DFS Annual Report

Donnelley Financial’s historical financial information is not necessarily representative of the results that it would have achieved as a separate, publicly traded company and may not be a reliable indicator of its future results. The historical information about Donnelley Financial prior to October 1, 2016 included in this Annual Report on Form 10-K refers to Donnelley Financial’s business as operated by and integrated with RRD. Donnelley Financial’s historical financial information for such periods was derived from the consolidated financial statements and accounting records of RRD. Accordingly, such historical financial information does not necessarily reflect the combined statements of income, balance sheets and cash flows that Donnelley Financial would have achieved as a separate, publicly traded company during the periods presented or those that Donnelley Financial will achieve in the future primarily as a result of the following factors: • Prior to the Separation, Donnelley Financial’s business was operated by RRD as part of its broader corporate organization, rather than as an independent company. RRD or one of its affiliates performed various corporate functions for Donnelley Financial, such as tax, treasury, finance, audit, risk management, legal, information technology, human resources, stockholder relations, compliance, shared services, insurance, employee benefits and compensation. After the Separation, RRD has continued to provide some of these functions to Donnelley Financial, as described in Transition Services Agreement, filed as Exhibit 2.2 to this Annual Report on Form 10-K. Donnelley Financial’s historical financial results reflect allocations of corporate expenses from RRD for such functions. These allocations may not be indicative of the actual expenses Donnelley Financial would have incurred had it operated as an independent, publicly traded company in the periods presented. Donnelley Financial will make significant investments to replicate or outsource from other providers certain facilities, systems, infrastructure, and personnel to which Donnelley Financial no longer has access as a result of the Separation. These initiatives to develop Donnelley Financial’s independent ability to operate without access to RRD’s existing operational and administrative infrastructure will be costly to implement. Donnelley Financial may not be able to operate its business efficiently or at comparable costs, and its profitability may decline. • Prior to the Separation, Donnelley Financial’s business was integrated with the other businesses of RRD. Donnelley Financial was able to utilize RRD’s size and purchasing power in procuring various goods and services and shared economies of scope and scale in costs, employees, vendor relationships and customer relationships. Although Donnelley Financial has entered into transition agreements with RRD, these arrangements may not fully capture the benefits Donnelley Financial enjoyed as a result of being integrated with RRD and may result in Donnelley Financial paying higher charges than in the past for these services. As a separate, independent company, Donnelley Financial may be unable to obtain goods and services at the prices and terms obtained prior to the Separation, which could decrease Donnelley Financial’s overall profitability. As a separate, independent company, Donnelley Financial may also not be as successful in negotiating favorable tax treatments and credits with governmental entities. This could have a material adverse effect on Donnelley Financial’s consolidated and combined statements of income, balance sheets and cash flows for periods after the Separation. • Generally, prior to the Separation, Donnelley Financial’s working capital requirements and capital for its general corporate purposes, including acquisitions, R&D and capital expenditures, were satisfied as part of the corporate-wide cash management policies of RRD. Currently, following the Separation, the cost of capital for Donnelley Financial’s business may be higher than RRD’s cost of capital prior to the distribution. Other significant changes may occur in Donnelley Financial’s cost structure, management, financing and business operations as a result of operating as a company separate from RRD. For additional information about the past financial performance of Donnelley Financial’s business and the basis of presentation of the historical consolidated and combined financial statements of Donnelley Financial’s business, refer to the discussion in Note 1, Overview and Basis of Presentation , to the Consolidated and Combined Financial Statements of this Annual Report on Form 10-K. We have incurred, and we may continue to incur, material costs and expenses as a result of the Separation. We have incurred, and may continue to incur, costs and expenses greater than those we currently incur as a result of the Separation. These increased costs and expenses may arise from various factors, including financial reporting and costs associated with complying with federal securities laws (including compliance with the Sarbanes-Oxley Act of 2002, as amended (the Sarbanes-Oxley Act)). In addition, we expect to either maintain similar or have increased corporate and administrative costs and expenses to those we incurred or were allocated while part of RRD, even though, after the Separation, Donnelley Financial is a smaller, stand-alone company. We cannot assure you that these costs will not be material to our business. 13