DFIN 2017 Annual Report

Notes to the Consolidated and Combined Financial Statements (in millions, except per share data, unless otherwise indicated) Income taxes have been based on the following components of earnings from operations before income taxes for the years ended December 31, 2017, 2016 and 2015: 2017 2016 2015 U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $49.1 $84.9 $156.1 Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 9.4 15.6 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $56.2 $94.3 $171.7 The components of income tax expense (benefit) from operations for the years ended December 31, 2017, 2016 and 2015 were as follows: 2017 2016 2015 Current: U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12.5 $28.6 $41.3 U.S. State and Local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 9.0 12.1 Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 3.5 3.8 Current income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.0 41.1 57.2 Non-Current: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5 — — U.S. State and Local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 — — Non-current income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 — — Deferred: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 (3.1) 8.1 U.S. State and Local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.1) (0.4) 2.2 Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.8) (2.4) (0.1) Deferred income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4 (5.9) 10.2 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $46.5 $35.2 $67.4 The following table outlines the reconciliation of differences between the U.S. Federal statutory tax rate and the Company’s worldwide effective income tax rate: 2017 2016 2015 Federal statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.0% 35.0% 35.0% Federal and state transition tax on foreign earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.3 — — Tax Act revaluation of U.S. net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.8 — — State and local income taxes, net of U.S. federal income tax benefit . . . . . . . . . . . . . 5.7 5.9 5.4 Non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 — — Changes in valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 (1.9) — Adjustment of uncertain tax positions and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.4) 0.6 0.1 Domestic manufacturing deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.7) (1.3) (0.9) Foreign tax rate differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.3) (0.7) (1.0) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 (0.3) 0.7 Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82.7% 37.3% 39.3% The 2017 effective income tax rate is higher as compared to the 2016 effective income tax rate mainly due to impacts of the recent changes to U.S. tax legislation as a result of the enactment of the Tax Cuts and Jobs Act (H.R. 1) (“the Tax Act”) on December 22, 2017. The 2017 effective income tax rate was also impacted by non-deductible expenses incurred by the Company in 2017 which were previously incurred by RRD on behalf of the Company during pre-Separation periods, as well as a one-time favorable change in valuation allowances in 2016 not present in 2017. F-21