DFIN 2017 Annual Report

Revenue Recognition The Company manages highly-customized data and materials, such as Exchange Act, Securities Act and Investment Company Act filings with the SEC on behalf of our customers, manages virtual and physical 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. Our products include our ActiveDisclosure solution and our Venue Virtual Data Room product, among others. Revenue for services is recognized upon completion of the service performed or following final delivery of the related printed product. The Company recognizes revenue for the majority of its products upon the transfer of title or risk of ownership, which is generally upon shipment to the customer. Because substantially all of the Company’s products are customized, product returns are not significant; however, the Company accrues for the estimated amount of customer credits at the time of sale. Refer to Note 2, Significant Accounting Policies , to the consolidated and combined financial statements for further discussion. Certain revenues earned by the Company require significant judgment to determine if revenue should be recorded gross, as a principal, or net of related costs, as an agent. Billings for shipping and handling costs as well as certain postage costs and out-of-pocket expenses are recorded gross. Refer to Note 20, New Accounting Pronouncements , to the consolidated and combined financial statements for further detail regarding the expected impact of the 2018 adoption of ASU 2014-09. Goodwill and Other Long-Lived Assets The Company’s methodology for allocating the purchase price of acquisitions is based on established valuation techniques that reflect the consideration of several factors, including valuations performed by third-party appraisers when appropriate. Goodwill is measured as the excess of the cost of an acquired entity over the fair value assigned to identifiable assets acquired and liabilities assumed. Goodwill is either assigned to a specific reporting unit or allocated between reporting units based on the relative fair value of each reporting unit. Based on its current organization structure, the Company has identified four reporting units for which cash flows are determinable and to which goodwill may be allocated. The Company performs its goodwill impairment tests annually as of October 31, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company also performs an interim review for indicators of impairment each quarter to assess whether an interim impairment review is required for any reporting unit. As part of its interim reviews, management analyzes potential changes in the value of individual reporting units based on each reporting unit’s operating results for the period compared to expected results as of the prior year’s annual impairment test. In addition, management considers how other key assumptions, including discount rates and expected long-term growth rates, used in the last annual impairment test, could be impacted by changes in market conditions and economic events. Based on these interim assessments, management concluded that as of the interim periods, no events or changes in circumstances indicated that it was more likely than not that the fair value for any reporting unit had declined below its carrying amount. As of October 31, 2017, all four reporting units had goodwill. Each of the reporting units were reviewed for impairment using either a qualitative or quantitative assessment. Qualitative Assessment for Impairment The Company performed a qualitative assessment for the International reporting unit to determine whether it was more likely than not that the fair value of the reporting unit was less than its carrying value. In performing this analysis, the Company considered various factors, including the effect of market or industry changes and the reporting unit’s actual results compared to projected results. In addition, management considered how other key assumptions used in the October 31, 2016 annual goodwill impairment test could be impacted by changes in market conditions and economic events. As part of the qualitative review of impairment, management analyzed the potential change in fair value of the International reporting unit based on its operating results for the ten months ended October 31, 2017 compared to expected results. As of October 31, 2016, the estimated fair value of the International reporting unit exceeded its carrying value by approximately 121.5%. Based on its qualitative assessment, management concluded that as of October 31, 2017, it was more likely than not that the fair value of the International reporting unit was greater than its carrying value. The goodwill balance of the International reporting unit was $18.2 million as of October 31, 2017. 27