DFIN 2017 Annual Report

Results of Operations for the Year Ended December 31, 2017 as Compared to the Year Ended December 31, 2016 The following table shows the results of operations for the years ended December 31, 2017 and 2016: 2017 2016 $ Change % Change (in millions, except percentages) Services net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 632.1 $598.6 $ 33.5 5.6% Products net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372.8 384.9 (12.1) (3.1%) Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,004.9 983.5 21.4 2.2% Services cost of sales (exclusive of depreciation and amortization) . . . . . . . . . . . . . . . . . . . . . 328.7 297.1 31.6 10.6% Services cost of sales with RRD affiliates (exclusive of depreciation and amortization)* . . . 19.5 37.8 (18.3) (48.4%) Products cost of sales (exclusive of depreciation and amortization) . . . . . . . . . . . . . . . . . . . . 240.9 226.2 14.7 6.5% Products cost of sales with RRD affiliates (exclusive of depreciation and amortization)* . . . 32.3 57.9 (25.6) (44.2%) Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 621.4 619.0 2.4 0.4% Selling, general and administrative expenses (exclusive of depreciation and amortization) . . . . . . 232.9 209.8 23.1 11.0% Restructuring, impairment and other charges-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 5.4 1.7 31.5% Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.5 43.3 1.2 2.8% Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 99.0 $106.0 $ (7.0) (6.6%) *Beginning in the quarter ended June 30, 2017, LSC no longer qualified as a related party, therefore the 2017 amounts disclosed related to LSC are presented through March 31, 2017 only. Beginning in the quarter ended September 30, 2017, RRD no longer qualified as a related party, therefore the amounts disclosed related to RRD are presented through June 30, 2017 only. Consolidated and Combined Net sales of services for the year ended December 31, 2017 increased $33.5 million, or 5.6%, to $632.1 million, versus the year ended December 31, 2016 including a $1.0 million, or 0.2%, decrease due to changes in foreign exchange rates. Net sales of services increased due to higher volumes in virtual data room services, mutual fund print-related services, translations services and content management, partially offset by lower capital markets compliance volumes. Net sales of products for the year ended December 31, 2017 decreased $12.1 million, or 3.1%, to $372.8 million versus the year ended December 31, 2016, including a $0.8 million, or 0.2%, decrease due to changes in foreign exchange rates. Net sales of products decreased due to lower capital markets transactions volumes, healthcare volumes and price pressures in investment markets, partially offset by higher capital markets compliance and mutual fund print volumes. Services cost of sales increased $13.3 million, or 4.0%, for the year ended December 31, 2017, versus the year ended December 31, 2016. Services cost of sales increased due to higher mutual fund print-related services and content management volumes, an increase in the allocation of information technology expenses from selling, general and administrative expenses to cost of sales and an increase in incentive compensation expense, partially offset by cost control initiatives. As a percentage of net sales, services cost of sales decreased 0.8% due to favorable mix and cost control initiatives. Products cost of sales decreased $10.9 million, or 3.8%, for the year ended December 31, 2017, versus the year ended December 31, 2016. Products cost of sales decreased due to lower capital markets transaction and healthcare volumes and cost control initiatives. As a percentage of net sales, products cost of sales decreased 0.5% primarily due to a favorable mix of product sales and cost control initiatives. Selling, general and administrative expenses for the year ended December 31, 2017 increased $23.1 million, or 11.0%, to $232.9 million, as compared to the year ended December 31, 2016, primarily due to an increase in expenses incurred to operate as an independent public company, including selling expenses, employee compensation costs 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 21.3% for the year ended December 31, 2016 to 23.2% for year ended December 31, 2017 primarily due to increased costs of operating as an independent public company, including spin-off related transaction expenses. 33