
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
Note 3. Acquisitions and Dispositions
Acquisition
On December 18, 2018, the Company acquired eBrevia, a leading provider of artificial intelligence-based data extraction and contract analytics software solutions. The eBrevia technology provides leading enterprise contract review and analysis solutions, leveraging machine learning to produce faster and more accurate results. eBrevia's software, which extracts and summarizes key legal provisions and other information, can be used in due diligence, contract management, lease abstraction and document drafting. The acquisition enhances the Company’s Venue Deal Solutions offerings to provide clients with RRD are reflected within net parent companysecure data aggregation, due diligence, compliance and risk management solutions. The Company previously held a 12.8% investment in the accompanying unaudited condensed combined financial statements for periodseBrevia prior to the Separation. See Note 13, Related Parties,acquisition. The purchase price for the remaining equity of eBrevia, which includes the Company’s estimate of contingent consideration, was $23.3 million, net of cash acquired of $0.2 million. $1.8 million of the purchase price, excluding contingent consideration and amounts held in escrow, remains payable as of September 30, 2019. The fair value of the Company’s previously held investment was $3.3 million, resulting in the recognition of a further description$1.8 million gain, which is reflected in investment and other income in the consolidated statements of related party transactions.operations for the year ended December 31, 2018. The fair value of the previously held investment was determined based on the purchase price paid for the remaining equity less an estimated control premium. The former owners of eBrevia, excluding the Company, may receive additional contingent consideration of up to $3.5 million in cash subject to eBrevia achieving certain financial targets during the twenty-four months post acquisition. As of the acquisition date and September 30, 2019, the Company estimated the fair value of contingent consideration to be $0.8 million using a probability weighting of the potential payouts. Subsequent changes in the estimated contingent consideration from the final purchase price allocation will be recognized in the Company’s consolidated statement of operations. The operations of eBrevia are included within the Capital Markets reporting unit in the U.S. segment.
During the three and nine months ended September 30, 2019, the Company recorded $0.1 million of acquisition-related expenses associated with contemplated acquisitions within selling, general and administrative expenses in the condensed consolidated statement of operations. For the three months ended September 30, 2018, there were 0 acquisition-related expenses and for the nine months ended September 30, 2018, the Company recorded $0.5 million of acquisition-related expenses associated with completed or contemplated acquisitions.
The eBrevia acquisition was recorded by allocating the cost of the acquisition to the assets acquired, including other intangible assets, based on their estimated fair values at the acquisition date. The excess of the cost of the acquisition over the net amounts assigned to the fair value of the assets acquired was recorded as goodwill.
There is 0 tax deductible goodwill related to the eBrevia acquisition.
The purchase price allocation for eBrevia is preliminary as the Company is still in the process of obtaining data to finalize the estimated fair values of certain deferred tax account balances. The final purchase price allocation may differ from what is currently reflected in the consolidated financial statements. Based on the current valuation, the preliminary purchase price allocation for this acquisition is as follows:
Accounts receivable | $ | 0.3 |
|
Other intangible assets |
| 11.4 |
|
Software |
| 0.8 |
|
Goodwill |
| 12.9 |
|
Accounts payable and accrued liabilities |
| (0.4 | ) |
Deferred taxes-net |
| (1.7 | ) |
Total purchase price-net of cash acquired |
| 23.3 |
|
Less: fair value of the Company's previously held investment in eBrevia |
| (3.3 | ) |
Less: fair value of contingent consideration |
| (0.8 | ) |
Less: payable for initial consideration |
| (1.8 | ) |
Less: amounts held in escrow and liabilities assumed |
| (2.2 | ) |
Net cash paid | $ | 15.2 |
|
13
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
Disposition
On July 22, 2018, the Company sold its Language Solutions business, which helped companies adapt their business content into different languages for specific countries, markets and regions, for net proceeds of $77.5 million in cash, all of which was received as of December 31, 2018, resulting in a gain of $53.8 million, which was recognized in other operating income in the consolidated statement of operations for the year ended December 31, 2018. During the nine months ended September 30, 2019, the Company recognized a $2.8 million loss in other operating income in the consolidated statement of operations related to the disposition of the Language Solutions business. Language Solutions' operating results were included within the Language Solutions reporting unit within the U.S. segment as well as the International segment.
Note 2.4. Inventories
The components of the Company’s inventories, net of excess and obsolescence reserves for raw materials, and finished goods, at September 30, 20172019 and December 31, 20162018 were as follows:
| September 30, 2017 |
|
| December 31, 2016 |
| September 30, 2019 |
|
| December 31, 2018 |
| ||||
Raw materials and manufacturing supplies | $ | 6.4 |
|
| $ | 7.6 |
| $ | 3.7 |
|
| $ | 4.0 |
|
Work in process |
| 11.4 |
|
|
| 10.8 |
|
| 10.0 |
|
|
| 8.1 |
|
Finished goods |
| 5.8 |
|
|
| 5.7 |
| |||||||
Total | $ | 23.6 |
|
| $ | 24.1 |
| $ | 13.7 |
|
| $ | 12.1 |
|
Note 3.5. Property, Plant and Equipment
The components of the Company’s property, plant and equipment at September 30, 20172019 and December 31, 20162018 were as follows:
| September 30, 2017 |
|
| December 31, 2016 |
| September 30, 2019 |
|
| December 31, 2018 |
| ||||
Land | $ | 10.0 |
|
| $ | 10.0 |
| $ | 2.8 |
|
| $ | 10.0 |
|
Buildings |
| 43.7 |
|
|
| 44.4 |
|
| 33.1 |
|
|
| 36.2 |
|
Machinery and equipment |
| 104.4 |
|
|
| 109.2 |
|
| 112.1 |
|
|
| 106.3 |
|
|
| 158.1 |
|
|
| 163.6 |
|
| 148.0 |
|
|
| 152.5 |
|
Less: Accumulated depreciation |
| (123.4 | ) |
|
| (128.1 | ) |
| (123.0 | ) |
|
| (120.3 | ) |
Total | $ | 34.7 |
|
| $ | 35.5 |
| $ | 25.0 |
|
| $ | 32.2 |
|
On September 27, 2019, the Company entered into a sale-leaseback agreement in which it sold a building and land at fair market value for proceeds of $30.6 million, and entered into an operating lease of the property through September 2029 with the option to terminate after three years. The $19.2 million net gain on the sale of the property is recorded in other operating income, within the U.S. segment, in the condensed consolidated statements of operations for the three and nine months ended September 30, 2019.
Depreciation expense was $1.9$2.1 million and $1.4$1.6 million for the three months ended September 30, 20172019 and 2016,2018, respectively, and $5.0$5.4 million and $6.1$5.4 million for the nine months ended September 30, 20172019 and 2016, respectively. 2018.
Note 4.6. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by segment for the nine months ended September 30, 20172019 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 |
|
| U.S. |
|
| International |
|
| Total |
| |||
Net book value as of December 31, 2018 | $ | 438.5 |
|
| $ | 11.5 |
|
| $ | 450.0 |
|
Purchase accounting adjustments |
| 0.1 |
|
|
| — |
|
|
| 0.1 |
|
Foreign exchange and other adjustments |
| — |
|
|
| 0.1 |
|
|
| 0.1 |
|
Net book value as of September 30, 2019 | $ | 438.6 |
|
| $ | 11.6 |
|
| $ | 450.2 |
|
9
14
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, 20172019 and December 31, 20162018 were as follows:
| September 30, 2017 |
|
| December 31, 2016 |
| |||||||||||||||||||||||||||||||||||||||||
| Gross |
|
|
|
|
|
|
|
|
|
| Gross |
|
|
|
|
|
|
|
|
| September 30, 2019 |
|
| December 31, 2018 |
| ||||||||||||||||||||
| Carrying |
|
| Accumulated |
|
| Net Book |
|
| Carrying |
|
| Accumulated |
|
| Net Book |
| Gross Carrying Amount |
|
|
|
|
|
|
|
|
|
| Gross Carrying Amount |
|
|
|
|
|
|
|
|
| ||||||||
| Amount |
|
| Amortization |
|
| Value |
|
| Amount |
|
| Amortization |
|
| Value |
|
|
| Accumulated Amortization |
|
| Net Book Value |
|
|
|
| Accumulated Amortization |
|
| Net Book Value |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross Carrying Amount |
| |||||||||||||
Customer relationships | $ | 140.6 |
|
| $ | (97.1 | ) |
| $ | 43.5 |
|
| $ | 138.8 |
|
| $ | (85.3 | ) |
| $ | 53.5 |
| $ | 149.1 |
|
| $ | (123.7 | ) |
| $ | 25.4 |
|
| $ | 149.3 |
|
| $ | (113.1 | $ | 36.2 |
| ||
Trade names |
| 6.3 |
|
|
| (5.6 | ) |
|
| 0.7 |
|
|
| 6.3 |
|
|
| (5.5 | ) |
|
| 0.8 |
|
| 3.9 |
|
|
| (3.0 | ) |
|
| 0.9 |
|
|
| 3.9 |
|
|
| (2.9 |
| 1.0 |
| ||
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 |
| $ | 153.0 |
|
| $ | (126.7 | ) |
| $ | 26.3 |
|
| $ | 153.2 |
|
| $ | (116.0 | ) |
| $ | 37.2 |
|
Amortization expense for other intangible assets was $3.6 million and $3.6$3.4 million for the three months ended September 30, 20172019 and 2016,2018, respectively, and $10.7$10.9 million and $10.8$10.3 million for the nine months ended September 30, 20172019 and 2016,2018, respectively.
The following table outlines the estimated annual amortization expense related to other intangible assets as of September 30, 2017:2019:
For the year ending December 31, | Amount |
| Amount |
| ||
2017 | $ | 14.3 |
| |||
2018 |
| 13.9 |
| |||
2019 |
| 13.9 |
| $ | 14.6 |
|
2020 |
| 12.5 |
|
| 13.0 |
|
2021 |
| 0.1 |
|
| 0.9 |
|
2022 and thereafter |
| 0.2 |
| |||
2022 |
| 0.9 |
| |||
2023 |
| 0.9 |
| |||
2024 and thereafter |
| 6.9 |
| |||
Total | $ | 54.9 |
| $ | 37.2 |
|
Note 7. Leases
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. On January 1, 2019, the Company adopted the standard and all related amendments, using the optional transition method applied to leases at the adoption date. The comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods.
The Company elected the optional package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company also elected the practical expedient to not separate lease components from non-lease components for real estate leases. As a result of the adoption of ASU 2016-02, the Company recognized a lease liability of $101.6 million and a right-of-use (“ROU”) asset of $100.8 million for operating leases at January 1, 2019.
The Company has operating leases for certain service centers, office space, warehouses and equipment. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. Upon adoption of ASU 2016-02, ROU assets were adjusted for deferred rent, restructuring liabilities, prepaids and favorable/onerous lease balances as of January 1, 2019. Lease expense is recognized on a straight-line basis over the expected lease term. The Company’s incremental borrowing rate is used in determining the present value of future payments at the commencement date of the lease, or for the adoption of ASU 2016-02, at January 1, 2019. Balances related to operating leases are included in ROU assets, accrued liabilities and noncurrent lease liabilities on the condensed consolidated balance sheet.
All real estate leases are recorded on the balance sheet. Equipment and other non-real estate leases with an initial term of twelve months or less are not recorded on the balance sheet. Lease agreements for some locations provide for rent escalations and renewal options. Lease terms include the option to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Certain real estate leases require payment for taxes, insurance and maintenance which are considered non-lease components. The Company accounts for real estate leases and the related fixed non-lease components together as a single component.
15
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
The Company determines if an arrangement is a lease at inception. The Company must consider whether the contract conveys the right to control the use of an identified asset. Certain arrangements require significant judgment to determine if an asset is specified in the contract and if the Company directs how and for what purpose the asset is used during the term of the contract.
The Company has non-cancelable sublease rental arrangements which did not reduce the future maturities of the operating lease liabilities at September 30, 2019 and did not reduce future rental commitments at December 31, 2018.
The components of lease expense for the three and nine months ended September 30, 2019 were as follows:
| Three months ended |
|
| Nine months ended |
| ||
| September 30, 2019 |
|
| September 30, 2019 |
| ||
Operating lease expense | $ | 6.5 |
|
| $ | 19.7 |
|
Sublease income |
| (1.4 | ) |
|
| (3.9 | ) |
Net lease expense | $ | 5.1 |
|
| $ | 15.8 |
|
Other information related to operating leases as of and for the nine months ended September 30, 2019 were as follows:
Lease Term and Discount Rate | September 30, 2019 | ||
Weighted average remaining lease term | 4.5 years | ||
Weighted average discount rate | 4.6 | % |
| Nine months ended |
| |
Lease Liabilities | September 30, 2019 |
| |
Cash paid related to lease liabilities | $ | 20.8 |
|
Non-cash disclosure: |
|
|
|
Increase in ROU assets due to new lease liabilities | $ | 9.6 |
|
Decrease in ROU assets due to lease modifications and |
| (7.8 | ) |
Maturities of lease liabilities for operating leases as of September 30, 2019 were as follows:
| Amount |
| |
2019 (a) | $ | 7.0 |
|
2020 |
| 25.8 |
|
2021 |
| 20.6 |
|
2022 |
| 16.1 |
|
2023 |
| 10.2 |
|
2024 and thereafter |
| 15.6 |
|
Total lease payments |
| 95.3 |
|
Less: Interest |
| (9.2 | ) |
Present value of lease liabilities | $ | 86.1 |
|
(a) | Excluding payments for the nine months ended September 30, 2019 |
As of September 30, 2019 |
|
|
|
Accrued liabilities | $ | 22.9 |
|
Noncurrent lease liabilities |
| 63.2 |
|
Total | $ | 86.1 |
|
16
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
Disclosures related to periods prior to adoption of ASU 2016-02
Future minimum rental commitments under non-cancellable operating leases as of December 31, 2018 were expected to be as follows:
Year ended December 31 | Amount |
| |
2019 | $ | 26.4 |
|
2020 |
| 22.6 |
|
2021 |
| 16.6 |
|
2022 |
| 10.9 |
|
2023 |
| 8.7 |
|
2024 and thereafter |
| 16.3 |
|
Total | $ | 101.5 |
|
Rent expense for facilities in use and equipment was $6.1 million and $18.7 million for the three and nine months ended September 30, 2018, respectively.
Note 5.8. Restructuring, Impairment and Other Charges
Restructuring, Impairment and Other Charges recognized in Results of Operations
For the three months ended September 30, 20172019 and 2016,2018, the Company recorded the following net restructuring impairmentcharges:
Three Months Ended |
| Employee |
|
| Total Restructuring |
|
|
|
|
|
|
|
|
| ||
September 30, 2019 |
| Terminations |
|
| Charges |
|
| Impairment |
|
| Total |
| ||||
U.S. |
| $ | 1.6 |
|
| $ | 1.6 |
|
| $ | — |
|
| $ | 1.6 |
|
International |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Corporate |
|
| 0.8 |
|
|
| 0.8 |
|
|
| 0.4 |
|
|
| 1.2 |
|
Total |
| $ | 2.4 |
|
| $ | 2.4 |
|
| $ | 0.4 |
|
| $ | 2.8 |
|
Three Months Ended |
| Employee |
|
| Total Restructuring |
|
|
|
|
| ||
September 30, 2018 |
| Terminations |
|
| Charges |
|
| Total |
| |||
U.S. |
| $ | 0.6 |
|
| $ | 0.6 |
|
| $ | 0.6 |
|
International |
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
Corporate |
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
Total |
| $ | 0.8 |
|
| $ | 0.8 |
|
| $ | 0.8 |
|
For the nine months ended September 30, 2019 and 2018, the Company recorded the following net restructuring and other charges:
Three Months Ended |
| Employee |
|
| Other Restructuring |
|
| Total Restructuring |
|
|
|
|
| |||||||||||||||||||||||
September 30, 2017 |
| Terminations |
|
| Charges |
|
| Charges |
|
| Total |
| ||||||||||||||||||||||||
Nine Months Ended |
| Employee |
|
| Total Restructuring |
|
| Other |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
September 30, 2019 |
| Terminations |
|
| Charges |
|
| Charges |
|
| Impairment |
|
| Total |
| |||||||||||||||||||||
U.S. |
| $ | 0.2 |
|
| $ | (1.0 | ) |
| $ | (0.8 | ) |
| $ | (0.8 | ) |
| $ | 4.8 |
|
| $ | 4.8 |
|
| $ | 0.1 |
|
| $ | — |
|
| $ | 4.9 |
|
International |
|
| 0.1 |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| — |
|
|
| — |
|
|
| 1.0 |
|
Corporate |
|
| 0.1 |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| 2.4 |
|
|
| 2.4 |
|
|
| — |
|
|
| 0.4 |
|
|
| 2.8 |
|
Total |
| $ | 0.4 |
|
| $ | (1.0 | ) |
| $ | (0.6 | ) |
| $ | (0.6 | ) |
| $ | 8.2 |
|
| $ | 8.2 |
|
| $ | 0.1 |
|
| $ | 0.4 |
|
| $ | 8.7 |
|
Three Months Ended |
| Employee |
|
| Other Restructuring |
|
| Total Restructuring |
|
|
|
|
| |||||||||||||||||||||||
September 30, 2016 |
| Terminations |
|
| Charges |
|
| Charges |
|
| Total |
| ||||||||||||||||||||||||
Nine Months Ended |
| Employee |
|
| Other Restructuring |
|
| Total Restructuring |
|
| Other |
|
|
|
|
| ||||||||||||||||||||
September 30, 2018 |
| Terminations |
|
| Charges |
|
| Charges |
|
| Charges |
|
| Total |
| |||||||||||||||||||||
U.S. |
| $ | 1.0 |
|
| $ | 0.4 |
|
| $ | 1.4 |
|
| $ | 1.4 |
|
| $ | 1.1 |
|
| $ | 0.7 |
|
| $ | 1.8 |
|
| $ | 0.1 |
|
| $ | 1.9 |
|
International |
|
| 0.3 |
|
|
| — |
|
|
| 0.3 |
|
|
| 0.3 |
|
|
| 1.9 |
|
|
| — |
|
|
| 1.9 |
|
|
| — |
|
|
| 1.9 |
|
Corporate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.3 |
|
|
| — |
|
|
| 0.3 |
|
|
| — |
|
|
| 0.3 |
|
Total |
| $ | 1.3 |
|
| $ | 0.4 |
|
| $ | 1.7 |
|
| $ | 1.7 |
|
| $ | 3.3 |
|
| $ | 0.7 |
|
| $ | 4.0 |
|
| $ | 0.1 |
|
| $ | 4.1 |
|
1017
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 three and nine months ended September 30, 2017 and 2016,2019, the Company recorded the following net restructuring impairmentcharges of $2.4 million 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
$8.2 million, respectively, for employee termination costs for 235 employees, substantially all of whom were terminated as of September 30, 2019. These charges primarily related to the reorganization of certain operations. For the three and nine months ended September 30, 2017,2019, the Company recorded net restructuring charges of $0.4 million and $5.2 million, respectively, for employee termination costs for 169 employees, substantially all of whom were terminated as of September 30, 2017. Thesenet impairment 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 million for the nine months ended September 30, 2017.software assets. For the nine months ended September 30, 2017,2019, 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 includesincurred $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, 2016,2018, the Company recorded net restructuring charges of $1.3$0.8 million and $2.3$3.3 million, respectively, for employee termination costs for 22 employees.76 employees, all of whom were terminated as of September 30, 2019. These charges primarily related to the reorganization of certain administrative functions.operations. Additionally, the Company incurred net lease termination and other restructuring chargescost of $0.4$0.7 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 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.
operate during the nine months ended September 30, 2018.
Restructuring Reserve
The restructuring reserve as of December 31, 20162018 and September 30, 2017,2019, and changes during the nine months ended September 30, 2017,2019, were as follows:
|
|
|
|
|
|
|
|
| Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| December 31, |
|
| Restructuring |
|
| Exchange and |
|
| Cash |
|
| September 30, |
| December 31, |
|
| Restructuring |
|
|
|
|
|
| Adoption of |
|
| Cash |
|
| September 30, |
| ||||||||||
| 2016 |
|
| Charges |
|
| Other |
|
| Paid |
|
| 2017 |
| 2018 |
|
| Charges |
|
| Reversals |
|
| ASU 2016-02 |
|
| Paid |
|
| 2019 |
| |||||||||||
Employee terminations | $ | 1.6 |
|
| $ | 5.2 |
|
| $ | 0.1 |
|
| $ | (5.3 | ) |
| $ | 1.6 |
| $ | 0.4 |
|
| $ | 8.3 |
|
| $ | (0.1 | ) |
| $ | — |
|
| $ | (5.3 | ) |
| $ | 3.3 |
|
Lease terminations and other |
| 3.8 |
|
|
| 0.9 |
|
|
| 0.2 |
|
|
| (1.5 | ) |
|
| 3.4 |
| |||||||||||||||||||||||
Lease terminations |
| 1.1 |
|
|
| — |
|
|
| — |
|
|
| (1.1 | ) |
|
| — |
|
|
| — |
| |||||||||||||||||||
Other |
| 0.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.1 | ) |
|
| 0.1 |
| |||||||||||||||||||
Total | $ | 5.4 |
|
| $ | 6.1 |
|
| $ | 0.3 |
|
| $ | (6.8 | ) |
| $ | 5.0 |
| $ | 1.7 |
|
| $ | 8.3 |
|
| $ | (0.1 | ) |
| $ | (1.1 | ) |
| $ | (5.4 | ) |
| $ | 3.4 |
|
The current portion of restructuring reserves of $3.2$3.3 million at September 30, 20172019 was included in accrued liabilities, while the long-term portion of $1.8$0.1 million primarily related to lease termination costs, was included in other noncurrent liabilities at September 30, 2017.2019.
11
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 table above table will be substantially completed by MarchDecember 31, 2018.2019.
The restructuring liabilities classified as “lease terminations and other”terminations” consisted of lease terminations, other facility closing costs and contract termination costs. Payments on certainUpon adoption of ASU 2016-02, the lease obligations are scheduled to continue until 2026. Market conditions and the Company’s ability to sublease these properties could affect the ultimate charges relatedrestructuring liabilities as of January 1, 2019 were recorded as a reduction to the lease obligations. Any potential recoveries or additional charges could affect amounts reported in the Company’s financial statements.related ROU assets recorded on January 1, 2019. Refer to Note 7, Leases, for further information.
Note 6.9. 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’sDFIN’s pension plans for the three and nine months ended September 30, 20172019 and 20162018 were as follows:
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
| September 30, |
|
| September 30, |
| September 30, |
|
| September 30, |
| ||||||||||||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Pension expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost | $ | 2.6 |
|
| $ | — |
|
| $ | 7.9 |
|
| $ | — |
| $ | 2.8 |
|
| $ | 2.6 |
|
| $ | 8.3 |
|
| $ | 7.7 |
|
Expected return on assets |
| (4.0 | ) |
|
| — |
|
|
| (12.0 | ) |
|
| — |
|
| (3.7 | ) |
|
| (4.0 | ) |
|
| (11.1 | ) |
|
| (12.0 | ) |
Amortization, net |
| 0.6 |
|
|
| (0.2 | ) |
|
| 1.6 |
|
|
| (0.4 | ) |
| 0.4 |
|
|
| 0.6 |
|
|
| 1.3 |
|
|
| 1.9 |
|
Net pension income | $ | (0.8 | ) |
| $ | (0.2 | ) |
| $ | (2.5 | ) |
| $ | (0.4 | ) | $ | (0.5 | ) |
| $ | (0.8 | ) |
| $ | (1.5 | ) |
| $ | (2.4 | ) |
12
18
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’s equity as of December 31, 2016 and September 30, 2017, and changes during the nine months ended September 30, 2017, were as follows:
| Total |
| |
| Equity |
| |
Balance at December 31, 2016 | $ | 111.1 |
|
Net earnings |
| 33.4 |
|
Other comprehensive income |
| 5.6 |
|
Separation-related adjustments |
| 0.2 |
|
Share-based compensation |
| 5.2 |
|
Issuance of common stock |
| 18.8 |
|
Issuance of share-based awards, net of withholdings and other |
| (0.7 | ) |
Balance at September 30, 2017 | $ | 173.6 |
|
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 8.10. 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 stock options, restricted stock units, performance share 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.
13
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, 20172019 and 20162018 were as follows:
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
| September 30, |
|
| September 30, |
| September 30 |
|
| September 30 |
| ||||||||||||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ | 0.16 |
|
| $ | 0.31 |
|
| $ | 1.01 |
|
| $ | 1.85 |
| $ | 0.43 |
|
| $ | 1.42 |
|
| $ | 0.90 |
|
| $ | 2.21 |
|
Diluted | $ | 0.16 |
|
| $ | 0.31 |
|
| $ | 1.01 |
|
| $ | 1.85 |
| $ | 0.43 |
|
| $ | 1.40 |
|
| $ | 0.89 |
|
| $ | 2.19 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings | $ | 5.3 |
|
| $ | 10.2 |
|
| $ | 33.4 |
|
| $ | 59.9 |
| $ | 14.7 |
|
| $ | 48.0 |
|
| $ | 30.6 |
|
| $ | 74.6 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
| 33.6 |
|
|
| 32.4 |
|
|
| 33.0 |
|
|
| 32.4 |
|
| 34.2 |
|
|
| 33.9 |
|
|
| 34.1 |
|
|
| 33.8 |
|
Dilutive awards |
| 0.2 |
|
|
| — |
|
|
| 0.2 |
|
|
| — |
|
| 0.1 |
|
|
| 0.3 |
|
|
| 0.1 |
|
|
| 0.2 |
|
Diluted weighted average number of common shares outstanding |
| 33.8 |
|
|
| 32.4 |
|
|
| 33.2 |
|
|
| 32.4 |
|
| 34.3 |
|
|
| 34.2 |
|
|
| 34.2 |
|
|
| 34.0 |
|
Weighted average number of anti-dilutive share-based awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units |
| — |
|
|
| — |
|
|
| 0.2 |
|
|
| — |
|
| 0.3 |
|
|
| — |
|
|
| 0.7 |
|
|
| 0.3 |
|
Stock options |
| 0.4 |
|
|
| — |
|
|
| 0.3 |
|
|
| — |
|
| 0.8 |
|
|
| 0.6 |
|
|
| 0.8 |
|
|
| 0.6 |
|
Total |
| 0.4 |
|
|
| — |
|
|
| 0.5 |
|
|
| — |
|
| 1.1 |
|
|
| 0.6 |
|
|
| 1.5 |
|
|
| 0.9 |
|
Note 9.11. 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, 20172019 and 20162018 were as follows:
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||
| September 30, 2017 |
|
| September 30, 2017 |
| ||||||||||||||||||
| Before Tax |
|
| Income Tax |
|
| Net of Tax |
|
| Before Tax |
|
| Income Tax |
|
| Net of Tax |
| ||||||
| Amount |
|
| Expense |
|
| Amount |
|
| Amount |
|
| Expense |
|
| Amount |
| ||||||
Translation adjustments | $ | 2.2 |
|
| $ | — |
|
| $ | 2.2 |
|
| $ | 4.6 |
|
| $ | — |
|
| $ | 4.6 |
|
Adjustment for net periodic pension plan and other postretirement benefits plan cost |
| 0.6 |
|
|
| 0.3 |
|
|
| 0.3 |
|
|
| 1.6 |
|
|
| 0.6 |
|
|
| 1.0 |
|
Other comprehensive income | $ | 2.8 |
|
| $ | 0.3 |
|
| $ | 2.5 |
|
| $ | 6.2 |
|
| $ | 0.6 |
|
| $ | 5.6 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||
| September 30, 2019 |
|
| September 30, 2019 |
| ||||||||||||||||||
| Before Tax |
|
| Income Tax |
|
| Net of Tax |
|
| Before Tax |
|
| Income Tax |
|
| Net of Tax |
| ||||||
| Amount |
|
| Expense |
|
| Amount |
|
| Amount |
|
| Expense |
|
| Amount |
| ||||||
Translation adjustments | $ | (0.4 | ) |
| $ | — |
|
| $ | (0.4 | ) |
| $ | 2.3 |
|
| $ | — |
|
| $ | 2.3 |
|
Adjustment for net periodic pension plan and |
| 0.4 |
|
|
| 0.1 |
|
|
| 0.3 |
|
|
| 1.4 |
|
|
| 0.4 |
|
|
| 1.0 |
|
Other comprehensive income (loss) | $ | — |
|
| $ | 0.1 |
|
| $ | (0.1 | ) |
| $ | 3.7 |
|
| $ | 0.4 |
|
| $ | 3.3 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||
| September 30, 2016 |
|
| September 30, 2016 |
| ||||||||||||||||||
| Before Tax |
|
| Income Tax |
|
| Net of Tax |
|
| Before Tax |
|
| Income Tax |
|
| Net of Tax |
| ||||||
| Amount |
|
| Expense |
|
| Amount |
|
| Amount |
|
| Expense |
|
| Amount |
| ||||||
Translation adjustments | $ | 0.2 |
|
| $ | — |
|
| $ | 0.2 |
|
| $ | 4.2 |
|
| $ | — |
|
| $ | 4.2 |
|
Adjustment for net periodic pension plan and other postretirement benefits plan cost |
| (0.2 | ) |
|
| — |
|
|
| (0.2 | ) |
|
| (0.4 | ) |
|
| — |
|
|
| (0.4 | ) |
Other comprehensive income | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 3.8 |
|
| $ | — |
|
| $ | 3.8 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||
| September 30, 2018 |
|
| September 30, 2018 |
| ||||||||||||||||||
| Before Tax |
|
| Income Tax |
|
| Net of Tax |
|
| Before Tax |
|
| Income Tax |
|
| Net of Tax |
| ||||||
| Amount |
|
| Expense |
|
| Amount |
|
| Amount |
|
| Expense |
|
| Amount |
| ||||||
Translation adjustments | $ | 0.4 |
|
| $ | — |
|
| $ | 0.4 |
|
| $ | (2.3 | ) |
| $ | — |
|
| $ | (2.3 | ) |
Adjustment for net periodic pension plan and |
| 0.6 |
|
|
| 0.2 |
|
|
| 0.4 |
|
|
| 1.9 |
|
|
| 0.5 |
|
|
| 1.4 |
|
Other comprehensive income (loss) | $ | 1.0 |
|
| $ | 0.2 |
|
| $ | 0.8 |
|
| $ | (0.4 | ) |
| $ | 0.5 |
|
| $ | (0.9 | ) |
1419
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, 20162018 and September 30, 20172019 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 | ) |
| Pension and Other |
|
| Translation |
|
| Total |
| |||
Balance at December 31, 2018 | $ | (66.0 | ) |
| $ | (16.7 | ) |
| $ | (82.7 | ) |
Other comprehensive income before reclassifications |
| 0.1 |
|
|
| 2.3 |
|
|
| 2.4 |
|
Amounts reclassified from accumulated other |
| 0.9 |
|
|
| — |
|
|
| 0.9 |
|
Net change in accumulated other comprehensive loss |
| 1.0 |
|
|
| 2.3 |
|
|
| 3.3 |
|
Balance at September 30, 2019 | $ | (65.0 | ) |
| $ | (14.4 | ) |
| $ | (79.4 | ) |
Accumulated other comprehensive loss by component as of December 31, 20152017 and September 30, 20162018 were 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 | ) |
| Pension and Other |
|
| Translation |
|
| Total |
| |||
Balance at December 31, 2017 | $ | (52.9 | ) |
| $ | (11.7 | ) |
| $ | (64.6 | ) |
Other comprehensive income before reclassifications |
| — |
|
|
| (2.3 | ) |
|
| (2.3 | ) |
Amounts reclassified from accumulated other |
| 1.4 |
|
|
| — |
|
|
| 1.4 |
|
Net change in accumulated other comprehensive loss |
| 1.4 |
|
|
| (2.3 | ) |
|
| (0.9 | ) |
Balance at September 30, 2018 | $ | (51.5 | ) |
| $ | (14.0 | ) |
| $ | (65.5 | ) |
Reclassifications from accumulated other comprehensive loss for the three and nine months ended September 30, 20172019 and 20162018 were as follows:
| Three Months Ended |
|
| Nine Months Ended |
| Classification in the Condensed | Three Months Ended |
|
| Nine Months Ended |
| Classification in the Condensed | |||||||||||||||||||||
| September 30, |
|
| September 30, |
| Consolidated and Combined | September 30, |
|
| September 30, |
| Consolidated | |||||||||||||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| Statements of Operations | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 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 loss | $ | 0.4 |
|
| $ | 0.6 |
|
| $ | 1.3 |
|
| $ | 1.9 |
| (a) | |||||||||||||||||
Reclassifications before tax |
| 0.6 |
|
|
| (0.2 | ) |
|
| 1.6 |
|
|
| (0.4 | ) |
|
|
| 0.4 |
|
|
| 0.6 |
|
|
| 1.3 |
|
|
| 1.9 |
|
|
Income tax expense |
| 0.3 |
|
|
| — |
|
|
| 0.6 |
|
|
| — |
|
|
|
| 0.1 |
|
|
| 0.2 |
|
|
| 0.4 |
|
|
| 0.5 |
|
|
Reclassifications, net of tax | $ | 0.3 |
|
| $ | (0.2 | ) |
| $ | 1.0 |
|
| $ | (0.4 | ) |
|
| $ | 0.3 |
|
| $ | 0.4 |
|
| $ | 0.9 |
|
| $ | 1.4 |
|
|
(a) |
|
Note 10.12. 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 commercial print. In addition, the U.S. segment included language solutions capabilities, through which the Company can translatetranslated documents and createcreated content in up to 190140 different languages for its clients, and commercial print.clients.*
1520
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated and Combined Financial Statements
(in millions, except per share data, unless otherwise indicated)
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 providesprovided language translation services and shareholder communication services to investment market clients.*
*The Company sold its Language Solutions business on July 22, 2018. Refer to Note 3, Acquisitions and Dispositions, for further information.
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.
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 consolidated and combined financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
| Income (Loss) |
|
| Depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income (Loss) |
|
| Depreciation |
|
|
|
|
| ||||
| Total |
|
| Intersegment |
|
| Net |
|
| from |
|
| and |
|
| Capital |
| Total |
|
| Intersegment |
|
| Net |
|
| from |
|
| and |
|
| Capital |
| ||||||||||||
| Sales |
|
| Sales |
|
| Sales |
|
| Operations |
|
| Amortization |
|
| Expenditures |
| Sales |
|
| Sales |
|
| Sales |
|
| Operations |
|
| Amortization |
|
| Expenditures |
| ||||||||||||
Three Months Ended September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Three Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
U.S. | $ | 188.9 |
|
| $ | (2.8 | ) |
| $ | 186.1 |
|
| $ | 22.4 |
|
| $ | 9.2 |
|
| $ | 7.7 |
| $ | 175.2 |
|
| $ | (1.5 | ) |
| $ | 173.7 |
|
| $ | 39.2 |
|
| $ | 10.6 |
|
| $ | 7.7 |
|
International |
| 37.1 |
|
|
| (0.6 | ) |
|
| 36.5 |
|
|
| 1.5 |
|
|
| 1.4 |
|
|
| 0.1 |
|
| 23.0 |
|
|
| (0.8 | ) |
|
| 22.2 |
|
|
| (0.9 | ) |
|
| 2.0 |
|
|
| — |
|
Total operating segments |
| 226.0 |
|
|
| (3.4 | ) |
|
| 222.6 |
|
|
| 23.9 |
|
|
| 10.6 |
|
|
| 7.8 |
|
| 198.2 |
|
|
| (2.3 | ) |
|
| 195.9 |
|
|
| 38.3 |
|
|
| 12.6 |
|
|
| 7.7 |
|
Corporate |
| — |
|
|
| — |
|
|
| — |
|
|
| (5.9 | ) |
|
| — |
|
|
| 0.2 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6.2 | ) |
|
| 0.1 |
|
|
| 1.2 |
|
Total operations | $ | 226.0 |
|
| $ | (3.4 | ) |
| $ | 222.6 |
|
| $ | 18.0 |
|
| $ | 10.6 |
|
| $ | 8.0 |
|
| 198.2 |
|
|
| (2.3 | ) |
|
| 195.9 |
|
|
| 32.1 |
|
|
| 12.7 |
|
|
| 8.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income (Loss) |
|
| Depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income (Loss) |
|
| Depreciation |
|
|
|
|
| ||||
| Total |
|
| Intersegment |
|
| Net |
|
| from |
|
| and |
|
| Capital |
| Total |
|
| Intersegment |
|
| Net |
|
| from |
|
| and |
|
| Capital |
| ||||||||||||
| Sales |
|
| Sales |
|
| Sales |
|
| Operations |
|
| Amortization |
|
| Expenditures |
| Sales |
|
| Sales |
|
| Sales |
|
| Operations |
|
| Amortization |
|
| Expenditures |
| ||||||||||||
Three Months Ended September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Three Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
U.S. | $ | 193.6 |
|
| $ | (1.3 | ) |
| $ | 192.3 |
|
| $ | 18.7 |
|
| $ | 8.5 |
|
| $ | 1.3 |
| $ | 187.9 |
|
| $ | (2.4 | ) |
| $ | 185.5 |
|
| $ | 48.4 |
|
| $ | 10.3 |
|
| $ | 7.2 |
|
International |
| 33.2 |
|
|
| (1.1 | ) |
|
| 32.1 |
|
|
| 1.1 |
|
|
| 1.1 |
|
|
| — |
|
| 31.9 |
|
|
| (0.5 | ) |
|
| 31.4 |
|
|
| 27.0 |
|
|
| 1.2 |
|
|
| — |
|
Total operating segments |
| 226.8 |
|
|
| (2.4 | ) |
|
| 224.4 |
|
|
| 19.8 |
|
|
| 9.6 |
|
|
| 1.3 |
|
| 219.8 |
|
|
| (2.9 | ) |
|
| 216.9 |
|
|
| 75.4 |
|
|
| 11.5 |
|
|
| 7.2 |
|
Corporate |
| — |
|
|
| — |
|
|
| — |
|
|
| (1.8 | ) |
|
| 0.2 |
|
|
| 0.4 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13.3 | ) |
|
| 0.1 |
|
|
| — |
|
Total operations | $ | 226.8 |
|
| $ | (2.4 | ) |
| $ | 224.4 |
|
| $ | 18.0 |
|
| $ | 9.8 |
|
| $ | 1.7 |
| $ | 219.8 |
|
| $ | (2.9 | ) |
| $ | 216.9 |
|
| $ | 62.1 |
|
| $ | 11.6 |
|
| $ | 7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Nine Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
U.S. | $ | 665.8 |
|
| $ | (7.6 | ) |
| $ | 658.2 |
|
| $ | 107.5 |
|
| $ | 715.3 |
|
| $ | 27.5 |
|
| $ | 18.1 |
| $ | 605.3 |
|
| $ | (5.6 | ) |
| $ | 599.7 |
|
| $ | 100.9 |
|
| $ | 748.4 |
|
| $ | 31.0 |
|
| $ | 33.4 |
|
International |
| 124.8 |
|
|
| (2.9 | ) |
|
| 121.9 |
|
|
| 7.6 |
|
|
| 96.0 |
|
|
| 4.2 |
|
|
| 0.8 |
|
| 86.5 |
|
|
| (1.8 | ) |
|
| 84.7 |
|
|
| (2.6 | ) |
|
| 86.9 |
|
|
| 5.4 |
|
|
| 0.1 |
|
Total operating segments |
| 790.6 |
|
|
| (10.5 | ) |
|
| 780.1 |
|
|
| 115.1 |
|
|
| 811.3 |
|
|
| 31.7 |
|
|
| 18.9 |
|
| 691.8 |
|
|
| (7.4 | ) |
|
| 684.4 |
|
|
| 98.3 |
|
|
| 835.3 |
|
|
| 36.4 |
|
|
| 33.5 |
|
Corporate |
| — |
|
|
| — |
|
|
| — |
|
|
| (27.0 | ) |
|
| 122.4 |
|
|
| — |
|
|
| 1.1 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (26.2 | ) |
|
| 127.0 |
|
|
| 0.4 |
|
|
| 1.6 |
|
Total operations | $ | 790.6 |
|
| $ | (10.5 | ) |
| $ | 780.1 |
|
| $ | 88.1 |
|
| $ | 933.7 |
|
| $ | 31.7 |
|
| $ | 20.0 |
| $ | 691.8 |
|
| $ | (7.4 | ) |
| $ | 684.4 |
|
| $ | 72.1 |
|
| $ | 962.3 |
|
| $ | 36.8 |
|
| $ | 35.1 |
|
1621
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Nine Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
U.S. | $ | 666.4 |
|
| $ | (4.0 | ) |
| $ | 662.4 |
|
| $ | 100.0 |
|
| $ | 714.2 |
|
| $ | 26.2 |
|
| $ | 10.2 |
| $ | 648.7 |
|
| $ | (7.6 | ) |
| $ | 641.1 |
|
| $ | 121.7 |
|
| $ | 676.4 |
|
| $ | 28.7 |
|
| $ | 21.6 |
|
International |
| 103.9 |
|
|
| (3.8 | ) |
|
| 100.1 |
|
|
| 7.2 |
|
|
| 99.9 |
|
|
| 3.2 |
|
|
| 1.2 |
|
| 123.1 |
|
|
| (1.5 | ) |
|
| 121.6 |
|
|
| 31.1 |
|
|
| 99.0 |
|
|
| 4.0 |
|
|
| 0.9 |
|
Total operating segments |
| 770.3 |
|
|
| (7.8 | ) |
|
| 762.5 |
|
|
| 107.2 |
|
|
| 814.1 |
|
|
| 29.4 |
|
|
| 11.4 |
|
| 771.8 |
|
|
| (9.1 | ) |
|
| 762.7 |
|
|
| 152.8 |
|
|
| 775.4 |
|
|
| 32.7 |
|
|
| 22.5 |
|
Corporate |
| — |
|
|
| — |
|
|
| — |
|
|
| (7.7 | ) |
|
| 99.9 |
|
|
| 0.7 |
|
|
| 2.6 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (35.1 | ) |
|
| 138.0 |
|
|
| 0.4 |
|
|
| 0.3 |
|
Total operations | $ | 770.3 |
|
| $ | (7.8 | ) |
| $ | 762.5 |
|
| $ | 99.5 |
|
| $ | 914.0 |
|
| $ | 30.1 |
|
| $ | 14.0 |
| $ | 771.8 |
|
| $ | (9.1 | ) |
| $ | 762.7 |
|
| $ | 117.7 |
|
| $ | 913.4 |
|
| $ | 33.1 |
|
| $ | 22.8 |
|
Note 11.13. Debt
OnThe Company’s debt as of September 30, 2016, in connection with2019 and December 31, 2018 consisted of the Separation,following:
| September 30, |
|
| December 31, |
| ||
| 2019 |
|
| 2018 |
| ||
8.25% senior notes due October 15, 2024 | $ | 300.0 |
|
| $ | 300.0 |
|
Term Loan Credit Facility |
| 71.5 |
|
|
| 71.3 |
|
Unamortized debt issuance costs |
| (7.4 | ) |
|
| (8.6 | ) |
Total debt |
| 364.1 |
|
|
| 362.7 |
|
Less: current portion |
| — |
|
|
| — |
|
Long-term debt | $ | 364.1 |
|
| $ | 362.7 |
|
The fair value of the senior notes, which was determined using the market approach based upon interest rates available to the Company entered intofor borrowings with similar terms and maturities, was determined to be Level 2 under the fair value hierarchy. The fair value of the Company’s senior notes was $312.4 million and $298.1 million at September 30, 2019 and December 31, 2018, 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 Agreementwhich 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$20.0 million in the aggregate.
On December 18, 2018, the Company entered into a second amendment to the Credit Agreement which extended the maturity date of the Revolving Facility to December 18, 2023, reduced the interest rate margin percentages and facility fees applicable to the Revolving Facility, increased the allowable annual dividends from $15.0 million to $20.0 million in the aggregate and modified the financial maintenance and negative covenants in the Credit Agreement. As of September 30, 2017,2019, there were no0 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 Agreement, the Company received a cash payment of $68.0 million from RRDweighted average interest rate 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 debtborrowings under the Revolving Facility.Facility was 5.0% and 5.1% for the nine months ended September 30, 2019 and 2018, respectively.
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.
1722
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 Separation, the Company issued $300.0 million ofThe 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 12.14. 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.
18
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. 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 of the Company.
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, 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 presented through June 30, 2017 only.
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.
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 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 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.
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. 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.
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.
19
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.
20
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 14.15. New Accounting Pronouncements
In March 2017, the FinancialRecently Adopted Accounting Standards Board (“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 the Company plans to adopt the standard in the first quarter of 2018. Refer to Note 6, Retirement Plans, for disclosure of pension income for the nine months ended September 30, 2017 and 2016which would be reclassified to other income upon adoption of the standard.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04 “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which simplifies the accounting for goodwill impairment. 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 must be applied prospectively and is effective in the first quarter of 2020. Early adoption is permitted. The Company early adopted the standard in the first quarter of 2017.Pronouncements
In February 2016, the FASB issued Accounting Standards Update No.ASU 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 criteriaformer accounting standard. The Company adopted the standard and all related amendments on January 1, 2019 using the optional transition method. The comparative periods have not been restated and continue to be reported under the accounting standards in effect for sales-typethose periods. Refer to Note 7, Leases, for further information.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which replaces the incurred loss model with a current expected credit loss (“CECL”) model, which requires consideration of a broader range of reasonable and direct financing leases.supportable information to explain credit loss estimates. This standard applies to financial assets, measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases and trade accounts receivable. The standard requiresguidance must be adopted using a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative periodtransition method through a cumulative-effect adjustment to retained earnings in the financial statements and is effective in the first quarterperiod of 2019.adoption. Early adoption of ASU 2016-02 is permitted; however the Company plans towill adopt the standard in the first quarter of 2019.2020. The Company is currently evaluating the impact of ASU 2016-02.the adoption of this standard on its condensed consolidated financial statements.
21
23
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.
22
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated and Combined Financial Statements
(in millions, except per share data, unless otherwise indicated)
Note 15.16. Guarantor Financial Information
As described in Note 11, 13, 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.
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 FinancialDFIN or a subsidiary guarantor of the notes,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, 20172019 and 2016,2018, condensed consolidating statements of financial position as of September 30, 20172019 and December 31, 2016,2018, and condensed consolidating and combined statements of cash flows for the nine months ended September 30, 20172019 and 2016.2018. 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.”
2324
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, 20172019
| Parent |
|
| Guarantor Subsidiaries |
|
| Non-guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Parent |
|
| Guarantor |
|
| Non- |
|
| Eliminations |
|
| Consolidated |
| |||||
Services net sales | $ | — |
|
| $ | 112.3 |
|
| $ | 30.1 |
|
| $ | (2.1 | ) |
| $ | 140.3 |
| $ | — |
|
| $ | 112.8 |
|
| $ | 19.3 |
|
| $ | (1.7 | ) |
| $ | 130.4 |
|
Products net sales |
| — |
|
|
| 76.6 |
|
|
| 7.0 |
|
|
| (1.3 | ) |
|
| 82.3 |
|
| — |
|
|
| 62.4 |
|
|
| 3.7 |
|
|
| (0.6 | ) |
|
| 65.5 |
|
Total net sales |
| — |
|
|
| 188.9 |
|
|
| 37.1 |
|
|
| (3.4 | ) |
|
| 222.6 |
|
| — |
|
|
| 175.2 |
|
|
| 23.0 |
|
|
| (2.3 | ) |
|
| 195.9 |
|
Services cost of sales (exclusive of depreciation and amortization) |
| — |
|
|
| 63.6 |
|
|
| 20.1 |
|
|
| (2.0 | ) |
|
| 81.7 |
|
| — |
|
|
| 55.9 |
|
|
| 12.4 |
|
|
| (1.4 | ) |
|
| 66.9 |
|
Products cost of sales (exclusive of depreciation and amortization) |
| — |
|
|
| 56.0 |
|
|
| 4.3 |
|
|
| (1.4 | ) |
|
| 58.9 |
|
| — |
|
|
| 52.2 |
|
|
| 3.1 |
|
|
| (0.9 | ) |
|
| 54.4 |
|
Total cost of sales |
| — |
|
|
| 119.6 |
|
|
| 24.4 |
|
|
| (3.4 | ) |
|
| 140.6 |
|
| — |
|
|
| 108.1 |
|
|
| 15.5 |
|
|
| (2.3 | ) |
|
| 121.3 |
|
Selling, general and administrative expenses (exclusive of depreciation and amortization) |
| — |
|
|
| 44.2 |
|
|
| 9.8 |
|
|
| — |
|
|
| 54.0 |
|
| — |
|
|
| 39.9 |
|
|
| 6.3 |
|
|
| — |
|
|
| 46.2 |
|
Restructuring, impairment and other charges-net |
| — |
|
|
| (0.7 | ) |
|
| 0.1 |
|
|
| — |
|
|
| (0.6 | ) |
| — |
|
|
| 2.8 |
|
|
| — |
|
|
| — |
|
|
| 2.8 |
|
Depreciation and amortization |
| — |
|
|
| 9.2 |
|
|
| 1.4 |
|
|
| — |
|
|
| 10.6 |
|
| — |
|
|
| 10.7 |
|
|
| 2.0 |
|
|
| — |
|
|
| 12.7 |
|
Income from operations |
| — |
|
|
| 16.6 |
|
|
| 1.4 |
|
|
| — |
|
|
| 18.0 |
| |||||||||||||||||||
Interest expense-net |
| 10.2 |
|
|
| 0.4 |
|
|
| — |
|
|
| — |
|
|
| 10.6 |
| |||||||||||||||||||
Earnings (loss) before income taxes and equity in net income of subsidiaries |
| (10.2 | ) |
|
| 16.2 |
|
|
| 1.4 |
|
|
| — |
|
|
| 7.4 |
| |||||||||||||||||||
Other operating income |
| — |
|
|
| (19.2 | ) |
|
| — |
|
|
| — |
|
|
| (19.2 | ) | |||||||||||||||||||
Income (loss) from operations |
| — |
|
|
| 32.9 |
|
|
| (0.8 | ) |
|
| — |
|
|
| 32.1 |
| |||||||||||||||||||
Interest expense (income)-net |
| 8.7 |
|
|
| 0.1 |
|
|
| (0.2 | ) |
|
| — |
|
|
| 8.6 |
| |||||||||||||||||||
Intercompany interest (income) expense-net |
| (5.7 | ) |
|
| 5.7 |
|
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||||||||||
Investment and other income-net |
| — |
|
|
| (0.5 | ) |
|
| — |
|
|
| — |
|
|
| (0.5 | ) | |||||||||||||||||||
(Loss) earnings before income taxes and equity in net |
| (3.0 | ) |
|
| 27.6 |
|
|
| (0.6 | ) |
|
| — |
|
|
| 24.0 |
| |||||||||||||||||||
Income tax (benefit) expense |
| (5.1 | ) |
|
| 8.4 |
|
|
| (1.2 | ) |
|
| — |
|
|
| 2.1 |
|
| (1.3 | ) |
|
| 10.9 |
|
|
| (0.3 | ) |
|
| — |
|
|
| 9.3 |
|
Earnings (loss) before equity in net income of subsidiaries |
| (5.1 | ) |
|
| 7.8 |
|
|
| 2.6 |
|
|
| — |
|
|
| 5.3 |
| |||||||||||||||||||
(Loss) earnings before equity in net income of |
| (1.7 | ) |
|
| 16.7 |
|
|
| (0.3 | ) |
|
| — |
|
|
| 14.7 |
| |||||||||||||||||||
Equity in net income of subsidiaries |
| 10.4 |
|
|
| 2.6 |
|
|
| — |
|
|
| (13.0 | ) |
|
| — |
|
| 16.4 |
|
|
| (0.3 | ) |
|
| — |
|
|
| (16.1 | ) |
|
| — |
|
Net earnings (loss) | $ | 5.3 |
|
| $ | 10.4 |
|
| $ | 2.6 |
|
| $ | (13.0 | ) |
| $ | 5.3 |
| $ | 14.7 |
|
| $ | 16.4 |
|
| $ | (0.3 | ) |
| $ | (16.1 | ) |
| $ | 14.7 |
|
Comprehensive income (loss) | $ | 7.8 |
|
| $ | 12.9 |
|
| $ | 4.8 |
|
| $ | (17.7 | ) |
| $ | 7.8 |
| $ | 14.6 |
|
| $ | 16.3 |
|
| $ | (0.7 | ) |
| $ | (15.6 | ) |
| $ | 14.6 |
|
24
25
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 Months Ended September 30, 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 |
|
|
|
25
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated and Combined Financial Statements
(in millions, except per share data, unless otherwise indicated)2019
Condensed Consolidating Statements of Operations
For the Three Months Ended September 30, 2016
| 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 |
|
| Non- |
|
| Eliminations |
|
| Consolidated |
| |||||
Services net sales | $ | — |
|
| $ | 359.1 |
|
| $ | 65.2 |
|
| $ | (4.8 | ) |
| $ | 419.5 |
|
Products net sales |
| — |
|
|
| 246.2 |
|
|
| 21.3 |
|
|
| (2.6 | ) |
|
| 264.9 |
|
Total net sales |
| — |
|
|
| 605.3 |
|
|
| 86.5 |
|
|
| (7.4 | ) |
|
| 684.4 |
|
Services cost of sales (exclusive of depreciation and |
| — |
|
|
| 177.4 |
|
|
| 44.6 |
|
|
| (4.1 | ) |
|
| 217.9 |
|
Products cost of sales (exclusive of depreciation and |
| — |
|
|
| 193.9 |
|
|
| 15.7 |
|
|
| (3.3 | ) |
|
| 206.3 |
|
Total cost of sales |
| — |
|
|
| 371.3 |
|
|
| 60.3 |
|
|
| (7.4 | ) |
|
| 424.2 |
|
Selling, general and administrative expenses (exclusive of |
| — |
|
|
| 137.9 |
|
|
| 21.1 |
|
|
| — |
|
|
| 159.0 |
|
Restructuring, impairment and other charges-net |
| — |
|
|
| 7.7 |
|
|
| 1.0 |
|
|
| — |
|
|
| 8.7 |
|
Depreciation and amortization |
| — |
|
|
| 31.4 |
|
|
| 5.4 |
|
|
| — |
|
|
| 36.8 |
|
Other operating (income) loss |
| — |
|
|
| (18.0 | ) |
|
| 1.6 |
|
|
| — |
|
|
| (16.4 | ) |
Income (loss) from operations |
| — |
|
|
| 75.0 |
|
|
| (2.9 | ) |
|
| — |
|
|
| 72.1 |
|
Interest expense (income)-net |
| 27.3 |
|
|
| — |
|
|
| (0.7 | ) |
|
| — |
|
|
| 26.6 |
|
Intercompany interest (income) expense-net |
| (17.2 | ) |
|
| 17.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Investment and other income-net |
| — |
|
|
| (1.6 | ) |
|
| — |
|
|
| — |
|
|
| (1.6 | ) |
(Loss) earnings before income taxes and equity in net |
| (10.1 | ) |
|
| 59.4 |
|
|
| (2.2 | ) |
|
| — |
|
|
| 47.1 |
|
Income tax (benefit) expense |
| (3.5 | ) |
|
| 20.8 |
|
|
| (0.8 | ) |
|
| — |
|
|
| 16.5 |
|
(Loss) earnings before equity in net income of |
| (6.6 | ) |
|
| 38.6 |
|
|
| (1.4 | ) |
|
| — |
|
|
| 30.6 |
|
Equity in net income of subsidiaries |
| 37.2 |
|
|
| (1.4 | ) |
|
| — |
|
|
| (35.8 | ) |
|
| — |
|
Net earnings (loss) | $ | 30.6 |
|
| $ | 37.2 |
|
| $ | (1.4 | ) |
| $ | (35.8 | ) |
| $ | 30.6 |
|
Comprehensive income | $ | 33.9 |
|
| $ | 40.5 |
|
| $ | 0.9 |
|
| $ | (41.4 | ) |
| $ | 33.9 |
|
26
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 NineThree Months Ended September 30, 20162018
| Parent |
|
| Guarantor Subsidiaries |
|
| Non-guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Parent |
|
| Guarantor |
|
| Non- |
|
| Eliminations |
|
| Consolidated |
| |||||
Services net sales | $ | — |
|
| $ | 381.9 |
|
| $ | 77.3 |
|
| $ | (5.1 | ) |
| $ | 454.1 |
| $ | — |
|
| $ | 115.6 |
|
| $ | 24.9 |
|
| $ | (2.0 | ) |
| $ | 138.5 |
|
Products net sales |
| — |
|
|
| 284.5 |
|
|
| 26.6 |
|
|
| (2.7 | ) |
|
| 308.4 |
|
| — |
|
|
| 72.3 |
|
|
| 7.0 |
|
|
| (0.9 | ) |
|
| 78.4 |
|
Total net sales |
| — |
|
|
| 666.4 |
|
|
| 103.9 |
|
|
| (7.8 | ) |
|
| 762.5 |
|
| — |
|
|
| 187.9 |
|
|
| 31.9 |
|
|
| (2.9 | ) |
|
| 216.9 |
|
Services cost of sales (exclusive of depreciation and amortization) |
| — |
|
|
| 170.0 |
|
|
| 49.4 |
|
|
| (4.8 | ) |
|
| 214.6 |
|
| — |
|
|
| 60.4 |
|
|
| 16.9 |
|
|
| (1.8 | ) |
|
| 75.5 |
|
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 |
|
| — |
|
|
| 54.3 |
|
|
| 4.6 |
|
|
| (1.1 | ) |
|
| 57.8 |
|
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 |
|
| — |
|
|
| 114.7 |
|
|
| 21.5 |
|
|
| (2.9 | ) |
|
| 133.3 |
|
Selling, general and administrative expenses (exclusive of depreciation and amortization) |
| — |
|
|
| 133.1 |
|
|
| 23.7 |
|
|
| — |
|
|
| 156.8 |
|
| — |
|
|
| 53.2 |
|
|
| 9.4 |
|
|
| — |
|
|
| 62.6 |
|
Restructuring, impairment and other charges-net |
| — |
|
|
| 3.1 |
|
|
| 0.5 |
|
|
| — |
|
|
| 3.6 |
|
| — |
|
|
| 0.7 |
|
|
| 0.1 |
|
|
| — |
|
|
| 0.8 |
|
Depreciation and amortization |
| — |
|
|
| 26.9 |
|
|
| 3.2 |
|
|
| — |
|
|
| 30.1 |
|
| — |
|
|
| 10.4 |
|
|
| 1.2 |
|
|
| — |
|
|
| 11.6 |
|
Other operating income |
| — |
|
|
| (26.6 | ) |
|
| (26.9 | ) |
|
| — |
|
|
| (53.5 | ) | |||||||||||||||||||
Income from operations |
| — |
|
|
| 92.3 |
|
|
| 7.2 |
|
|
| — |
|
|
| 99.5 |
|
| — |
|
|
| 35.5 |
|
|
| 26.6 |
|
|
| — |
|
|
| 62.1 |
|
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 |
| |||||||||||||||||||
Interest expense (income)-net |
| 8.6 |
|
|
| — |
|
|
| (0.2 | ) |
|
| — |
|
|
| 8.4 |
| |||||||||||||||||||
Intercompany interest (income) expense-net |
| (6.1 | ) |
|
| 6.1 |
|
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||||||||||
Investment and other income-net |
| — |
|
|
| (12.6 | ) |
|
| (1.4 | ) |
|
| — |
|
|
| (14.0 | ) | |||||||||||||||||||
(Loss) earnings before income taxes and equity in net |
| (2.5 | ) |
|
| 42.0 |
|
|
| 28.2 |
|
|
| — |
|
|
| 67.7 |
| |||||||||||||||||||
Income tax (benefit) expense |
| (0.8 | ) |
|
| 13.2 |
|
|
| 7.3 |
|
|
| — |
|
|
| 19.7 |
| |||||||||||||||||||
(Loss) earnings before equity in net income of |
| (1.7 | ) |
|
| 28.8 |
|
|
| 20.9 |
|
|
| — |
|
|
| 48.0 |
| |||||||||||||||||||
Equity in net income of subsidiaries |
| 59.9 |
|
|
| 6.4 |
|
|
| — |
|
|
| (66.3 | ) |
|
| — |
|
| 49.7 |
|
|
| 20.9 |
|
|
| — |
|
|
| (70.6 | ) |
|
| — |
|
Net earnings | $ | 59.9 |
|
| $ | 59.9 |
|
| $ | 6.4 |
|
| $ | (66.3 | ) |
| $ | 59.9 |
| $ | 48.0 |
|
| $ | 49.7 |
|
| $ | 20.9 |
|
| $ | (70.6 | ) |
| $ | 48.0 |
|
Comprehensive income | $ | 63.7 |
|
| $ | 63.7 |
|
| $ | 10.6 |
|
| $ | (74.3 | ) |
| $ | 63.7 |
| $ | 48.8 |
|
| $ | 50.5 |
|
| $ | 21.5 |
|
| $ | (72.0 | ) |
| $ | 48.8 |
|
27
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 SheetStatements of Operations
As ofFor the Nine Months Ended September 30, 20172018
| 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 |
|
| Non- |
|
| Eliminations |
|
| Consolidated |
| |||||
Services net sales | $ | — |
|
| $ | 397.7 |
|
| $ | 94.1 |
|
| $ | (5.9 | ) |
| $ | 485.9 |
|
Products net sales |
| — |
|
|
| 251.0 |
|
|
| 29.0 |
|
|
| (3.2 | ) |
|
| 276.8 |
|
Total net sales |
| — |
|
|
| 648.7 |
|
|
| 123.1 |
|
|
| (9.1 | ) |
|
| 762.7 |
|
Services cost of sales (exclusive of depreciation and |
| — |
|
|
| 196.9 |
|
|
| 61.6 |
|
|
| (5.1 | ) |
|
| 253.4 |
|
Products cost of sales (exclusive of depreciation and |
| — |
|
|
| 187.2 |
|
|
| 20.9 |
|
|
| (4.0 | ) |
|
| 204.1 |
|
Total cost of sales |
| — |
|
|
| 384.1 |
|
|
| 82.5 |
|
|
| (9.1 | ) |
|
| 457.5 |
|
Selling, general and administrative expenses (exclusive of |
| — |
|
|
| 172.9 |
|
|
| 30.9 |
|
|
| — |
|
|
| 203.8 |
|
Restructuring, impairment and other charges-net |
| — |
|
|
| 2.2 |
|
|
| 1.9 |
|
|
| — |
|
|
| 4.1 |
|
Depreciation and amortization |
| — |
|
|
| 29.1 |
|
|
| 4.0 |
|
|
| — |
|
|
| 33.1 |
|
Other operating income |
| — |
|
|
| (26.6 | ) |
|
| (26.9 | ) |
|
| — |
|
|
| (53.5 | ) |
Income from operations |
| — |
|
|
| 87.0 |
|
|
| 30.7 |
|
|
| — |
|
|
| 117.7 |
|
Interest expense (income)-net |
| 27.9 |
|
|
| (0.3 | ) |
|
| (0.4 | ) |
|
| — |
|
|
| 27.2 |
|
Intercompany interest (income) expense-net |
| (19.4 | ) |
|
| 19.4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Investment and other income-net |
| — |
|
|
| (14.2 | ) |
|
| (1.4 | ) |
|
| — |
|
|
| (15.6 | ) |
(Loss) earnings before income taxes and equity in net |
| (8.5 | ) |
|
| 82.1 |
|
|
| 32.5 |
|
|
| — |
|
|
| 106.1 |
|
Income tax (benefit) expense |
| (2.6 | ) |
|
| 25.5 |
|
|
| 8.6 |
|
|
| — |
|
|
| 31.5 |
|
(Loss) earnings before equity in net income of |
| (5.9 | ) |
|
| 56.6 |
|
|
| 23.9 |
|
|
| — |
|
|
| 74.6 |
|
Equity in net income of subsidiaries |
| 80.5 |
|
|
| 23.9 |
|
|
| — |
|
|
| (104.4 | ) |
|
| — |
|
Net earnings | $ | 74.6 |
|
| $ | 80.5 |
|
| $ | 23.9 |
|
| $ | (104.4 | ) |
| $ | 74.6 |
|
Comprehensive income | $ | 73.7 |
|
| $ | 79.6 |
|
| $ | 21.7 |
|
| $ | (101.3 | ) |
| $ | 73.7 |
|
28
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, 2016September 30, 2019
| Parent |
|
| Guarantor Subsidiaries |
|
| Non-guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| Parent |
|
| Guarantor |
|
| Non- |
|
| Eliminations |
|
| Consolidated |
| ||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | — |
|
| $ | 21.8 |
|
| $ | 16.8 |
|
| $ | (2.4 | ) |
| $ | 36.2 |
| $ | 17.4 |
|
| $ | 2.6 |
|
| $ | 12.1 |
|
| $ | — |
|
| $ | 32.1 |
|
Receivables, less allowances |
| — |
|
|
| 119.9 |
|
|
| 36.3 |
|
|
| — |
|
|
| 156.2 |
|
| — |
|
|
| 166.6 |
|
|
| 34.6 |
|
|
| — |
|
|
| 201.2 |
|
Receivables from R.R. Donnelley |
| 68.0 |
|
|
| 28.0 |
|
|
| — |
|
|
| — |
|
|
| 96.0 |
| |||||||||||||||||||
Intercompany receivables |
| — |
|
|
| 63.0 |
|
|
| — |
|
|
| (63.0 | ) |
|
| — |
|
| — |
|
|
| 121.1 |
|
|
| — |
|
|
| (121.1 | ) |
|
| — |
|
Intercompany short-term note receivable |
| — |
|
|
| — |
|
|
| 15.3 |
|
|
| (15.3 | ) |
|
| — |
| |||||||||||||||||||
Inventories |
| — |
|
|
| 22.7 |
|
|
| 1.4 |
|
|
| — |
|
|
| 24.1 |
|
| — |
|
|
| 11.1 |
|
|
| 2.6 |
|
|
| — |
|
|
| 13.7 |
|
Prepaid expenses and other current assets |
| 4.3 |
|
|
| 8.1 |
|
|
| 4.7 |
|
|
| — |
|
|
| 17.1 |
|
| 4.5 |
|
|
| 13.8 |
|
|
| 2.7 |
|
|
| — |
|
|
| 21.0 |
|
Total current assets |
| 72.3 |
|
|
| 263.5 |
|
|
| 74.5 |
|
|
| (80.7 | ) |
|
| 329.6 |
|
| 21.9 |
|
|
| 315.2 |
|
|
| 52.0 |
|
|
| (121.1 | ) |
|
| 268.0 |
|
Property, plant and equipment-net |
| — |
|
|
| 32.4 |
|
|
| 3.1 |
|
|
| — |
|
|
| 35.5 |
|
| — |
|
|
| 23.0 |
|
|
| 2.0 |
|
|
| — |
|
|
| 25.0 |
|
Right-of-use assets |
| — |
|
|
| 72.2 |
|
|
| 13.5 |
|
|
| — |
|
|
| 85.7 |
| |||||||||||||||||||
Software-net |
| — |
|
|
| 53.6 |
|
|
| — |
|
|
| — |
|
|
| 53.6 |
| |||||||||||||||||||
Goodwill |
| — |
|
|
| 429.2 |
|
|
| 17.2 |
|
|
| — |
|
|
| 446.4 |
|
| — |
|
|
| 438.6 |
|
|
| 11.6 |
|
|
| — |
|
|
| 450.2 |
|
Other intangible assets-net |
| — |
|
|
| 44.0 |
|
|
| 10.3 |
|
|
| — |
|
|
| 54.3 |
|
| — |
|
|
| 23.6 |
|
|
| 2.7 |
|
|
| — |
|
|
| 26.3 |
|
Software-net |
| — |
|
|
| 41.0 |
|
|
| 0.6 |
|
|
| — |
|
|
| 41.6 |
| |||||||||||||||||||
Deferred income taxes |
| — |
|
|
| 34.2 |
|
|
| 2.8 |
|
|
| — |
|
|
| 37.0 |
|
| — |
|
|
| 10.0 |
|
|
| 2.5 |
|
|
| (1.7 | ) |
|
| 10.8 |
|
Intercompany long-term note receivable |
| 298.0 |
|
|
| — |
|
|
| — |
|
|
| (298.0 | ) |
|
| — |
| |||||||||||||||||||
Other noncurrent assets |
| 4.4 |
|
|
| 27.7 |
|
|
| 2.4 |
|
|
| — |
|
|
| 34.5 |
|
| 3.3 |
|
|
| 35.4 |
|
|
| 4.0 |
|
|
| — |
|
|
| 42.7 |
|
Investments in consolidated subsidiaries |
| 692.2 |
|
|
| 65.1 |
|
|
| — |
|
|
| (757.3 | ) |
|
| — |
|
| 434.2 |
|
|
| 53.3 |
|
|
| — |
|
|
| (487.5 | ) |
|
| — |
|
Total assets | $ | 768.9 |
|
| $ | 937.1 |
|
| $ | 110.9 |
|
| $ | (838.0 | ) |
| $ | 978.9 |
| $ | 757.4 |
|
| $ | 1,024.9 |
|
| $ | 88.3 |
|
| $ | (908.3 | ) |
| $ | 962.3 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Accounts payable | $ | 3.4 |
|
| $ | 72.8 |
|
| $ | 11.5 |
|
| $ | (2.4 | ) |
| $ | 85.3 |
| $ | — |
|
| $ | 42.5 |
|
| $ | 8.1 |
|
| $ | — |
|
| $ | 50.6 |
|
Intercompany payable |
| 43.9 |
|
|
| — |
|
|
| 18.6 |
|
|
| (62.5 | ) |
|
| — |
| |||||||||||||||||||
Intercompany short-term note payable |
| 15.3 |
|
|
| — |
|
|
| — |
|
|
| (15.3 | ) |
|
| — |
| |||||||||||||||||||
Intercompany payables |
| 118.9 |
|
|
| — |
|
|
| 2.2 |
|
|
| (121.1 | ) |
|
| — |
| |||||||||||||||||||
Accrued liabilities |
| 8.2 |
|
|
| 81.4 |
|
|
| 11.6 |
|
|
| (0.5 | ) |
|
| 100.7 |
|
| 5.6 |
|
|
| 122.8 |
|
|
| 14.5 |
|
|
| — |
|
|
| 142.9 |
|
Total current liabilities |
| 70.8 |
|
|
| 154.2 |
|
|
| 41.7 |
|
|
| (80.7 | ) |
|
| 186.0 |
|
| 124.5 |
|
|
| 165.3 |
|
|
| 24.8 |
|
|
| (121.1 | ) |
|
| 193.5 |
|
Long-term debt |
| 587.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 587.0 |
|
| 364.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 364.1 |
|
Intercompany long-term note payable |
| — |
|
|
| 298.0 |
|
|
| — |
|
|
| (298.0 | ) |
|
| — |
| |||||||||||||||||||
Deferred compensation liabilities |
| — |
|
|
| 24.4 |
|
|
| — |
|
|
| — |
|
|
| 24.4 |
|
| — |
|
|
| 19.8 |
|
|
| — |
|
|
| — |
|
|
| 19.8 |
|
Pension and other postretirement benefits plan liabilities |
| — |
|
|
| 55.3 |
|
|
| 1.1 |
|
|
| — |
|
|
| 56.4 |
|
| — |
|
|
| 46.7 |
|
|
| 1.0 |
|
|
| — |
|
|
| 47.7 |
|
Noncurrent lease liabilities |
| — |
|
|
| 54.8 |
|
|
| 8.4 |
|
|
| — |
|
|
| 63.2 |
| |||||||||||||||||||
Other noncurrent liabilities |
| — |
|
|
| 11.0 |
|
|
| 3.0 |
|
|
| — |
|
|
| 14.0 |
|
| 2.7 |
|
|
| 6.1 |
|
|
| 0.8 |
|
|
| (1.7 | ) |
|
| 7.9 |
|
Total liabilities |
| 657.8 |
|
|
| 244.9 |
|
|
| 45.8 |
|
|
| (80.7 | ) |
|
| 867.8 |
|
| 491.3 |
|
|
| 590.7 |
|
|
| 35.0 |
|
|
| (420.8 | ) |
|
| 696.2 |
|
Total equity |
| 111.1 |
|
|
| 692.2 |
|
|
| 65.1 |
|
|
| (757.3 | ) |
|
| 111.1 |
|
| 266.1 |
|
|
| 434.2 |
|
|
| 53.3 |
|
|
| (487.5 | ) |
|
| 266.1 |
|
Total liabilities and equity | $ | 768.9 |
|
| $ | 937.1 |
|
| $ | 110.9 |
|
| $ | (838.0 | ) |
| $ | 978.9 |
| $ | 757.4 |
|
| $ | 1,024.9 |
|
| $ | 88.3 |
|
| $ | (908.3 | ) |
| $ | 962.3 |
|
29
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 StatementsBalance Sheet
As of Cash Flows
For the Nine Months Ended September 30, 2017December 31, 2018
| 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 |
|
| Parent |
|
| Guarantor |
|
| Non- |
|
| Eliminations |
|
| Consolidated |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 24.9 |
|
| $ | 5.0 |
|
| $ | 17.4 |
|
| $ | — |
|
| $ | 47.3 |
|
Receivables, less allowances |
| — |
|
|
| 141.6 |
|
|
| 31.3 |
|
|
| — |
|
|
| 172.9 |
|
Intercompany receivables |
| — |
|
|
| 123.6 |
|
|
| — |
|
|
| (123.6 | ) |
|
| — |
|
Intercompany short-term note receivable-net |
| — |
|
|
| — |
|
|
| 60.5 |
|
|
| (60.5 | ) |
|
| — |
|
Inventories |
| — |
|
|
| 10.4 |
|
|
| 1.7 |
|
|
| — |
|
|
| 12.1 |
|
Prepaid expenses and other current assets |
| — |
|
|
| 13.5 |
|
|
| 3.2 |
|
|
| — |
|
|
| 16.7 |
|
Total current assets |
| 24.9 |
|
|
| 294.1 |
|
|
| 114.1 |
|
|
| (184.1 | ) |
|
| 249.0 |
|
Property, plant and equipment-net |
| — |
|
|
| 29.3 |
|
|
| 2.9 |
|
|
| — |
|
|
| 32.2 |
|
Software-net |
| — |
|
|
| 47.8 |
|
|
| — |
|
|
| — |
|
|
| 47.8 |
|
Goodwill |
| — |
|
|
| 438.5 |
|
|
| 11.5 |
|
|
| — |
|
|
| 450.0 |
|
Other intangible assets-net |
| — |
|
|
| 32.6 |
|
|
| 4.6 |
|
|
| — |
|
|
| 37.2 |
|
Deferred income taxes |
| — |
|
|
| 37.2 |
|
|
| 2.4 |
|
|
| (29.9 | ) |
|
| 9.7 |
|
Intercompany long-term note receivable |
| 298.0 |
|
|
| — |
|
|
| — |
|
|
| (298.0 | ) |
|
| — |
|
Other noncurrent assets |
| 3.6 |
|
|
| 35.1 |
|
|
| 4.1 |
|
|
| — |
|
|
| 42.8 |
|
Investments in consolidated subsidiaries |
| 445.9 |
|
|
| 106.0 |
|
|
| — |
|
|
| (551.9 | ) |
|
| — |
|
Total assets | $ | 772.4 |
|
| $ | 1,020.6 |
|
| $ | 139.6 |
|
| $ | (1,063.9 | ) |
| $ | 868.7 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable | $ | — |
|
| $ | 61.0 |
|
| $ | 11.4 |
|
| $ | — |
|
| $ | 72.4 |
|
Intercompany payables |
| 120.9 |
|
|
| — |
|
|
| 2.7 |
|
|
| (123.6 | ) |
|
| — |
|
Intercompany short-term note payable-net |
| 60.0 |
|
|
| 0.5 |
|
|
| — |
|
|
| (60.5 | ) |
|
| — |
|
Accrued liabilities |
| 0.1 |
|
|
| 109.2 |
|
|
| 16.7 |
|
|
| — |
|
|
| 126.0 |
|
Total current liabilities |
| 181.0 |
|
|
| 170.7 |
|
|
| 30.8 |
|
|
| (184.1 | ) |
|
| 198.4 |
|
Long-term debt |
| 362.7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 362.7 |
|
Intercompany long-term note payable |
| — |
|
|
| 298.0 |
|
|
| — |
|
|
| (298.0 | ) |
|
| — |
|
Deferred compensation liabilities |
| — |
|
|
| 19.5 |
|
|
| — |
|
|
| — |
|
|
| 19.5 |
|
Pension and other postretirement benefits plan |
| — |
|
|
| 50.3 |
|
|
| 1.0 |
|
|
| — |
|
|
| 51.3 |
|
Other noncurrent liabilities |
| 2.7 |
|
|
| 36.2 |
|
|
| 1.8 |
|
|
| (29.9 | ) |
|
| 10.8 |
|
Total liabilities |
| 546.4 |
|
|
| 574.7 |
|
|
| 33.6 |
|
|
| (512.0 | ) |
|
| 642.7 |
|
Total equity |
| 226.0 |
|
|
| 445.9 |
|
|
| 106.0 |
|
|
| (551.9 | ) |
|
| 226.0 |
|
Total liabilities and equity | $ | 772.4 |
|
| $ | 1,020.6 |
|
| $ | 139.6 |
|
| $ | (1,063.9 | ) |
| $ | 868.7 |
|
30
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, 20162019
| Parent |
|
| Guarantor Subsidiaries |
|
| Non-guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities | $ | — |
|
| $ | 52.6 |
|
| $ | 4.2 |
|
| $ | — |
|
| $ | 56.8 |
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
| — |
|
|
| (12.8 | ) |
|
| (1.2 | ) |
|
| — |
|
|
| (14.0 | ) |
Purchase of investment |
| — |
|
|
| (3.5 | ) |
|
| — |
|
|
| — |
|
|
| (3.5 | ) |
Other investing activities |
| — |
|
|
| — |
|
|
| 0.5 |
|
|
| — |
|
|
| 0.5 |
|
Net cash used in investing activities |
| — |
|
|
| (16.3 | ) |
|
| (0.7 | ) |
|
| — |
|
|
| (17.0 | ) |
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs |
| (9.3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9.3 | ) |
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 | ) |
Effect of exchange rate on cash and cash equivalents |
| — |
|
|
| — |
|
|
| 4.2 |
|
|
| — |
|
|
| 4.2 |
|
Net increase in cash and cash equivalents |
| — |
|
|
| 27.2 |
|
|
| 10.7 |
|
|
| — |
|
|
| 37.9 |
|
Cash and cash equivalents at beginning of year |
| — |
|
|
| 0.1 |
|
|
| 15.0 |
|
|
| — |
|
|
| 15.1 |
|
Cash and cash equivalents at end of period | $ | — |
|
| $ | 27.3 |
|
| $ | 25.7 |
|
| $ | — |
|
| $ | 53.0 |
|
| Parent |
|
| Guarantor |
|
| Non- |
|
| Eliminations |
|
| Consolidated |
| |||||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities | $ | 54.5 |
|
| $ | 9.2 |
|
| $ | (14.8 | ) |
| $ | (53.1 | ) |
| $ | (4.2 | ) |
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
| — |
|
|
| (35.0 | ) |
|
| (0.1 | ) |
|
| — |
|
|
| (35.1 | ) |
Proceeds from sale of building |
| — |
|
|
| 30.6 |
|
|
| — |
|
|
| — |
|
|
| 30.6 |
|
Acquisition of business, net of cash acquired |
| — |
|
|
| (2.6 | ) |
|
| — |
|
|
| — |
|
|
| (2.6 | ) |
Purchase of investment |
| — |
|
|
| (2.3 | ) |
|
| — |
|
|
| — |
|
|
| (2.3 | ) |
Intercompany note receivable, net |
| — |
|
|
| — |
|
|
| 60.5 |
|
|
| (60.5 | ) |
|
| — |
|
Net cash (used in) provided by investing activities |
| — |
|
|
| (9.3 | ) |
|
| 60.4 |
|
|
| (60.5 | ) |
|
| (9.4 | ) |
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving facility borrowings |
| 413.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 413.0 |
|
Payments on revolving facility borrowings |
| (413.0 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (413.0 | ) |
Intercompany note payable, net |
| (60.5 | ) |
|
| — |
|
|
| — |
|
|
| 60.5 |
|
|
| — |
|
Dividends paid to Parent |
| — |
|
|
| — |
|
|
| (53.1 | ) |
|
| 53.1 |
|
|
| — |
|
Treasury share repurchases |
| (1.3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1.3 | ) |
Debt issuance costs |
| (0.2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.2 | ) |
Net cash used in financing activities |
| (62.0 | ) |
|
| — |
|
|
| (53.1 | ) |
|
| 113.6 |
|
|
| (1.5 | ) |
Effect of exchange rate on cash, cash equivalents and |
| — |
|
|
| — |
|
|
| 2.2 |
|
|
| — |
|
|
| 2.2 |
|
Net decrease in cash, cash equivalents and restricted cash |
| (7.5 | ) |
|
| (0.1 | ) |
|
| (5.3 | ) |
|
| — |
|
|
| (12.9 | ) |
Cash, cash equivalents and restricted cash at beginning of |
| 24.9 |
|
|
| 5.1 |
|
|
| 17.4 |
|
|
| — |
|
|
| 47.4 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 17.4 |
|
| $ | 5.0 |
|
| $ | 12.1 |
|
| $ | — |
|
| $ | 34.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended September 30, 2018
| Parent |
|
| Guarantor |
|
| Non- |
|
| Eliminations |
|
| Consolidated |
| |||||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities | $ | 59.3 |
|
| $ | (38.0 | ) |
| $ | (10.9 | ) |
| $ | — |
|
| $ | 10.4 |
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
| — |
|
|
| (21.9 | ) |
|
| (0.9 | ) |
|
| — |
|
|
| (22.8 | ) |
Sale of investment |
| — |
|
|
| 3.1 |
|
|
| — |
|
|
| — |
|
|
| 3.1 |
|
Proceeds from disposition |
| — |
|
|
| 34.5 |
|
|
| 42.6 |
|
|
| — |
|
|
| 77.1 |
|
Intercompany note receivable, net |
| — |
|
|
| — |
|
|
| (15.0 | ) |
|
| 15.0 |
|
|
| — |
|
Net cash provided by investing activities |
| — |
|
|
| 15.7 |
|
|
| 26.7 |
|
|
| 15.0 |
|
|
| 57.4 |
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving facility borrowings |
| 255.0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 255.0 |
|
Payments on revolving facility borrowings |
| (255.0 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (255.0 | ) |
Payments on long-term debt |
| (62.5 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (62.5 | ) |
Intercompany note payable, net |
| 15.0 |
|
|
| — |
|
|
| — |
|
|
| (15.0 | ) |
|
| — |
|
Proceeds from the issuance of common stock |
| 1.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.2 |
|
Treasury share repurchases |
| (0.8 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.8 | ) |
Net cash used in financing activities |
| (47.1 | ) |
|
| — |
|
|
| — |
|
|
| (15.0 | ) |
|
| (62.1 | ) |
Effect of exchange rate on cash and cash equivalents |
| — |
|
|
| — |
|
|
| (1.5 | ) |
|
| — |
|
|
| (1.5 | ) |
Net increase (decrease) in cash and cash equivalents |
| 12.2 |
|
|
| (22.3 | ) |
|
| 14.3 |
|
|
| — |
|
|
| 4.2 |
|
Cash and cash equivalents at beginning of year |
| 8.3 |
|
|
| 27.9 |
|
|
| 15.8 |
|
|
| — |
|
|
| 52.0 |
|
Cash and cash equivalents at end of period | $ | 20.5 |
|
| $ | 5.6 |
|
| $ | 30.1 |
|
| $ | — |
|
| $ | 56.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash disclosure: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany debt allocation | $ | (326.0 | ) |
| $ | 326.0 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Company Overview
Donnelley Financial Solutions, Inc. (“Donnelley Financial,DFIN,” or the “Company”) is a financial communications services company that supportsleading global capital marketsrisk and 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.solutions company. The Company provides content management, multi-channel contentregulatory filing and deal solutions via its software-as-a-service (“SaaS”), technology-enabled services and print and distribution data managementsolutions to public and analytics services, collaborative workflow and business reporting tools, and translationsprivate companies, mutual funds and other language services in support ofregulated investment firms, to serve their regulatory and compliance needs. For corporate clients within 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.
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 toCompany offers technology-enabled filing solutions that allow themU.S. public companies to comply with applicable U.S. Securities and Exchange Commission (“SEC”) regulations, as well as languageregulations. The Company’s services include filing agent services, digital document creation and online content management tools that support their corporate financial transactions and regulatory reporting. The Company provides solutions to international clients.facilitate clients’ communications with their shareholders; and virtual data rooms and other deal management solutions. For the investment markets, including alternative investment and insurance investment companies, the Company provides technology-enabled filing solutions including cloud-based tools for creating and filing high-quality regulatory documents and solutions for investors designed to improve the speed of access to and accuracy of investment information. Throughout a company’s life cycle, the Company serves its clients’ regulatory and compliance needs. The Company’s deep industry and regulatory expertise and a commitment to exceptional service guides our clients to navigate a high-stakes and ever-changing regulatory environment.
Segments
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, which was divested in 2018.* The Company services capital market and investment market clients in the U.S. by delivering products and technology-enabled 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, services and software 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 commercial printing capabilities and language solutions.* |
• | 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 SEC regulations, as well as language solutions to international clients.* |
*The Company sold its Language Solutions business on July 22, 2018. Refer to Note 3, Acquisitions and Dispositions, to the Unaudited Condensed Consolidated Financial Statements.
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, 12, 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 data and analytics, content storage servicesthe Company’s SaaS solutions, including Venue Virtual Data Room (“Venue”), FundSuiteArc, ActiveDisclosure and EDGAR Online, among others. The Company’s service offerings included language solutions.solutions prior to the sale of the Language Solutions business in July 2018. The Company’s product offerings primarily consist of conventional and digital printed products and related distributionshipping 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 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, 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 presented through June 30, 2017 only.
Executive Overview
Third Quarter Overview
Net sales decreased by $1.8$21.0 million, or 0.8%9.7%, for the third quarter of 20172019 compared to the same period in the prior year. There wasyear, including a $0.3$0.6 million, or 0.1%0.3%, increasedecrease due to changes in foreign exchange rates. Net sales decreased due to lower mutual fund print and print related services and lower capital markets transactions and compliance volumes. In addition, net sales decreased $3.2 million due to the impact of the sale of the Language Solutions business in July 2018. The decrease in net sales was partially offset by growth in SaaS solutions, primarily in FundSuiteArc and ActiveDisclosure, as well as the acquisition of eBrevia.
OUTLOOK
Competition
Technological and regulatory changes, including the electronic distribution of documents, continue to impact the market for our products and services. In addition to the Company’s ongoing innovation in its SaaS solutions, one of the Company’s competitive strengths is that it offers a wide array of communications products, compliance services, a global platform, exceptional sales and service and regulatory domain expertise, which provide differentiated solutions for its clients.
The global risk and compliance 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, price and reputation.
The impact of digital technologies has impacted many of the products and markets in which the Company competes, most acutely in the Company’s mutual fund, variable annuity and public company compliance business offerings. While the Company offers a high-touch, service oriented experience, technology changes have provided alternatives to the Company’s clients that allow them to manage more of the financial disclosure process themselves. The Company has invested in its own SaaS solutions, ActiveDisclosure, FundSuiteArc and 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 eBrevia and EDGAR Online and investments in AuditBoard, Mediant, Peloton and Gain Compliance that support the Company’s position as a technology service leader in this evolving industry.
The Company’s competitors for SEC filing services for 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.
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. A variety of factors impact the global markets, including the regulatory and political environment. Recently, the U.S. IPO market and public debt market were disrupted by the U.S. federal government shutdown that occurred from December 2018 to January 2019. Future government shutdowns could affect volatility of any of these markets. 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 by 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 data and analytics, which has recurring revenues and is not as susceptible to market volatility and cycles. The 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. The seasonality and associated 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 to mitigate market volatility.
Regulatory Impact
The SEC is adopting new rules and forms and amending rules and forms to modernize the reporting and disclosure of information by registered investment companies. These changes are driving significant regulatory changes which impact the Company’s customers within its Investment Markets business. On October 13, 2016, the SEC adopted a new N-PORT filing requirement, which requires certain registered investment companies to report information about their portfolio in XML, a structured data format, on a monthly basis, replacing what was previously a quarterly filing requirement. This rule also includes an annual N-CEN filing in XML, replacing a semi-annual filing requirement. Compliance dates depend on asset size and began as soon as June 1, 2018 for larger funds. The first N-PORT filing deadlines began in April 2019. The Company’s ArcFiling software solution supports both filings. The Company expects an increase in SaaS revenue due to the increase in the frequency of filings for registered investment companies.
On June 5, 2018, the SEC adopted Rule 30e-3 which provides certain registered investment companies with an option to electronically deliver shareholder reports and other materials rather than providing such reports in paper. Investors who prefer to receive reports in paper will continue to receive them in that format. While Rule 30e-3 was effective January 1, 2019, default electronic distribution pursuant to the rule will begin on January 1, 2021 due to a 24-month transition period, during which registered investment companies must notify investors of the upcoming change in transmission format of shareholder reports. The Company expects a decline in the volume of printed annual and semi-annual shareholder reports in 2021 and beyond as a result of Rule 30e-3.
Raw Materials
The primary raw materials used in the Company’s printed products are paper and ink. The paper and ink are sourced from a small set of select suppliers 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.
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 disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on February 27, 2019.
Financial Review
In the financial review that follows, the Company discusses its unaudited condensed consolidated results of operations, cash flows and certain other information. This discussion should be read in conjunction with the Company’s Unaudited Condensed Consolidated Financial Statements and the related notes.
Results of Operations for the Three Months Ended September 30, 2019 as Compared to the Three Months Ended September 30, 2018
The following table shows the results of operations for the three months ended September 30, 2019 and 2018:
| 2019 |
|
| 2018 |
|
| $ Change |
|
| % Change |
| ||||
| (in millions, except percentages) |
| |||||||||||||
Services net sales | $ | 130.4 |
|
| $ | 138.5 |
|
| $ | (8.1 | ) |
|
| (5.8 | %) |
Products net sales |
| 65.5 |
|
|
| 78.4 |
|
|
| (12.9 | ) |
|
| (16.5 | %) |
Net sales |
| 195.9 |
|
|
| 216.9 |
|
|
| (21.0 | ) |
|
| (9.7 | %) |
Services cost of sales (exclusive of depreciation and amortization) |
| 66.9 |
|
|
| 75.5 |
|
|
| (8.6 | ) |
|
| (11.4 | %) |
Products cost of sales (exclusive of depreciation and amortization) |
| 54.4 |
|
|
| 57.8 |
|
|
| (3.4 | ) |
|
| (5.9 | %) |
Cost of sales |
| 121.3 |
|
|
| 133.3 |
|
|
| (12.0 | ) |
|
| (9.0 | %) |
Selling, general and administrative expenses (exclusive of depreciation and |
| 46.2 |
|
|
| 62.6 |
|
|
| (16.4 | ) |
|
| (26.2 | %) |
Restructuring, impairment and other charges-net |
| 2.8 |
|
|
| 0.8 |
|
|
| 2.0 |
|
|
| 250.0 | % |
Depreciation and amortization |
| 12.7 |
|
|
| 11.6 |
|
|
| 1.1 |
|
|
| 9.5 | % |
Other operating income |
| (19.2 | ) |
|
| (53.5 | ) |
|
| 34.3 |
|
|
| (64.1 | %) |
Income from operations | $ | 32.1 |
|
| $ | 62.1 |
|
| $ | (30.0 | ) |
|
| (48.3 | %) |
Consolidated
Net sales of services for the three months ended September 30, 2019 decreased $8.1 million, or 5.8%, to $130.4 million, versus the three months ended September 30, 2018, including a $0.6 million, or 0.4%, decrease due to changes in foreign exchange rates. Net sales of services decreased $3.2 million due to the July 2018 sale of the Language Solutions business. In addition, net sales of services decreased due to lower mutual fund print related services and capital markets transactions volumes, partially offset by growth in SaaS solutions, primarily in FundSuiteArc and ActiveDisclosure, as well as the acquisition of eBrevia.
Net sales of products for the three months ended September 30, 2019 decreased $12.9 million, or 16.5%, to $65.5 million versus the three months ended September 30, 2018. Net sales of products decreased due to lower capital markets transactions, mutual fund print and capital markets compliance volumes.
Services cost of sales decreased $8.6 million, or 11.4%, to $66.9 million, for the three months ended September 30, 2019, versus the three months ended September 30, 2018. Services cost of sales decreased due to lower volumes in mutual fund print related services and capital markets transactions, the impact from the sale of the Language Solutions business and cost control initiatives. As a percentage of net sales, services cost of sales decreased 3.2% primarily due to favorable mix and cost control initiatives.
Products cost of sales decreased $3.4 million, or 5.9%, to $54.4 million, for the three months ended September 30, 2019, versus the three months ended September 30, 2018. Products cost of sales decreased due to lower capital markets transactions, mutual fund print and capital markets compliance volumes. As a percentage of net sales, products cost of sales increased 9.4%, primarily due to unfavorable mix.
Selling, general and administrative expenses decreased $16.4 million, or 26.2%, to $46.2 million, for the three months ended September 30, 2019, as compared to the three months ended September 30, 2018, due to lower disposition related expenses, lower spin-off related transaction expenses, lower incentive compensation expense, the impact from the sale of the Language Solutions business and cost control initiatives. As a percentage of net sales, selling, general, and administrative expenses decreased from 28.9% for the three months September 30, 2018 to 23.6% for the three months ended September 30, 2019, primarily due to lower disposition related expenses, spin-off related transaction expenses, incentive compensation expense and cost control initiatives.
For the three months ended September 30, 2019, the Company recorded net restructuring, impairment and other charges of $2.8 million, as compared to net restructuring, impairment and other charges of $0.8 million for the three months ended September 30, 2018. In 2019, these charges included $2.4 million of employee termination costs for 71 employees and $0.4 million for impairment charges related to software assets. In 2018, these charges included $0.8 million of employee termination costs for 29 employees.
Depreciation and amortization increased $1.1 million, or 9.5%, to $12.7 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018. Depreciation and amortization included $3.6 million and $3.4 million of amortization of other intangible assets related to customer relationships and a tradename for the three months ended September 30, 2019 and 2018, respectively.
Other operating income for the three months ended September 30, 2019 included a $19.2 million net gain recognized from the sale of a building. The three months ended September 30, 2018 included a $53.5 million net gain recognized on the sale of the Language Solutions business.
Income from operations for the three months ended September 30, 2019 decreased $30.0 million, or 48.3%, to $32.1 million versus the three months ended September 30, 2018, primarily due to the unfavorable impact of the 2018 gain on sale of the Language Solutions business recognized during the three months ended September 30, 2018, offset by the net gain recognized from the sale of a building during the three months ended September 30, 2019.
| 2019 |
|
| 2018 |
|
| $ Change |
|
| % Change |
| ||||
| (in millions, except percentages) |
| |||||||||||||
Interest expense-net | $ | 8.6 |
|
| $ | 8.4 |
|
| $ | 0.2 |
|
|
| 2.4 | % |
Net interest expense increased $0.2 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018.
Net investment and other income for the three months ended September 30, 2019 primarily consisted of net pension plan income. Net investment and other income for the three months ended September 30, 2018 primarily consisted of a $11.8 million gain related to an equity investment and net pension plan income.
| 2019 |
|
| 2018 |
|
| $ Change |
|
| % Change |
| ||||
| (in millions, except percentages) |
| |||||||||||||
Earnings before income taxes | $ | 24.0 |
|
| $ | 67.7 |
|
| $ | (43.7 | ) |
|
| (64.5 | %) |
Income tax expense |
| 9.3 |
|
|
| 19.7 |
|
|
| (10.4 | ) |
|
| (52.8 | %) |
Effective income tax rate |
| 38.8 | % |
|
| 29.1 | % |
|
|
|
|
|
|
|
|
The effective income tax rate was 38.8% for the three months ended September 30, 2019 compared to 29.1% for the three months ended September 30, 2018. The effective income tax rate for the three months ended September 30, 2019 reflects the recognition of a valuation allowance in the International segment during the third quarter of 2019 and clarifications from the U.S. Department of Treasury specific to the 2017 Tax Cuts and Jobs Act (“Tax Act”).
Information by Segment
The following tables summarize net sales, income from operations and certain items impacting comparability within each of the operating segments and Corporate.
U.S.
| Three Months Ended September 30, |
| |||||
| 2019 |
|
| 2018 |
| ||
| (in millions, except percentages) |
| |||||
Net sales | $ | 173.7 |
|
| $ | 185.5 |
|
Income from operations |
| 39.2 |
|
|
| 48.4 |
|
Operating margin |
| 22.6 | % |
|
| 26.1 | % |
Gain on sale of building |
| 19.2 |
|
|
| — |
|
Restructuring, impairment and other charges-net |
| 1.6 |
|
|
| 0.6 |
|
Gain on sale of Language Solutions business |
| — |
|
|
| 26.6 |
|
Spin-off related transaction expenses |
| — |
|
|
| 1.6 |
|
| Net Sales for the Three Months |
|
|
|
|
|
|
|
|
| |||||
| Ended September 30, |
|
|
|
|
|
|
|
|
| |||||
Reporting unit | 2019 |
|
| 2018 |
|
| $ Change |
|
| % Change |
| ||||
| (in millions, except percentages) |
| |||||||||||||
Capital Markets | $ | 97.1 |
|
| $ | 102.5 |
|
| $ | (5.4 | ) |
|
| (5.3 | %) |
Investment Markets |
| 76.6 |
|
|
| 81.8 |
|
|
| (5.2 | ) |
|
| (6.4 | %) |
Language Solutions |
| — |
|
|
| 1.2 |
|
|
| (1.2 | ) |
|
| (100.0 | %) |
Total U.S. | $ | 173.7 |
|
| $ | 185.5 |
|
| $ | (11.8 | ) |
|
| (6.4 | %) |
Net sales for the U.S. segment for the three months ended September 30, 2019 were $173.7 million, a decrease of $11.8 million, or 6.4%, compared to the three months ended September 30, 2018. Net sales decreased due to lower capital markets transaction volumes, lower mutual fund volumes and the sale of the Language Solutions business, partially offset by growth in SaaS solutions, primarily due to ActiveDisclosure and the acquisition of eBrevia. An analysis of net sales by reporting unit follows:
�� | Capital Markets: Sales decreased due to lower capital markets transactions, primarily as a result of fewer mergers and acquisitions deals completed, which was only partially offset by an increase in IPO activity and higher volumes in ActiveDisclosure and the acquisition of eBrevia. |
• | Investment Markets: Sales decreased primarily due to lower mutual fund print, FundSuiteArc and healthcare volumes. |
• | Language Solutions: There were no sales in the three months ended September 30, 2019 due to the sale of the Language Solutions business in July 2018. |
U.S. segment income from operations decreased $9.2 million, or 19.0%, for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018 primarily due to the impact of the 2018 gain on sale of the Language Solutions business recognized during the three months ended September 30, 2018, partially offset by the net gain recognized from the sale of a building during the three months ended September 30, 2019. The decrease in income from operations was also impacted by lower net sales volumes and unfavorable mix, partially offset by cost control initiatives, lower incentive compensation expense and spin-off related transaction expenses.
Operating margins decreased from 26.1% for the three months ended September 30, 2018 to 22.6% for the three months ended September 30, 2019 due to the impact of the prior year gain on sale of the Language Solutions business, which impacted margins by 14.3 percentage points, unfavorable mix and higher restructuring, impairment and other charges, partially offset by the net gain recognized from the sale of a building during September 2019 which impacted margins by 11.1 percentage points, lower incentive compensation expense, which favorably impacted margins by 1.0 percentage points and lower spin-off related transaction expenses, which favorably impacted margins by 0.9 percentage points.
International
| Three Months Ended September 30, |
| |||||
| 2019 |
|
| 2018 |
| ||
| (in millions, except percentages) |
| |||||
Net sales | $ | 22.2 |
|
| $ | 31.4 |
|
(Loss) income from operations |
| (0.9 | ) |
|
| 27.0 |
|
Operating margin |
| (4.1 | %) |
|
| 86.0 | % |
Gain on sale of Language Solutions business |
| — |
|
|
| 26.9 |
|
Disposition-related expenses |
| — |
|
|
| 1.2 |
|
Restructuring, impairment and other charges-net |
| — |
|
|
| 0.1 |
|
Net sales for the International segment for the three months ended September 30, 2019 were $22.2 million, a decrease of $9.2 million, or 29.3%, compared to the three months ended September 30, 2018 including a $0.6 million, or 1.9%, decrease due to changes in foreign exchange rates. Net sales decreased due to lower capital markets transactions and mutual funds volumes, partially offset by higher FundSuiteArc volumes. Net sales also decreased $2.0 million due to the sale of the Language Solutions business.
International segment (loss) income from operations decreased $27.9 million, or 103.3%, for the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. Income from operations for the three months ended September 30, 2019 decreased primarily due to the impact from the gain recognized from the sale of the Language Solutions business in 2018, lower capital markets transactions and mutual funds volumes and an increase in information technology expenses allocated to the International segment, offset by lower disposition-related expenses, higher FundSuiteArc volumes and cost control initiatives.
Operating margins decreased from 86.0% for the three months ended September 30, 2018 to negative 4.1% for the three months ended September 30, 2019 due to the impact of the prior year gain on sale of the Language Solutions business, which impacted margins by 85.7 percentage points and higher information technology expenses allocated to the International segment, offset by lower disposition-related expenses which favorably impacted margins by 3.8 percentage points.
Corporate
The following table summarizes unallocated operating expenses and certain items impacting comparability within the activities presented as Corporate:
| Three Months Ended September 30, |
| |||||
| 2019 |
|
| 2018 |
| ||
| (in millions) |
| |||||
Operating expenses | $ | 6.2 |
|
| $ | 13.3 |
|
Share-based compensation expense |
| 2.6 |
|
|
| 2.1 |
|
Restructuring, impairment and other charges-net |
| 1.2 |
|
|
| 0.1 |
|
Acquisition-related expenses |
| 0.1 |
|
|
| — |
|
Spin-off related transaction expenses |
| — |
|
|
| 2.1 |
|
Disposition-related expenses |
| — |
|
|
| 3.3 |
|
Corporate operating expenses for the three months ended September 30, 2019 decreased $7.1 million versus the same period in 2018 primarily due to a decrease in disposition-related expenses, incentive compensation expense and spin-off related transaction expenses, partially offset by higher restructuring, impairment and other charges.
Results of Operations for the Nine Months Ended September 30, 2019 as Compared to the Nine Months Ended September 30, 2018
The following table shows the results of operations for the nine months ended September 30, 2019 and 2018:
| 2019 |
|
| 2018 |
|
| $ Change |
|
| % Change |
| ||||
| (in millions, except percentages) |
| |||||||||||||
Services net sales | $ | 419.5 |
|
| $ | 485.9 |
|
| $ | (66.4 | ) |
|
| (13.7 | %) |
Products net sales |
| 264.9 |
|
|
| 276.8 |
|
|
| (11.9 | ) |
|
| (4.3 | %) |
Net sales |
| 684.4 |
|
|
| 762.7 |
|
|
| (78.3 | ) |
|
| (10.3 | %) |
Services cost of sales (exclusive of depreciation and amortization) |
| 217.9 |
|
|
| 253.4 |
|
|
| (35.5 | ) |
|
| (14.0 | %) |
Products cost of sales (exclusive of depreciation and amortization) |
| 206.3 |
|
|
| 204.1 |
|
|
| 2.2 |
|
|
| 1.1 | % |
Cost of sales |
| 424.2 |
|
|
| 457.5 |
|
|
| (33.3 | ) |
|
| (7.3 | %) |
Selling, general and administrative expenses (exclusive of depreciation and |
| 159.0 |
|
|
| 203.8 |
|
|
| (44.8 | ) |
|
| (22.0 | %) |
Restructuring, impairment and other charges-net |
| 8.7 |
|
|
| 4.1 |
|
|
| 4.6 |
|
|
| 112.2 | % |
Depreciation and amortization |
| 36.8 |
|
|
| 33.1 |
|
|
| 3.7 |
|
|
| 11.2 | % |
Other operating income |
| (16.4 | ) |
|
| (53.5 | ) |
|
| 37.1 |
|
|
| (69.3 | %) |
Income from operations | $ | 72.1 |
|
| $ | 117.7 |
|
| $ | (45.6 | ) |
|
| (38.7 | %) |
Consolidated
Net sales of services for the nine months ended September 30, 2019 decreased $66.4 million, or 13.7%, to $419.5 million, versus the nine months ended September 30, 2018, including a $2.1 million, or 0.4%, decrease due to changes in foreign exchange rates. Net sales of services decreased $41.8 million due to the sale of the Language Solutions business. In addition, net sales of services decreased due to lower volumes in capital markets transactions, partially offset by higher volumes in mutual fund print and print-related services and capital markets compliance.compliance, partially offset by growth in SaaS solutions, primarily in ActiveDisclosure and FundSuiteArc as well as the acquisition of eBrevia.
Net sales of products for the nine months ended September 30, 2019 decreased $11.9 million, or 4.3%, to $264.9 million versus the nine months ended September 30, 2018, including a $0.7 million, or 0.3%, decrease due to changes in foreign exchange rates. Net sales of products decreased due to lower volumes in capital markets transactions, commercial print volumes, partially offset by higher mutual fund print volumes.
Services cost of sales for the nine months ended September 30, 2019 decreased $35.5 million, or 14.0%, to $217.9 million, compared to the nine months ended September 30, 2018, primarily due to the impact from the sale of the Language Solutions business. In addition, services cost of sales decreased due to lower capital markets transactions, mutual fund print-related services and capital markets compliance volumes and cost control initiatives. As a percentage of net sales, services cost of sales decreased 0.3% primarily due to favorable mix.
Products cost of sales increased $2.2 million, or 1.1%, to $206.3 million, for the nine months ended September 30, 2019, versus the nine months ended September 30, 2018. Products cost of sales increased due to higher mutual fund print volumes, partially offset by lower capital markets transactions and commercial print volumes. As a percentage of net sales, products cost of sales increased 4.2% primarily due to unfavorable mix.
Selling, general and administrative expenses decreased $44.8 million, or 22.0%, to $159.0 million, for the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, primarily due to lower spin-off related transaction expenses, lower selling expenses, the impact from the sale of the Language Solutions business, lower incentive compensation expense and cost control initiatives, partially offset by higher restructuring, impairment and other charges and investor-related expenses. As a percentage of net sales, selling, general, and administrative expenses decreased from 26.7% for the nine months ended September 30, 2018 to 23.2% for the nine months ended September 30, 2019 primarily due to lower spin-off related transaction expenses and cost control initiatives.
For the nine months ended September 30, 2019, the Company recorded net restructuring, impairment and other charges of $8.7 million, as compared to $4.1 million for the nine months ended September 30, 2018. In 2019, these charges included $8.2 million of employee termination costs for 235 employees, $0.4 million of net impairment charges related to software 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. In 2018, these charges included $3.3 million of employee termination costs for 76 employees, $0.7 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 $3.7 million, or 11.2%, to $36.8 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 primarily due the investment in digital printers during the first quarter of 2019. Depreciation and amortization included $10.9 million and $10.3 million of amortization of other intangible assets related to customer relationships and a tradename for the nine months ended September 30, 2019 and 2018, respectively.
Other operating income for the nine months ended September 30, 2019 included a $19.2 million net gain recognized from the sale of a building, partially offset by a $2.8 million loss recognized for the prior year disposition of the Language Solutions business. Other operating income for the nine months ended September 30, 2018 included a $53.5 million net gain recognized on the sale of the Language Solutions business.
Income from operations for the nine months ended September 30, 2019 decreased $45.6 million, or 38.7%, to $72.1 million versus the nine months ended September 30, 2018, primarily due to the unfavorable impact of the 2018 gain on sale of the Language Solutions business recognized during the three months ended September 30, 2018, partially offset by the net gain recognized from the sale of a building during the three months ended September 30, 2019. The decrease in income from operations was also due to lower capital markets transactions and compliance volumes, partially offset by an increase in mutual fund print volumes, lower spin-off related transaction expenses and growth in our SaaS offerings.
| 2019 |
|
| 2018 |
|
| $ Change |
|
| % Change |
| ||||
| (in millions, except percentages) |
| |||||||||||||
Interest expense-net | $ | 26.6 |
|
| $ | 27.2 |
|
| $ | (0.6 | ) |
|
| (2.2 | %) |
Net interest expense decreased $0.6 million for the nine months ended September 30, 2019 versus the same period in 2018, due to a decrease in average outstanding debt.
Net investment and other income for the nine months ended September 30, 2019 primarily consisted of net pension plan income. Net investment and other income for the nine months ended September 30, 2018 primarily consisted of a $11.8 million gain related to an equity investment and net pension plan income.
| 2019 |
|
| 2018 |
|
| $ Change |
|
| % Change |
| ||||
| (in millions, except percentages) |
| |||||||||||||
Earnings before income taxes | $ | 47.1 |
|
| $ | 106.1 |
|
| $ | (59.0 | ) |
|
| (55.6 | %) |
Income tax expense |
| 16.5 |
|
|
| 31.5 |
|
|
| (15.0 | ) |
|
| (47.6 | %) |
Effective income tax rate |
| 35.0 | % |
|
| 29.7 | % |
|
|
|
|
|
|
|
|
The effective income tax rate was 35.0% for the nine months ended September 30, 2019 compared to 29.7% for the nine months ended September 30, 2018. The effective income tax rate for the nine months ended September 30, 2019 reflects the recognition of a valuation allowance in the International segment during the third quarter of 2019 and clarifications from the U.S. Department of Treasury specific to the Tax Act.
Information by Segment
The following tables summarize net sales, income from operations and certain items impacting comparability within each of the operating segments and Corporate.
U.S.
| Nine Months Ended September 30, |
| |||||
| 2019 |
|
| 2018 |
| ||
| (in millions, except percentages) |
| |||||
Net sales | $ | 599.7 |
|
| $ | 641.1 |
|
Income from operations |
| 100.9 |
|
|
| 121.7 |
|
Operating margin |
| 16.8 | % |
|
| 19.0 | % |
Gain on sale of building |
| 19.2 |
|
|
| — |
|
Restructuring, impairment and other charges-net |
| 4.9 |
|
|
| 1.9 |
|
(Loss) gain on sale of Language Solutions business |
| (1.2 | ) |
|
| 26.6 |
|
Spin-off related transaction expenses |
| — |
|
|
| 15.6 |
|
| Net Sales for the Nine Months |
|
|
|
|
|
|
|
| |||||
| Ended September 30, |
|
|
|
|
|
|
|
| |||||
Reporting unit | 2019 |
|
| 2018 |
|
| $ Change |
| % Change |
| ||||
| (in millions, except percentages) |
| ||||||||||||
Capital Markets | $ | 335.1 |
|
| $ | 364.6 |
|
| $ | (29.5 | ) |
| (8.1 | %) |
Investment Markets |
| 264.6 |
|
|
| 262.8 |
|
|
| 1.8 |
|
| 0.7 | % |
Language Solutions |
| — |
|
|
| 13.7 |
|
|
| (13.7 | ) |
| (100.0 | %) |
Total U.S. | $ | 599.7 |
|
| $ | 641.1 |
|
| $ | (41.4 | ) |
| (6.5 | %) |
Net sales for the U.S. segment for the nine months ended September 30, 2019 were $599.7 million, a decrease of $41.4 million, or 6.5%, compared to the nine months ended September 30, 2018. Net sales decreased due to lower capital markets transaction volumes, the sale of the Language Solutions business and lower volumes in capital markets compliance and commercial print, partially offset by higher mutual fund print volumes and growth in SaaS solutions, primarily ActiveDisclosure and the acquisition of eBrevia. An analysis of net sales by reporting unit follows:
• | Capital Markets: Sales decreased due to lower capital markets transactions and compliance volumes, partially offset by higher volumes in ActiveDisclosure and the acquisition of eBrevia. |
• | Investment Markets: Sales increased due to higher mutual fund print volumes, partially driven by a special proxy project. The increase in sales was partially offset by lower commercial print volumes and lower FundSuiteArc volumes. |
• | Language Solutions: There were no sales in the nine months ended September 30, 2019 due to the sale of the Language Solutions business in July 2018. |
U.S. segment income from operations decreased $20.8 million, or 17.1%, for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018, primarily due to the impact of the prior year gain on sale of the Language Solutions business recognized during the three months ended September 30, 2018, partially offset by the net gain recognized from the sale of a building during the three months ended September 30, 2019. Income from operations was also unfavorably impacted by lower net sales volumes, unfavorable mix and higher restructuring, impairment and other charges, partially offset by lower spin-off related transaction expenses, cost control initiatives and lower incentive compensation expense.
Operating margins decreased from 19.0% for the nine months ended September 30, 2018 to 16.8% for the nine months ended September 30, 2019 of which 4.4 percentage points was due to the impact of the prior year gain on sale of the Language Solutions business and 0.5 percentage points was due to higher restructuring, impairment and other charges. Operating margins were favorably impacted by the net gain on the sale of a building which impacted margins by 3.2 percentage points, lower spin-off related transaction expenses which impacted margins by 2.4 percentage points and cost control initiatives.
International
| Nine Months Ended September 30, |
| |||||
| 2019 |
|
| 2018 |
| ||
| (in millions, except percentages) |
| |||||
Net sales | $ | 84.7 |
|
| $ | 121.6 |
|
(Loss) income from operations |
| (2.6 | ) |
|
| 31.1 |
|
Operating margin |
| (3.1 | %) |
|
| 25.6 | % |
(Loss) gain on sale of Language Solutions business |
| (1.6 | ) |
|
| 26.9 |
|
Restructuring, impairment and other charges-net |
| 1.0 |
|
|
| 1.9 |
|
Disposition-related expenses |
| — |
|
|
| 1.2 |
|
Net sales for the International segment for the nine months ended September 30, 2019 were $84.7 million, a decrease of $36.9 million, or 30.3%, compared to the nine months ended September 30, 2018 including a $2.8 million, or 2.3%, decrease due to changes in foreign exchange rates. Net sales decreased $28.1 million due to the sale of the Language Solutions business. Net sales also decreased due to lower capital markets transactions and mutual fund volumes, partially offset by higher FundSuiteArc volumes.
International segment (loss) income from operations decreased $33.7 million, or 108.4%, compared to the nine months ended September 30, 2018, primarily due to the impact from the gain recognized from the sale of the Language Solutions business in 2018, lower capital markets transaction and mutual fund volumes, an increase in information technology expenses allocated to the International segment and the impact of the loss recognized related to the 2018 sale of the Language Solutions business, partially offset by higher FundSuiteArc volumes.
Operating margins decreased from 25.6% for the nine months ended September 30, 2018 to negative 3.1% for the nine months ended September 30, 2019 due to the impact of the prior year gain on sale of the Language Solutions business, which unfavorably impacted margins by 24.0 percentage points, unfavorable mix and higher information technology expenses allocated to the International segment, partially offset by cost control initiatives.
Corporate
The following table summarizes unallocated operating expenses and certain items impacting comparability within the activities presented as Corporate:
| Nine Months Ended September 30, |
| |||||
| 2019 |
|
| 2018 |
| ||
| (in millions) |
| |||||
Operating expenses | $ | 26.2 |
|
| $ | 35.1 |
|
Share-based compensation expense |
| 7.7 |
|
|
| 7.2 |
|
Restructuring, impairment and other charges-net |
| 2.8 |
|
|
| 0.3 |
|
Investor-related expenses |
| 1.5 |
|
|
| — |
|
Spin-off related transaction expenses |
| 0.4 |
|
|
| 4.3 |
|
Acquisition-related expenses |
| 0.1 |
|
|
| 0.5 |
|
Disposition-related expenses |
| — |
|
|
| 5.3 |
|
Corporate operating expenses for the nine months ended September 30, 2019 decreased $8.9 million versus the same period in 2018 due to lower spin-off related transaction expenses and disposition-related expenses, partially offset by an increase in restructuring, impairment and other charges and investor-related expenses.
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 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.
• | 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. |
• | Investor-related expenses. Expenses incurred related to non-routine investor matters, which include third-party advisory and consulting fees and legal fees. |
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.
• | Spin-off related transaction expenses. The Company has incurred expenses related to the Separation from R.R. Donnelley & Sons Company (“RRD”) (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 service agreements with RRD and LSC Communications, Inc. Management does not believe that these expenses are reflective of ongoing operating results. |
• | Disposition-related expenses. Expenses incurred related to the disposition of the Language Solutions business. These expenses primarily include legal fees, third-party advisory and consulting fees and other costs related to the disposition. |
A reconciliation of GAAP net earnings to Non-GAAP adjusted EBITDA for the three and nine months ended September 30, 20172019 and 20162018 for these adjustments is presented in the following table:
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
| (in millions) |
| (in millions) |
| ||||||||||||||||||||||||||
Net earnings | $ | 5.3 |
|
| $ | 10.2 |
|
| $ | 33.4 |
|
| $ | 59.9 |
| $ | 14.7 |
|
| $ | 48.0 |
|
| $ | 30.6 |
|
| $ | 74.6 |
|
Net gain on sale of building |
| (19.2 | ) |
|
| — |
|
|
| (19.2 | ) |
|
| — |
| |||||||||||||||
Restructuring, impairment and other charges—net |
| (0.6 | ) |
|
| 1.7 |
|
|
| 6.4 |
|
|
| 3.6 |
|
| 2.8 |
|
|
| 0.8 |
|
|
| 8.7 |
|
|
| 4.1 |
|
Share-based compensation expense |
| 1.7 |
|
|
| 0.2 |
|
|
| 5.2 |
|
|
| 1.2 |
|
| 2.6 |
|
|
| 2.1 |
|
|
| 7.7 |
|
|
| 7.2 |
|
Net (gain) loss on sale of Language Solutions |
| — |
|
|
| (53.5 | ) |
|
| 2.8 |
|
|
| (53.5 | ) | |||||||||||||||
Investor-related expenses |
| — |
|
|
| — |
|
|
| 1.5 |
|
|
| — |
| |||||||||||||||
Spin-off related transaction expenses |
| 2.6 |
|
|
| — |
|
|
| 9.8 |
|
|
| — |
|
| — |
|
|
| 3.7 |
|
|
| 0.4 |
|
|
| 19.9 |
|
Acquisition-related expenses |
| 0.1 |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.5 |
| |||||||||||||||
Gain on equity investment |
| — |
|
|
| (11.8 | ) |
|
| — |
|
|
| (11.8 | ) | |||||||||||||||
Disposition-related expenses |
| — |
|
|
| 4.5 |
|
|
| — |
|
|
| 6.5 |
| |||||||||||||||
Depreciation and amortization |
| 10.6 |
|
|
| 9.8 |
|
|
| 31.7 |
|
|
| 30.1 |
|
| 12.7 |
|
|
| 11.6 |
|
|
| 36.8 |
|
|
| 33.1 |
|
Interest expense (income)—net |
| 10.6 |
|
|
| (0.1 | ) |
|
| 32.7 |
|
|
| 0.3 |
| |||||||||||||||
Interest expense—net |
| 8.6 |
|
|
| 8.4 |
|
|
| 26.6 |
|
|
| 27.2 |
| |||||||||||||||
Investment and other income—net |
| (0.5 | ) |
|
| (2.2 | ) |
|
| (1.6 | ) |
|
| (3.8 | ) | |||||||||||||||
Income tax expense |
| 2.1 |
|
|
| 7.9 |
|
|
| 22.0 |
|
|
| 39.3 |
|
| 9.3 |
|
|
| 19.7 |
|
|
| 16.5 |
|
|
| 31.5 |
|
Non-GAAP adjusted EBITDA | $ | 32.3 |
|
| $ | 29.7 |
|
| $ | 141.2 |
|
| $ | 134.4 |
| $ | 31.1 |
|
| $ | 31.3 |
|
| $ | 110.9 |
|
| $ | 135.5 |
|
2017Net gain on sale of building. Included a pre-tax net gain of $19.2 million related to the sale of a building for the three and nine months ended September 30, 2019.
2019 Restructuring, impairment and other charges—net. The three months ended September 30, 20172019 included $0.4$2.4 million for employee termination costs and a $1.0$0.4 million of net reversal of other restructuringimpairment 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.software assets. The nine months ended September 30, 20172019 included $5.2$8.2 million for employee termination costs, $0.9 million of net lease termination and other restructuring costs, $0.2$0.4 million of net impairment charges of long-livedrelated to software 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
2018 Restructuring, impairment and other charges—net. The three months ended September 30, 20162018 included $1.3$0.8 million for employee termination costs. The nine months ended September 30, 2018 included $3.3 million for employee termination costs, and $0.4$0.7 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.
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, the Company has been a high-touch, service oriented 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. For years, the Company has invested in its own applications, ActiveDisclosure, FundSuiteArc and 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, Mediant, Peloton and eBrevia that further solidify the Company’s position as a technology service leader in the industry.
The Company’s competitors for SEC filing services for capital markets 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 are a significant component of many customers’ cost structures and postal rate changes can influence the number of pieces that the Company’s customers are willing to print and mail.
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 as Compared to the Three Months Ended September 30, 2016
The following table shows the results of operations for the three months ended September 30, 2017 and 2016 :
| 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 | % |
|
|
Consolidated and Combined
Net sales of services for the three months ended September 30, 2017 increased $0.9 million, or 0.6%, to $140.3 million, versus the three months ended September 30, 2016, including a $0.2 million, or 0.1%, increase due to changes in foreign exchange rates. Net sales of services increased due to higher mutual fund print-related services and virtual data room services, 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 decreased $2.7 million, or 3.2%, to $82.3 million versus the three months ended September 30, 2016, including a $0.1 million, or 0.1%, increase due to changes in foreign exchange rates. Net sales of products decreased due to lower capital markets transactions volumes and healthcare print volumes, partially offset by higher capital markets compliance volumes.
Services cost of sales increased $8.8 million, or 12.1%, for the three months ended September 30, 2017, versus the three months ended September 30, 2016. Services cost of sales increased due to higher volumes in mutual fund print-related services, an increase in the allocation of information technology expenses from selling, general and administrative expenses to cost of sales, partially offset by cost control initiatives. As a percentage of net sales, services cost of sales increased 5.9% primarily due to unfavorable mix from lower capital markets transaction volumes and increased information technology expenses.
Products cost of sales decreased $14.6 million, or 19.9%, for the three months ended September 30, 2017, versus the three months ended September 30, 2016. As a percentage of net sales, products cost of sales decreased 14.9%. Products cost of sales decreased due to a favorable mix of products sales and cost control initiatives.
Selling, general and administrative expenses increased $5.5 million, or 11.3%, to $54.0$2.1 million for the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, primarily due to an increase in expenses incurred to operate as an independent public company, including employee compensation costs2019 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 21.6% for the three months ended September 30, 2016 to 24.3% 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.
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 | %) |
|
|
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, 2017 primarily due to increased costs of operating as an independent public company, including spin-off related transaction expenses.
For the nine months ended September 30, 2017, the Company recorded net restructuring, impairment and other charges of $6.4 million, as compared to $3.6 million for the nine months ended September 30, 2016. In 2017, these charges included $5.2 million of employee termination costs for 169 employees, $0.9 million of lease termination and other restructuring costs, $0.2 million of impairment charges for 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. In 2016, these charges included $2.3 million of employee termination costs for 74 employees, $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.
Depreciation and amortization increased $1.6 million, or 5.3%, to $31.7 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Depreciation and amortization included $10.7 million and $10.8 million of amortization of other intangible assets related to customer relationships, trade names and non-compete agreements for the nine months ended September 30, 2017 and 2016, respectively.
Income from operations for the nine months ended September 30, 2017 decreased $11.4 million, or 11.5%, to $88.1 million versus the nine months ended September 30, 2016, 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, partially offset by cost control initiatives and higher volumes in mutual funds print-related, capital markets compliance, mutual fund print, virtual data room services, and content management.
| 2017 |
|
| 2016 |
|
| $ Change |
|
| % Change | |||
| (in millions, except percentages) | ||||||||||||
Interest expense-net | $ | 32.7 |
|
| $ | 0.3 |
|
| $ | 32.4 |
|
| nm |
Net interest expense increased $32.4 million for the nine 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 | $ | 55.4 |
|
| $ | 99.2 |
|
| $ | (43.8 | ) |
|
| (44.2 | %) |
Income tax expense |
| 22.0 |
|
|
| 39.3 |
|
|
| (17.3 | ) |
|
| (44.0 | %) |
Effective income tax rate |
| 39.7 | % |
|
| 39.6 | % |
|
|
|
|
|
|
|
|
The effective income tax rate was 39.7% for the nine months ended September 30, 2017 compared to 39.6% for the nine months ended September 30, 2016.
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, |
| |||||
| 2017 |
|
| 2016 |
| ||
| (in millions, except percentages) |
| |||||
Net sales | $ | 658.2 |
|
| $ | 662.4 |
|
Income from operations |
| 107.5 |
|
|
| 100.0 |
|
Operating margin |
| 16.3 | % |
|
| 15.1 | % |
Restructuring, impairment and other charges-net |
| 4.4 |
|
|
| 3.1 |
|
Spin-off related transaction expenses |
| 4.0 |
|
|
| — |
|
| Net Sales for the Nine Months |
|
|
|
|
|
|
|
| |||||
| Ended September 30, |
|
|
|
|
|
|
|
| |||||
Reporting unit | 2017 |
|
| 2016 |
|
| $ Change |
| % Change |
| ||||
| (in millions, except percentages) |
| ||||||||||||
Capital Markets | $ | 349.8 |
|
| $ | 369.5 |
|
| $ | (19.7 | ) |
| (5.3 | %) |
Investment Markets |
| 276.0 |
|
|
| 263.7 |
|
|
| 12.3 |
|
| 4.7 | % |
Language Solutions and other |
| 32.4 |
|
|
| 29.2 |
|
|
| 3.2 |
|
| 11.0 | % |
Total U.S. | $ | 658.2 |
|
| $ | 662.4 |
|
| $ | (4.2 | ) |
| (0.6 | %) |
Net sales for the U.S. segment for the nine months ended September 30, 2017 were $658.2 million, a decrease of $4.2 million, or 0.6%, compared to the nine months ended September 30, 2016. Net sales decreased due to lower capital markets transactions and healthcare volumes partially offset by higher volumes in capital markets compliance, mutual fund print-related services, mutual fund print volumes, virtual data room services and content management. 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.
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.
Language Solutions and other: Sales increased primarily due to higher volumes in commercial print.
U.S. segment income from operations increased $7.5 million, or 7.5%, for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, due to cost control initiatives and higher volumes in capital markets compliance, mutual fund print-related services, mutual fund print volumes, virtual data room services and content management, partially offset by lower capital markets transactions and healthcare volumes and an increase in selling expenses, spin-off related transaction expenses, incentive compensation expense, and restructuring, impairment and other charges.
Operating margins increased from 15.1% for the nine months ended September 30, 2016 to 16.3% for the nine months ended September 30, 2017 due to cost control initiatives. The increase in operating margins was partially offset by spin-off related transaction expenses and higher restructuring, impairment and other charges which impacted margins by 0.6 and 0.2 percentage points,2018, 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$7.7 million and $7.2 million for the nine months ended September 30, 2019 and 2018, respectively.
Net (gain) loss on sale of Language Solutions business. Included pre-tax charges of $2.8 million for the nine months ended September 30, 2019 related to the July 2018 disposition of the Language Solutions business. Included pre-tax gain of $53.5 million for the three and nine months ended September 30, 20172018.
Investor-related expenses. Included pre-tax charges of $1.5 million related to non-routine investor matters for the nine months ended September 30, 2019. These expenses include third-party advisory and 2016,consulting fees and legal fees.
Spin-off related transaction expenses. Included pre-tax charges of $0.4 million for the nine months ended September 30, 2019, primarily related to third-party consulting fees. The three and nine months ended September 30, 2018 included pre-tax charges of $3.7 million and $19.9 million, respectively, duerelated 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, includingthird-party consulting fees, information technology expenses, and an increase in incentive compensation expense and restructuring, impairmentlegal fees and other charges.costs related to the Separation.
Operating margins decreased from 7.2%
Acquisition-related expenses. Included pre-tax charges of $0.1 million for the three and nine months ended September 30, 2019 and $0.5 million for the nine months ended September 30, 20162018 primarily related to 6.2%legal expenses associated with contemplated acquisitions.
Gain on equity investment. Included a pre-tax gain of $11.8 million for the three and nine months ended September 30, 20172018.
Disposition-related expenses. Included pre-tax charges of which 0.6 percentage points were due$4.5 million and $6.5 million related to higher restructuring, impairmentthe disposition of the Language Solutions business, primarily related to legal fees, third party advisory and consulting fees and other charges. Operating margins were also impacted by an increase in allocated expenses, including information technology expenses partially offset by cost control initiatives.
Corporate
The following table summarizes unallocated operating expenses and certain items impacting comparability within the activities presented as Corporate:
| Nine Months Ended September 30, |
| |||||
| 2017 |
|
| 2016 |
| ||
| (in millions) |
| |||||
Operating expenses | $ | 27.0 |
|
| $ | 7.7 |
|
Spin-off related transaction expenses |
| 5.8 |
|
|
| — |
|
Share-based compensation expense |
| 5.2 |
|
|
| 1.2 |
|
Restructuring, impairment and other charges-net |
| 0.7 |
|
|
| — |
|
Corporate operating expensescosts for the three and nine months ended September 30, 2017 increased $19.3 million versus the same period in 2016 due to higher employee compensation costs incurred to operate as an independent public company, spin-off related transaction expenses and an increase in share-based compensation and bad debt expense.2018, respectively.
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 months ended September 30, 20172019 and 2016.2018.
Cash Flows Used For(Used in) Provided by 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 byused in operating activities was $33.7$4.2 million for the nine months ended September 30, 20172019 compared to $56.8$10.4 million for the nine months ended September 30, 2016. The decrease in net cash provided by operating activities for the nine months ended September 30, 2018. The change in net cash (used in) provided by operating activities reflected highertiming differences in payments related to interesttaxes and the timing of payments for supplierscustomer and employee-related liabilities, offset by the timing of customersupplier payments.
Cash Flows Used For(Used in) Provided by Investing Activities
Net cash used in investing activities was $23.1$9.4 million for the nine months ended September 30, 20172019 compared to $17.0net cash provided by investing activities of $57.4 million for the nine months ended September 30, 2016.2018. Capital expenditures were $20.0$35.1 million during the nine months ended September 30, 2017,2019, an increase of $6.0$12.3 million as compared to the nine months ended September 30, 2016.2018. The increase in capital expenditures was primarily driven by an investment in digital printers and additional investments in software development during the nine months ended September 30, 2019. The Company expects that capital expenditures for 20172019 will be approximately $30.0 million to $35.0$45.0 million, compared to $26.2$37.1 million in 2016.2018. For the nine months ended September 30, 2019, cash used in investing activities included $30.6 million of proceeds from the sale of a building, offset by $2.3 million for the purchase of an investment in Gain Compliance. For the nine months ended September 30, 2018, cash provided by investing activities included $77.1 million net proceeds from the sale of Language Solutions.
Cash Flows Provided ByUsed in Financing Activities
Net cash used in financing activities for the nine months ended September 30, 20172019 was $15.2$1.5 million compared to $6.1net cash used in financing activities of $62.1 million for the nine 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 $18.82018. During the nine months ended September 30, 2019, the Company received $413.0 million of proceeds from the issuance of common stock as compared to $348.2revolving facility borrowings, offset by $413.0 million of proceeds from issuance of long-term debt duringpayments on revolving facility borrowings. During the nine months ended September 30, 2016, mostly2018, the Company received $255.0 million of proceeds from revolving facility borrowings, offset by $336.2$255.0 million in net transfers from RRDof payments on revolving facility borrowings 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 with RRD, covering certain support and back office services that the Company has historically received from RRD. Under the terms$62.5 million of the agreements, RRD will provide various services, including 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.
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 24 months.
See discussion in Liquidity related to the Company's debt obligations.payments on long-term debt.
Liquidity
Cash and cash equivalents of $32.2$32.1 million at September 30, 20172019 included $21.5$20.0 million in the U.S. and $10.7$12.1 million at international locations. As a result of the transition tax incurred pursuant to the Tax Act, the Company now has the ability to repatriate any previously taxed foreign cash associated with the foreign earnings subject to the U.S. parent with minimal tax consequences. The Company has not recognized deferred tax liabilities related to taxesmaintains its assertion of indefinite reinvestment on all foreign earnings asand other outside basis differences to indicate that the Company remains indefinitely reinvested in operations outside of the U.S. with the exception of the previously taxed foreign earnings are considered to be indefinitely reinvested. Certain cash balances of foreign subsidiaries may bealready subject to U.S. or local country taxes iftax. The Company repatriated excess cash at its foreign subsidiaries to the U.S. In addition, repatriationduring the nine months ended September 30, 2019 and does not plan to make additional cash repatriations during the fourth quarter of some2019. The Company recorded deferred taxes attributable to the book-over-tax outside basis differences in its foreign subsidiaries for the excess cash balances is further restricted by local laws. Management regularly evaluates whether foreign earnings are expectedrepatriated as of September 30, 2019.
On December 18, 2018, the Company entered into a second amendment to be indefinitely reinvested. This evaluation requires judgment about the future operating and liquidity needsCredit Agreement which extended the maturity date of the CompanyRevolving Facility to December 18, 2023, reduced the interest rate margin percentages and its foreign subsidiaries. Changes in economic and business conditions, foreign or U.S. tax laws, orfacility fees applicable to the Company’s financial situation could result in changesRevolving Facility, increased the allowable annual dividends from $15.0 million to these judgments and the need to record additional tax liabilities.
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, 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$20.0 million in net proceeds from the sale ofaggregate and modified the Option Shares, after deducting estimated underwriting discountsfinancial maintenance and commissions. The proceeds were used to reduce outstanding debt undernegative covenants in the Revolving Facility.Credit Agreement.
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’s debt maturity schedule as of September 30, 20172019 is shown in the table below:
| Debt Maturity Schedule |
| Debt Maturity Schedule |
| ||||||||||||||||||||||||||||||||||||||
| Total |
| 2017 |
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| Thereafter |
| Total |
| 2019 |
| 2020 |
| 2021 |
| 2022 |
| 2023 |
| Thereafter |
| ||||||||||||||
Notes (a) | $ | 300.0 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 300.0 |
| $ | 300.0 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 300.0 |
|
Borrowings under the Term Loan Credit Facility (b) |
| 200.0 |
| — |
| — |
| — |
| — |
| — |
| 200.0 |
|
| 72.5 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 72.5 |
|
| — |
| ||||||
Borrowings under the Revolving Facility |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||||||||||||||||||
Total | $ | 500.0 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 500.0 |
| $ | 372.5 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 72.5 |
| $ | 300.0 |
|
(a) | Excludes unamortized debt issuance costs of |
(b) | Excludes unamortized debt issuance costs of |
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 Net 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$20.0 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, 2017,2019, there were no outstanding borrowings under the Revolving Facility. Based on the Company’s results of operations for the twelve months ended September 30, 20172019 and existing debt, the Company would have had the ability to utilize $261.0an incremental $155.4 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, 20172019 is shown in the table below:
|
| September 30, 2017 |
|
| September 30, 2019 |
| ||
Availability |
| (in millions) |
|
| (in millions) |
| ||
Revolving Facility |
| $ | 300.0 |
|
| $ | 300.0 |
|
Availability reduction from covenants |
|
| (39.0 | ) |
|
| 144.6 |
|
|
| $ | 261.0 |
|
| $ | 155.4 |
|
Usage |
|
|
|
|
|
|
|
|
Borrowings under the Revolving Facility |
|
| — |
|
|
| — |
|
Impact on availability related to outstanding letters of credit |
|
| — |
|
|
| — |
|
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
Current availability at September 30, 2017 |
| $ | 261.0 |
| ||||
Current availability at September 30, 2019 |
| $ | 155.4 |
| ||||
Cash |
|
| 32.2 |
|
|
| 32.1 |
|
Net Available Liquidity |
| $ | 293.2 |
|
| $ | 187.5 |
|
The Company was in compliance with its debt covenants as of September 30, 2017,2019, and expects to remain in compliance based on management’s estimates of operating and financial results for 20172019 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, 2017,2019, 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, 2017,2019, the Revolving Facility is supported by seventeensixteen U.S. and international financial institutions.
As of September 30, 2017,2019, the Company had $4.2$3.4 million in outstanding letters of credit and bank guarantees, of which there was no reduction tonone reduced the availability under the Revolving Facility.
The Company’s liquidity may be affected by its credit ratings. The Company’s S&PAcquisitions
During the nine months ended September 30, 2019 and Moody’s credit ratingsthe year ended December 31, 2018, the Company paid $2.6 million and $12.5 million, net of cash acquired, respectively, for the acquisition of eBrevia. $1.8 million of the purchase price, excluding contingent consideration, was payable as of September 30, 2017 are shown in the table below:
|
| ||
| |||
|
|
| |
|
|
| |
|
|
| |
|
|
|
Debt Issuances
On September 30, 2016, the Company entered into the Credit Agreement, which provided for the Term Loan Credit Facility2019 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 $300.0is expected to be paid during 2019. $1.9 million of 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 pursuantpurchase price related 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, datedamounts held in escrow was payable as of September 30, 2016 (the “Registration Rights Agreement”), pursuant2019 and is expected 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.be paid during 2020.
Risk Management
The Company is exposed to interest rate risk on its variable debt. At September 30, 2017,2019, the Company’s exposure to rate fluctuations on variable-interest borrowings was $198.5$72.5 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, 20172019 by approximately $11.7$9.1 million, or 3.9%3.0%.
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.
Litigation and Contingent Liabilities
For a discussion of certain litigation involving the Company, see Note 12, 14, Commitments and Contingencies, to the Unaudited Condensed Consolidated and Combined Financial Statements.
New Accounting Pronouncements and Pending Accounting Standards
Recently issued accounting standards and their estimated effect on the Company’s combinedconsolidated financial statements are described in Note 14, 15, 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 important factors, in addition to those discussed 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;
failure to offer high quality customer support and services;
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;
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;
the competitive market for our products and industry fragmentation affecting our prices;
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;
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;
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;
• | the volatility of the global economy and financial markets, and its impact on transactional volume; |
• | 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; |
• | 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; |
• | the competitive market for our products and industry fragmentation affecting our prices; |
• | 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; |
• | 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; |
• | 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; |
• | 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; 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 to achieve certain intended benefits of 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, 2016.2018. 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, 2016,2018, as filed with the SEC on February 28, 2017.27, 2019.
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, 2017.2019. 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, 2017.2019.
(b) | Changes in internal control over financial reporting. |
Under the rules and regulations of the Securities and Exchange Commission, Donnelley 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.
There have not been anywere no changes in the Company’s internal control over financial reporting (as defined in RulesRule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurredAct) during the quarter ended September 30, 20172019 that hadhave materially affected or wereare reasonably likely to materially affect, the Company’sour internal control over financial reporting.
PART II — OTHEROTHER INFORMATION
For a discussion of certain litigation involving the Company, see Note 12, 14, Commitments and Contingencies, to the Unaudited Condensed Consolidated and Combined Financial Statements.
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, 2016,2018, as filed with the SEC on February 28, 2017.27, 2019.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
ISSUER PURCHASES OF EQUITY SECURITIES |
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Period |
| Total Number of Shares Purchased (a) |
| Average Price Paid per Share |
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| Total Number of |
| Dollar Value of Shares |
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July 1, 2019 - July 31, 2019 |
| — |
| $ | — |
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| — |
| $ | — |
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August 1, 2019 - August 31, 2019 |
| 2,830 |
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| 12.09 |
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| — |
| $ | — |
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September 1, 2019 - September 30, 2019 |
| — |
| — |
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| — |
| $ | — |
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Total |
| 2,830 |
| $ | 12.09 |
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| — |
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(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.
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101.INS |
| Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema Document | |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, has been formatted in Inline XBRL. |
* | Management contract or compensatory plan or arrangement. |
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. | |||
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By: |
| /s/ DAVID A. GARDELLA | |
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| David A. Gardella | |
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| Executive Vice President and Chief Financial Officer |
Date: November 2, 20175, 2019
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