DFS Annual Report

Results of Operations for the Year Ended December 31, 2016 as Compared to the Year Ended December 31, 2015 The following table shows the results of operations for the years ended December 31, 2016 and 2015: 2016 2015 $ Change % Change (in millions, except percentages) Services net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $598.6 $ 628.6 $(30.0) (4.8%) Products net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384.9 420.9 (36.0) (8.6%) Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 983.5 1,049.5 (66.0) (6.3%) Services cost of sales (exclusive of depreciation and amortization) . . . . . . . . . . . . . . . . . . . . . 297.1 291.9 5.2 1.8% Services cost of sales with RRD affiliates (exclusive of depreciation and amortization) . . . . 37.8 40.4 (2.6) (6.4%) Products cost of sales (exclusive of depreciation and amortization) . . . . . . . . . . . . . . . . . . . . 226.2 230.9 (4.7) (2.0%) Products cost of sales with RRD affiliates (exclusive of depreciation and amortization) . . . . 57.9 68.3 (10.4) (15.2%) Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619.0 631.5 (12.5) (2.0%) Selling, general and administrative expenses (exclusive of depreciation and amortization) . . . . . . 209.8 199.2 10.6 5.3% Restructuring, impairment and other charges-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 4.4 1.0 22.7% Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43.3 41.7 1.6 3.8% Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $106.0 $ 172.7 $(66.7) (38.6%) Consolidated and Combined Net sales of services for the year ended December 31, 2016 decreased $30.0 million, or 4.8%, to $598.6 million, versus the year ended December 31, 2015 including a $3.1 million, or 0.5%, decrease due to changes in foreign exchange rates. Additionally, net sales of services decreased due to lower capital markets transactions and compliance volume, partially offset by increased volume in virtual data room services, translation services and mutual fund content management services. Net sales of products for the year ended December 31, 2016 decreased $36.0 million, or 8.6%, to $384.9 million versus the year ended December 31, 2015, including a $2.3 million, or 0.5%, decrease due to changes in foreign exchange rates. Additionally, net sales of products decreased due to lower volume in capital markets transactions, compliance, commercial print and mutual funds print and price pressures in investment markets. Services cost of sales increased $2.6 million, or 0.8%, for the year ended December 31, 2016, versus the year ended December 31, 2015. Services cost of sales increased primarily due to an increase in the allocation of information technology expenses from selling, general and administrative expenses to cost of sales, partially offset by lower capital markets transactions and compliance volume and cost control initiatives. As a percentage of net sales, services cost of sales increased 3.0% primarily due to unfavorable mix and wage and other inflation, partially offset by cost control initiatives. Products cost of sales decreased $15.1 million, or 5.0%, for the year ended December 31, 2016, versus the year ended December 31, 2015. Products cost of sales decreased primarily due to lower print volumes and cost control initiatives, partially offset by wage and other inflationary increases. As a percentage of net sales, products cost of sales increased 2.7% primarily due to unfavorable mix, price pressures and wage and other inflation. Selling, general and administrative expenses for the year ended December 31, 2016 increased $10.6 million, or 5.3%, to $209.8 million, as compared to the year ended December 31, 2015, primarily due to an increase in expenses incurred to operate as an independent public company, including selling expenses 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 19.0% for the year ended December 31, 2015 to 21.3% for year ended December 31, 2016 due to lower volume and spin-off related transaction expenses. 32