DFIN 2017 Annual Report

The Company assesses market risk based on changes in interest rates utilizing a sensitivity analysis that measures the potential loss in earnings, fair values and cash flows based on a hypothetical 10% change in interest rates. Using this sensitivity analysis, such changes would not have a material effect on interest income or expense and cash flows. A hypothetical 10% change in yield would change the fair values of fixed-rate debt at December 31, 2017 by approximately $11.3 million, or 3.8%. The Company is exposed to the impact of foreign currency fluctuations in certain countries in which it operates. The exposure to foreign currency movements is limited in many countries because the operating revenues and expenses of its various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent that borrowings, sales, purchases, revenues, expenses or other transactions are not in the local currency of the subsidiary, the Company is exposed to currency risk and may enter into foreign exchange spot and forward contracts to hedge the currency risk. The Company does not use derivative financial instruments for trading or speculative purposes. OTHER INFORMATION Litigation and Contingent Liabilities For a discussion of certain litigation involving the Company, see Note 9, Commitments and Contingencies , to the Consolidated and Combined Financial Statements. New Accounting Pronouncements and Pending Accounting Standards Recently issued accounting standards and their estimated effect on the Company’s consolidated financial statements are described in Note 20, New Accounting Pronouncements , to the Consolidated and Combined Financial Statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk The Company is exposed to potential fluctuations in earnings, cash flows, and the fair value of certain assets and liabilities due to changes in interest rates and foreign currency exchange rates. The Company manages exposure to these market risks through regular operating and financial activities and, when deemed appropriate, through the use of derivative financial instruments for risk management purposes. As a result, the Company does not anticipate any material losses from these risks. The Company was not a party to any derivative financial instrument at December 31, 2017 or 2016. The Company discusses risk management in various places throughout this document, including discussions concerning liquidity and capital resources. Foreign Exchange Risk While the substantial majority of the Company’s business is conducted within the U.S., approximately 16% of the Company’s consolidated net sales in 2017 were earned outside of the U.S. The Company has operations internationally that are denominated in foreign currencies, primarily the British Pound and Canadian dollar, exposing the Company to foreign currency exchange risk which may adversely impact financial results. The exposure to foreign currency movements is limited in many countries because the operating revenues and expenses of the Company’s various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent that borrowings, sales, purchases, revenues, expenses or other transactions are not in the local currency of the subsidiary, the Company is exposed to currency risk and may enter into foreign exchange spot and forward contracts to hedge the currency risk. The Company does not use derivative financial instruments for trading or speculative purposes. For the year ended December 31, 2017, a hypothetical 10% strengthening of the U.S. dollar relative to multiple currencies would have resulted in a decrease in earnings before income taxes of $0.7 million. A hypothetical 10% strengthening of the U.S. dollar relative to multiple currencies at December 31, 2017 would have resulted in a decrease in total assets of approximately $9.2 million. Interest Rate Risk The Company is exposed to interest rate risk on its variable debt. At December 31, 2017, the Company’s exposure to rate fluctuations on variable-interest borrowings was $170.0 million. 45