DFIN 2017 Annual Report

In 2018, the Company will adopt Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The Company evaluated the impacts of ASU 2014-09 and does not expect a material change in the timing of revenue recognition for the majority of the Company’s revenue. Revenue recognition will be accelerated for certain arrangements with multiple performance obligations as revenue will be recognized upon the completion of each performance obligation rather than upon final delivery of the printed product. The Company also expects to accelerate the recognition of revenue for certain inventory which has been invoiced but not yet shipped at the customer’s request. Additionally, certain revenues related to virtual data room services will be deferred as a result of the new standard. Refer to Note 20, New Accounting Pronouncements , to the consolidated and combined financial statements for further detail. The Company initiated several restructuring actions in 2016 and 2017 to further reduce the Company’s overall cost structure. These restructuring actions included the reorganization of certain functions. These actions, as well as planned actions for 2018, are expected to have a positive impact on operating earnings in 2018 and in future years. Cash flows from operations in 2018 are expected to benefit from cost control actions, lower interest expense and a lower U.S. corporate income tax rate. The Company expects capital expenditures to be in the range of $40.0 million to $45.0 million in 2018, as compared to $27.8 million in 2017. The Company expects to continue to incur a significant amount of spin-off related transition expenses in 2018, including information technology and other expenses. On December 22, 2017, the U.S. government enacted comprehensive tax legislation into Federal law referred to as the Tax Act. The Tax Act includes a number of provisions that are effective January 1, 2018, including the lowering of the U.S. corporate income tax rate from the maximum 35% to a flat 21% and eliminating the corporate alternative minimum tax (AMT). The Tax Act also includes provisions that may partially offset the benefit of such rate reduction, including repeal of Section 199 (the deduction for domestic production activities) and limitations on certain deductions, such as net interest expense and certain employee remuneration. The Tax Act changes the current U.S. worldwide system of taxation by establishing a territorial-style system for taxing foreign-source income of domestic multinational corporations. This allows U.S. companies to repatriate future foreign source earnings without additional U.S taxes by providing a 100% exemption for the foreign source portion of dividends from certain foreign subsidiaries. In order to transition to the territorial tax system, the Act requires companies to pay a one-time mandatory tax (“the transition tax”) on certain accumulated unremitted earnings of foreign subsidiaries, with an option to pay over eight years. The Company estimated its transition tax liability as of December 31, 2017 to be $14.2 million (which includes $0.6 million of state tax liabilities that could be due as a result of the Act) and will make an election to pay the transition tax liability in installments over eight years. Along with the change to a territorial tax system, the Tax Act creates the base erosion anti-abuse tax (“BEAT”), a new minimum tax, and a current tax on “global intangible low-taxed income” of foreign subsidiaries (“the GILTI tax”). The Company may be subject to the BEAT and GILTI tax in a given year, but currently does not expect that either should have a material impact to the Company’s tax provision. The determination of whether the Company is subject to the BEAT or GILTI tax will be an annual analysis of several factors under the provisions, including the amount of foreign income generated by the Company’s foreign subsidiaries. Based on its preliminary analysis of the Tax Act, the Company estimates an effective income tax rate between 29.0% and 32.0% (before discrete items) for the 2018 fiscal year. As the Company continues to analyze the full effects of the Tax Act on its financial statements, the impact of the Tax Act may differ from this estimate due to, among other things, changes in interpretations and assumptions the Company has made, Department of the U.S. Treasury IRS guidance and regulations that may be issued and actions the Company may take as a result. 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. Estimates are used when accounting for items and matters including, but not limited to, allowance for uncollectible accounts receivable, pension, asset valuations and useful lives, income taxes, restructuring and other provisions and contingencies. 26