DFIN 2017 Annual Report

Notes to the Consolidated and Combined Financial Statements (in millions, except per share data, unless otherwise indicated) Earnings generated by a foreign subsidiary are presumed to ultimately be transferred to the parent company. Therefore, the establishment of deferred taxes may be required with respect to the excess of the investment value for financial reporting over the tax basis of investments in those foreign subsidiaries (also referred to as book-over-tax outside basis differences). A company may overcome this presumption and forgo recording a deferred tax liability in its financial statements if it can assert that management has the intent and ability to indefinitely reinvest the earnings of its foreign subsidiaries. Prior to the year ended December 31, 2017, the Company has not provided deferred U.S., foreign or local income taxes on the book-over-tax outside basis differences of its foreign subsidiaries because such excess has been considered to be indefinitely reinvested in the local country businesses. As a result of the transition tax that the Company will incur pursuant to the Tax Act, the Company now has the ability to repatriate to the U.S. parent the foreign cash associated with the foreign earnings subject to the transition tax, as these earnings have already been subject to U.S. federal taxes. The Company is currently analyzing its global working capital and cash requirements in order to determine the amount of excess cash at its foreign subsidiaries that can be repatriated to the U.S. with minimal additional taxes, but has not yet determined whether the Company plans to change its assertion of indefinite reinvestment on all foreign earnings and other outside basis differences. As the Company has not completed its analysis in accordance with SAB 118, the Company has not recorded any deferred taxes attributable to the book-over-tax outside basis differences in its foreign subsidiaries. The Company will record the tax effects of any change in the Company’s assertion in the period that it completes its analysis; however, the Company does not anticipate incurring material foreign and/or local country taxes upon repatriation of foreign subsidiary earnings. Cash payments for income taxes for U.S. states and foreign jurisdictions were $30.5 million, $5.2 million and $1.9 million in 2017, 2016 and 2015, respectively. In certain jurisdictions, such as the United States and Canada, the Company is deemed to settle tax balances as of October 1, 2016 with RRD within net parent investment. Total amounts settled with RRD were $2.6 million, $37.2 million and $55.1 million for 2017, 2016 and 2015, respectively. Cash refunds for income taxes were $1.0 million, $0.7 million and $0.1 million in 2017, 2016 and 2015, respectively. Uncertain tax positions Changes in the Company’s unrecognized tax benefits at December 31, 2017, 2016 and 2015 were as follows: 2017 2016 2015 Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.9 $ 1.0 $ 0.7 Additions for tax positions of the current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 0.3 Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 0.9 — Settlements during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.4) — — Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.2) — — Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.3 $ 1.9 $ 1.0 As of December 31, 2017, 2016 and 2015, the Company had $0.3 million, $1.9 million and $1.0 million, respectively, of unrecognized tax benefits. Unrecognized tax benefits of $0.1 million as of December 31, 2017, if recognized, would have decreased income taxes and the corresponding effective income tax rate and increased net earnings. This potential impact on net earnings reflects the reduction of these unrecognized tax benefits, net of certain deferred tax assets and the federal tax benefit of state income tax items. As of December 31, 2017, no portion of the total amount of unrecognized tax benefits is expected to decrease within twelve months due to the resolution of audits or expirations of statutes of limitations related to U.S. federal, state or international tax positions. The Company classifies interest expense and any penalties related to income tax uncertainties as a component of income tax expense. The total interest expense/(benefit), net of tax benefits, related to tax uncertainties recognized in the Consolidated and Combined Statements of Operations was ($0.2) million, $0.3 million and $0.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. There were no benefits from the reversal of accrued penalties for the years ended December 31, 2017, 2016 and 2015. There were no accrued interest liabilities related to income tax uncertainties at December 31, 2017. Accrued interest liabilities of $0.3 million related to income tax uncertainties were reported as a component of other noncurrent liabilities in the Consolidated Balance Sheets at December 31, 2016. There were no accrued penalties related to income tax uncertainties for the years ended December 31, 2017 and 2016. F-24