DFS Annual Report

Liquidity The Company maintains cash pooling structures that enable participating international locations to draw on the pools’ cash resources to meet local liquidity needs. Foreign cash balances may be loaned from certain cash pools to U.S. operating entities on a temporary basis in order to reduce the Company’s short-term borrowing costs or for other purposes. Cash and cash equivalents were $36.2 million as of December 31, 2016, an increase of $21.1 million as compared to December 31, 2015. Cash and cash equivalents of $36.2 million at December 31, 2016 included $19.4 million in the U.S. and $16.8 million at international locations. The Company has not recognized deferred tax liabilities related to taxes on foreign earnings as foreign earnings are considered to be permanently reinvested. Certain cash balances of foreign subsidiaries may be subject to U.S. or local country taxes if repatriated to the U.S. In addition, repatriation of some foreign cash balances is further restricted by local laws. Management regularly evaluates whether foreign earnings are expected to be permanently reinvested. This evaluation requires judgment about the future operating and liquidity needs of the Company and its foreign subsidiaries. Changes in economic and business conditions, foreign or U.S. tax laws, or the Company’s financial situation could result in changes to these judgments and the need to record additional tax liabilities. The Separation and Distribution Agreement includes a provision for RRD to make a future cash payment of $68.0 million to Donnelley Financial no later than April 1, 2017, which is included on the consolidated and combined balance sheet as of December 31, 2016. On September 30, 2016, in connection with the Separation, the Company entered into a $350.0 million senior secured term loan B facility (the “Term Loan Credit Facility”) and the Revolving Facility. The Company will use the proceeds of the $68.0 million receivable from RRD to reduce outstanding debt under the Term Loan Credit Facility. As of December 31, 2016, there were no borrowings under the Revolving Facility. Based on the Company’s results of operations for the year ended December 31, 2016 and existing debt, the Company would have had the ability to utilize $153.7 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 December 31, 2016 is shown in the table below: December 31, 2016 (in millions) Availability Revolving Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300.0 Availability reduction from covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145.4 $154.6 Usage Borrowings under the Revolving Facility . . . . . . . . . . . . . . . . . . . . . . . . . — Impact on availability related to outstanding letters of credit . . . . . . . . . . 0.9 $ 0.9 Current availability at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . $153.7 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.2 Net Available Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $189.9 The Company was in compliance with its debt covenants as of December 31, 2016, and expects to remain in compliance based on management’s estimates of operating and financial results for 2017 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 December 31, 2016, 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 December 31, 2016, the Revolving Facility is supported by seventeen U.S. and international financial institutions. 40