Donnelley Financial Solutions, Inc. - Quarter Report: 2021 September (Form 10-Q)

Large Accelerated filer

Accelerated filer

Non-Accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-37728

Donnelley Financial Solutions, Inc.

(Exact name of registrant as specified in its charter)


Delaware		36-4829638
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

35 West Wacker Drive, Chicago, Illinois		60601
(Address of principal executive offices)		(Zip code)

(800) 823-5304

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock (Par Value $0.01)	DFIN	NYSE

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of October 29, 2021, 33,143,850 shares of common stock were outstanding.

DONNELLEY FINANCIAL SOLUTIONS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS



		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		3
Part I
FINANCIAL INFORMATION
Item 1:	Condensed Consolidated Financial Statements (unaudited)
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020	4
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020	5
	Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020	7
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3:	Quantitative and Qualitative Disclosure About Market Risk	46
Item 4:	Controls and Procedures	46


Part II
OTHER INFORMATION
Item 1:	Legal Proceedings	46
Item 1A:	Risk Factors	46
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3:	Defaults Upon Senior Securities	47
Item 4:	Mine Safety Disclosures	47
Item 5:	Other Information	47
Item 6:	Exhibits	48
Signatures		52

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Donnelley Financial Solutions, Inc. and subsidiaries (“DFIN” or the “Company”) has made forward-looking statements in this Quarterly Report on Form 10-Q (the “Quarterly Report”) within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of the Company. Generally, forward-looking statements include information concerning possible or assumed future actions, events, or results of operations of the Company. These statements may include words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “continues,” “believes,” “may,” “will,” “goals” and variations of such words and similar expressions are intended to identify the Company’s forward-looking statements.

Forward-looking statements are not guarantees of future performance. These forward-looking statements are subject to a number of important factors, including those factors discussed in detail in “Item 1A: Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021 (the “Annual Report”), in addition to those discussed elsewhere in this Quarterly Report, that could cause the Company’s actual results to differ materially from those indicated in any such forward-looking statements. These factors include, but are not limited to:



the adverse impacts of the pandemic resulting from a novel strain of coronavirus, known as COVID-19 (“COVID-19”), and other global public health epidemics on the Company’s business and operations, including demand for DFIN services and products, and the Company’s ability to effectively manage the impacts of the coronavirus pandemic on its business operations;



the volatility of the global economy and financial markets, and its impact on transactional volume;



failure to offer high quality customer support and services;



the retention of existing, and continued attraction of additional clients;



the growth of new technologies with which the Company may be able to adequately compete;



the Company’s inability to maintain client referrals;



the competitive market for the Company’s products and industry fragmentation affecting prices;



the ability to gain client acceptance of the Company’s new products and technologies;



delay in market acceptance of the Company’s services and products due to undetected errors or failures found in its services and products;



failure to maintain the confidentiality, integrity and availability of systems, software and solutions;



failure to properly use and protect client and employee information and data;



the effect of a material breach of security or other performance issues of any of the Company’s or its vendors’ systems;



factors that affect client demand, including changes in economic conditions, national or international regulations and clients’ budgetary constraints;



the Company’s ability to access debt and the capital markets due to adverse credit market conditions;



the effect of increasing costs of providing healthcare and other benefits to employees;



changes in the availability or costs of key materials (such as ink and paper) or in prices received for the sale of by-products;



failure to protect the Company’s proprietary technology;



ability to maintain the Company’s brands and reputation;



the retention of existing, and continued attraction of, key employees, including management;



funding obligations arising from multi-employer pension plans obligation of the Company’s former affiliates;



the effects of operating in international markets, including fluctuations in currency exchange rates; and



the effect of economic and political conditions on a regional, national or international basis.

Because forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Undue reliance should not be placed on such statements, which speak only as of the date of this document or the date of any document that may be incorporated by reference into this document.

Consequently, readers of the Quarterly Report should consider these forward-looking statements only as the Company’s current plans, estimates and beliefs. Except to the extent required by law, the Company does not undertake and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. The Company undertakes no obligation to update or revise any forward-looking statements in this Quarterly Report to reflect any new events or any change in conditions or circumstances other than to the extent required by law.

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Operations

(in millions, except per share data)

(UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Net sales
Tech-enabled services	$	142.1		$	104.5		$	394.6		$	301.8
Software solutions		69.3			51.1			196.2			146.0
Print and distribution		36.3			53.9			169.7			236.4
Total net sales		247.7			209.5			760.5			684.2
Cost of sales (a)
Tech-enabled services		39.6			42.6			123.3			132.9
Software solutions		26.9			23.3			76.5			71.8
Print and distribution		26.6			46.6			121.1			181.6
Total cost of sales		93.1			112.5			320.9			386.3
Selling, general and administrative expenses (a)		77.0			62.2			225.6			192.0
Depreciation and amortization		10.0			12.6			29.9			39.7
Restructuring, impairment and other charges, net		3.3			7.0			6.9			35.2
Other operating income, net		(0.7	)		—			(0.7	)		—
Income from operations		65.0			15.2			177.9			31.0
Interest expense, net		5.9			5.9			17.1			16.8
Investment and other income, net		(1.7	)		(0.4	)		(4.0	)		(1.3	)
Earnings before income taxes		60.8			9.7			164.8			15.5
Income tax expense		18.6			2.6			44.5			5.6
Net earnings	$	42.2		$	7.1		$	120.3		$	9.9

Net earnings per share:
Basic	$	1.25		$	0.21		$	3.57		$	0.29
Diluted	$	1.22		$	0.21		$	3.48		$	0.29
Weighted average number of common shares outstanding:
Basic		33.7			34.0			33.7			34.0
Diluted		34.7			34.2			34.6			34.0

(a)

Exclusive of depreciation and amortization

See Notes to the Unaudited Condensed Consolidated Financial Statements

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Comprehensive Income

(in millions)

(UNAUDITED)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Net earnings	$	42.2		$	7.1		$	120.3		$	9.9

Other comprehensive (loss) income, net of tax:
Translation adjustments		(0.7	)		(0.5	)		(0.2	)		(2.2	)
Adjustment for net periodic pension and other postretirement benefits plan		0.6			1.4			2.0			2.5
Other comprehensive (loss) income, net of tax		(0.1	)		0.9			1.8			0.3
Comprehensive income	$	42.1		$	8.0		$	122.1		$	10.2

See Notes to the Unaudited Condensed Consolidated Financial Statements

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Balance Sheets

(in millions, except per share data)

(UNAUDITED)


	September 30, 2021			December 31, 2020
ASSETS
Cash and cash equivalents	$	122.9		$	73.6
Receivables, less allowances for expected losses of $13.0 in 2021 (2020 - $10.5)		244.4			173.5
Inventories		5.1			4.9
Prepaid expenses and other current assets		19.9			9.7
Assets held for sale		2.6			5.5
Total current assets		394.9			267.2
Property, plant and equipment, net		17.9			12.0
Operating lease right-of-use assets		45.5			52.5
Software, net		55.0			51.2
Goodwill		409.9			409.9
Other intangible assets, net		9.1			9.8
Deferred income taxes, net		26.8			34.0
Other noncurrent assets		35.4			29.0
Total assets	$	994.5		$	865.6
LIABILITIES
Accounts payable	$	49.0		$	54.2
Short-term debt		40.5			—
Operating lease liabilities		18.8			19.7
Accrued liabilities		210.3			164.6
Total current liabilities		318.6			238.5
Long-term debt		190.5			230.5
Deferred compensation liabilities		20.0			20.8
Pension and other postretirement benefits plan liabilities		44.0			51.0
Noncurrent operating lease liabilities		41.7			51.0
Other noncurrent liabilities		20.8			26.0
Total liabilities		635.6			617.8
Commitments and Contingencies (Note 7)
EQUITY
Preferred stock, $0.01 par value
Authorized: 1.0 shares; Issued: None		—			—
Common stock, $0.01 par value
Authorized: 65.0 shares;
Issued and outstanding: 35.9 shares and 33.4 shares in 2021 (2020 - 34.9 shares and 33.3 shares)		0.4			0.3
Treasury stock, at cost: 2.5 shares in 2021 (2020 - 1.6 shares)		(43.4	)		(16.0	)
Additional paid-in capital		255.1			238.8
Retained earnings		225.8			105.5
Accumulated other comprehensive loss		(79.0	)		(80.8	)
Total equity		358.9			247.8
Total liabilities and equity	$	994.5		$	865.6

See Notes to the Unaudited Condensed Consolidated Financial Statements

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Cash Flows

(in millions)

(UNAUDITED)


	Nine Months Ended September 30,
	2021			2020
OPERATING ACTIVITIES
Net earnings	$	120.3		$	9.9
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		29.9			39.7
Provision for expected losses on accounts receivable		2.2			4.0
Impairment charges		2.8			17.6
Share-based compensation		14.2			9.8
Gain on debt extinguishment		—			(2.3	)
Deferred income taxes		6.6			(9.8	)
Net pension plan income		(3.2	)		(1.5	)
Amortization of right-of-use assets		12.9			18.4
Other		0.3			—
Changes in operating assets and liabilities:
Accounts receivable, net		(73.5	)		(59.4	)
Inventories		(0.2	)		1.1
Prepaid expenses and other current assets		(11.4	)		(8.3	)
Accounts payable		(7.5	)		(10.3	)
Income taxes payable and receivable		5.3			2.9
Accrued liabilities and other		21.2			57.6
Operating lease liabilities		(15.7	)		(16.2	)
Pension and other postretirement benefits plan contributions		(1.0	)		(0.7	)
Net cash provided by operating activities		103.2			52.5
INVESTING ACTIVITIES
Capital expenditures		(28.2	)		(24.5	)
Purchase of investment		—			(1.2	)
Proceeds from sale of investment		—			12.8
Other investing activities		0.9			(0.3	)
Net cash used in investing activities		(27.3	)		(13.2	)
FINANCING ACTIVITIES
Revolving facility borrowings		278.0			305.5
Payments on revolving facility borrowings		(278.0	)		(244.0	)
Payments on long-term debt		—			(63.8	)
Debt issuance costs		(2.8	)		—
Treasury share repurchases		(26.5	)		(10.3	)
Proceeds from exercise of stock options		2.2			—
Other financing activities		(0.4	)		(1.9	)
Net cash used in financing activities		(27.5	)		(14.5	)
Effect of exchange rate on cash and cash equivalents		0.9			(1.1	)
Net increase in cash and cash equivalents		49.3			23.7
Cash and cash equivalents at beginning of year		73.6			17.2
Cash and cash equivalents at end of period	$	122.9		$	40.9
Supplemental cash flow information
Income taxes paid (net of refunds)	$	32.0		$	12.4
Interest paid	$	11.0		$	14.6
Non-cash investing activities:
Other investing activities	$	—		$	0.7
Conversion of note receivable to equity of investee	$	—		$	(1.0	)

See Notes to the Unaudited Condensed Consolidated Financial Statements

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended September 30, 2021 and 2020

(in millions)

(UNAUDITED)


	Common Stock				Treasury Stock					Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Total Equity
	Shares		Amount		Shares		Amount
Balance at June 30, 2021		35.9	$	0.4		2.3	$	(35.1	)	$	249.6	$	183.6	$	(78.9	)	$	319.6
Net earnings		—		—		—		—			—		42.2					42.2
Other comprehensive loss		—		—		—		—			—		—		(0.1	)		(0.1	)
Share-based compensation		—		—		—		—			5.2		—		—			5.2
Common stock repurchases		—		—		0.2		(8.2	)		—		—		—			(8.2	)
Issuance of share-based awards, net of withholdings and other		—		—		—		(0.1	)		0.3		—		—			0.2
Balance at September 30, 2021		35.9	$	0.4		2.5	$	(43.4	)	$	255.1	$	225.8	$	(79.0	)	$	358.9


	Common Stock				Treasury Stock					Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Total Equity
	Shares		Amount		Shares		Amount
Balance at June 30, 2020		34.9	$	0.3		1.1	$	(9.5	)	$	230.6	$	134.2	$	(85.2	)	$	270.4
Net earnings		—		—		—		—			—		7.1		—			7.1
Other comprehensive income		—		—		—		—			—		—		0.9			0.9
Share-based compensation		—		—		—		—			4.4		—		—			4.4
Common stock repurchases		—		—		0.4		(5.1	)		—		—		—			(5.1	)
Balance at September 30, 2020		34.9	$	0.3		1.5	$	(14.6	)	$	235.0	$	141.3	$	(84.3	)	$	277.7

See Notes to the Unaudited Condensed Consolidated Financial Statements

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Nine Months Ended September 30, 2021 and 2020

(in millions)

(UNAUDITED)


	Common Stock				Treasury Stock					Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Total Equity
	Shares		Amount		Shares		Amount
Balance at December 31, 2020		34.9	$	0.3		1.6	$	(16.0	)	$	238.8	$	105.5	$	(80.8	)	$	247.8
Net earnings		—		—		—		—			—		120.3		—			120.3
Other comprehensive income		—		—		—		—			—		—		1.8			1.8
Share-based compensation		—		—		—		—			14.2		—		—			14.2
Common stock repurchases		—		—		0.6		(18.7	)		—		—		—			(18.7	)
Issuance of share-based awards, net of withholdings and other		1.0		0.1		0.3		(8.7	)		2.1		—		—			(6.5	)
Balance at September 30, 2021		35.9	$	0.4		2.5	$	(43.4	)	$	255.1	$	225.8	$	(79.0	)	$	358.9


	Common Stock				Treasury Stock					Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total Equity
	Shares		Amount		Shares		Amount
Balance at December 31, 2019		34.5	$	0.3		0.3	$	(4.2	)	$	225.2	$	131.9		$	(84.6	)	$	268.6
Net earnings		—		—		—		—			—		9.9			—			9.9
Other comprehensive income		—		—		—		—			—		—			0.3			0.3
Adoption of ASU 2016-13		—		—		—		—			—		(0.5	)		—			(0.5	)
Share-based compensation		—		—		—		—			9.8		—			—			9.8
Common stock repurchases		—		—		1.0		(8.9	)		—		—			—			(8.9	)
Issuance of share-based awards, net of withholdings and other		0.4		—		0.2		(1.5	)		—		—			—			(1.5	)
Balance at September 30, 2020		34.9	$	0.3		1.5	$	(14.6	)	$	235.0	$	141.3		$	(84.3	)	$	277.7

See Notes to the Unaudited Condensed Consolidated Financial Statements

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements

(in millions, except per share data, unless otherwise indicated)

Note 1. Overview, Basis of Presentation and Significant Accounting Policies

Description of Business

DFIN is a leading global risk and compliance solutions company. The Company provides regulatory filing and deal solutions via its software, technology-enabled services and print and distribution solutions to public and private companies, mutual funds and other regulated investment firms, to serve its clients’ regulatory and compliance needs. DFIN helps its clients comply with applicable regulations where and how they want to work in a digital world, providing numerous solutions tailored to each client’s precise needs. The prevailing trend is toward clients choosing to utilize the Company’s software solutions, in conjunction with its tech-enabled services, to meet their document and filing needs, while at the same time shifting away from physical print and distribution of documents, except for cases where it is still regulatorily required or requested by shareholders.

The Company serves its clients’ regulatory and compliance needs throughout their respective life cycles. For its capital markets clients, the Company offers solutions that allow public companies to comply with applicable U.S. Securities and Exchange Commission (“SEC”) regulations including filing agent services, digital document creation and online content management tools that support their corporate financial transactions and regulatory reporting; solutions to facilitate clients’ communications with their shareholders; and virtual data rooms and other deal management solutions. For investment companies, including mutual fund, insurance-investment and alternative investment companies, the Company provides solutions for creating, compiling and filing regulatory communications as well as solutions for investors designed to improve the access to and accuracy of their investment information.

Services and Products

The Company separately reports its net sales and related cost of sales for its software solutions, tech-enabled services and print and distribution offerings. The Company’s software solutions consist of Venue® Virtual Data Room (“Venue”), ActiveDisclosure®, eBrevia, Arc Suite and others. The Company’s tech-enabled services offerings consist of document composition, compliance-related SEC Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) filing services and transaction solutions. The Company’s print and distribution offerings primarily consist of conventional and digital printed products as well as related shipping.

Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of DFIN and all majority-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The financial data presented herein should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes included in the Company’s latest Annual Report. In the opinion of management, the financial data presented includes all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. Results of interim periods should not be considered indicative of the results for the full year.

Significant Accounting Policies

Use of Estimates—The preparation of financial statements in conformity with GAAP requires the extensive use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities as well as disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. The Company’s significant accounting policies and critical accounting estimates are disclosed in the Annual Report.

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

Inventory—The components of the Company’s inventories stated at the lower of cost or market, net of excess and obsolescence reserves for raw materials, at September 30, 2021 and December 31, 2020 were as follows:


	September 30, 2021		December 31, 2020
Raw materials and manufacturing supplies	$	2.5	$	2.5
Work in process		2.6		2.4
Total	$	5.1	$	4.9

Property, Plant and Equipment—The components of the Company’s property, plant and equipment, net at September 30, 2021 and December 31, 2020 were as follows:


	September 30, 2021			December 31, 2020
Land	$	0.3		$	0.3
Buildings		20.2			24.1
Machinery and equipment		87.8			98.4
		108.3			122.8
Less: Accumulated depreciation		(90.4	)		(110.8	)
Total	$	17.9		$	12.0

Depreciation expense was $1.5 million and $0.9 million for the three months ended September 30, 2021 and 2020, respectively, and $4.6 million and $6.7 million for the nine months ended September 30, 2021 and 2020, respectively.

Assets Held for Sale—As of September 30, 2021 and December 31, 2020, the Company had land and land with an office building held for sale with a carrying value of $2.6 million and $5.5 million, respectively. On August 20, 2021, the Company entered into an agreement to sell the land for a sale price of $12.5 million, to be increased to $12.9 million in consideration of the Company performing the demolition of an existing office building located on the property. The closing of this transaction is subject to a due diligence period, a period to obtain needed entitlements and customary closing conditions and there is no assurance that this sale will be completed. As a result of the demolition of the building, the Company recorded a non-cash impairment charge of $2.8 million for the remaining carrying value of the building during the three months ended September 30, 2021. The impairment charge was recorded in restructuring, impairment and other charges, net in the Unaudited Condensed Consolidated Statement of Operations in the Capital Markets – Compliance and Communications Management segment.

Software—Capitalized software development costs are amortized over their estimated useful life using the straight-line method, up to a maximum of three years. Amortization expense related to internally-developed software, excluding amortization expense related to other intangible assets, was $8.2 million and $8.3 million for the three months ended September 30, 2021 and 2020, respectively, and $24.5 million and $22.9 million for the nine months ended September 30, 2021 and 2020, respectively.

Investments—The carrying value of the Company’s investments in equity securities was $13.9 million and $13.4 million at September 30, 2021 and December 31, 2020, respectively. The Company measures its equity securities that do not have a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The Company performs an assessment on a quarterly basis to determine whether triggering events for impairment exist and to identify any observable price changes. During the three and nine months ended September 30, 2021, the Company recorded a net unrealized gain of $0.6 million and $0.4 million, respectively, resulting from observable price changes in orderly transactions for the identical or similar investments.

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

Current Expected Credit Loss Reserve—Transactions affecting the current expected credit loss (“CECL”) reserve during the nine months ended September 30, 2021 and 2020 were as follows:


	September 30, 2021			September 30, 2020
Balance, beginning of year (a)	$	10.5		$	7.7
Adoption of ASU 2016-13 (b)		—			0.5
Provisions charged to expense and reclassifications		3.4			4.3
Write-offs and other		(0.9	)		(1.3	)
Balance, end of period (a)	$	13.0		$	11.2

__________

(a)

As of September 30, 2021, the CECL reserve balance is comprised of a $12.0 million provision for accounts receivable and a $1.0 million provision for unbilled receivables and contract assets. As of December 31, 2020, the CECL reserve balance was comprised of a $10.1 million provision for accounts receivable and a $0.4 million provision for unbilled receivables and contract assets.

(b)

On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, and recorded a $0.5 million cumulative-effect adjustment to retained earnings, as further disclosed in the Annual Report.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which modifies Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, to simplify the accounting for income taxes by removing certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. ASU 2019-12 also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for goodwill and allocating taxes to members of a consolidated group. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted the standard prospectively on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s Unaudited Condensed Consolidated Financial Statements.

Note 2. Revenue

Revenue Recognition

The Company manages highly-customized data and materials to enable filings with the SEC on behalf of its customers as well as manages virtual data rooms and performs eXtensible Business Reporting Language (“XBRL”) and other services. Clients are provided with EDGAR filing services, XBRL compliance services and translation, editing, interpreting, proof-reading and multilingual typesetting services, among other services. The Company’s software solutions include Venue, the Arc Suite software platform, ActiveDisclosure and data and analytics, among others. The Company also provides digital document creation, online content management and print and distribution solutions to public and private companies, mutual funds and other regulated investment firms to serve their regulatory and compliance needs.

Revenue is recognized upon transfer of control of promised services or products to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services or products. The Company’s services include software solutions and tech-enabled services whereas the Company’s products are comprised of print and distribution offerings. The Company’s arrangements with customers often include promises to transfer multiple services or products to a customer. Determining whether services and products are considered distinct performance obligations that should be accounted for separately requires significant judgment. Certain customer arrangements have multiple performance obligations as certain promises are both capable of being distinct and are distinct within the context of the contract. Other customer arrangements have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts, and therefore is not distinct. Revenue for the Company’s tech-enabled services, software solutions and print and distribution offerings is recognized either over time or at a point in time, as further disclosed in the Annual Report.

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

Disaggregation of Revenue

The following table disaggregates revenue between tech-enabled services, software solutions and print and distribution by reportable segment:


	Three Months Ended September 30,
	2021								2020
	Tech-enabled Services		Software Solutions		Print and Distribution		Total		Tech-enabled Services		Software Solutions		Print and Distribution		Total
Capital Markets - Software Solutions	$	—	$	48.1	$	—	$	48.1	$	—	$	34.1	$	—	$	34.1
Capital Markets - Compliance and Communications Management		122.5		—		20.0		142.5		78.6		—		17.5		96.1
Investment Companies - Software Solutions		—		21.2		—		21.2		—		17.0		—		17.0
Investment Companies - Compliance and Communications Management		19.6		—		16.3		35.9		25.9		—		36.4		62.3
Total net sales	$	142.1	$	69.3	$	36.3	$	247.7	$	104.5	$	51.1	$	53.9	$	209.5


	Nine Months Ended September 30,
	2021								2020
	Tech-enabled Services		Software Solutions		Print and Distribution		Total		Tech-enabled Services		Software Solutions		Print and Distribution		Total
Capital Markets - Software Solutions	$	—	$	130.4	$	—	$	130.4	$	—	$	97.1	$	—	$	97.1
Capital Markets - Compliance and Communications Management		332.3		—		101.8		434.1		224.4		—		91.6		316.0
Investment Companies - Software Solutions		—		65.8		—		65.8		—		48.9		—		48.9
Investment Companies - Compliance and Communications Management		62.3		—		67.9		130.2		77.4		—		144.8		222.2
Total net sales	$	394.6	$	196.2	$	169.7	$	760.5	$	301.8	$	146.0	$	236.4	$	684.2

Unbilled Receivables and Contract Balances

The timing of revenue recognition may differ from the timing of invoicing customers and these timing differences result in unbilled receivables, contract assets or contract liabilities. Contract assets represent revenue recognized for performance obligations completed before an unconditional right to payment exists, and therefore invoicing has not yet occurred. The Company generally estimates contract assets based on historical selling price adjusted for its current experience and expected resolution of the variable consideration of the completed performance obligation. When the Company’s contracts contain variable consideration, the variable consideration is recognized only to the extent that it is probable that a significant revenue reversal will not occur in a future period. As a result, estimated revenue and contract assets may be constrained until the uncertainty associated with the variable consideration is resolved, which generally occurs in less than one year. Contract assets were $20.8 million and $18.5 million at September 30, 2021 and December 31, 2020, respectively. Generally, the contract assets balance is impacted by the recognition of additional revenue, amounts invoiced to customers and changes in the level of the constraint applied to variable consideration. Unbilled receivables are recorded when there is an unconditional right to payment and invoicing has not yet occurred. The Company estimates the value of unbilled receivables based on a combination of historical customer selling price and management’s assessment of realizable selling price. Unbilled receivables were $78.8 million and $39.1 million at September 30, 2021 and December 31, 2020, respectively. Unbilled receivables and contract assets are included in accounts receivable on the Unaudited Condensed Consolidated Balance Sheets.

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

For the nine months ended September 30, 2021, amounts recognized as revenue exceeded the estimates for performance obligations satisfied as of December 31, 2020 by approximately $26.2 million, primarily due to changes in the Company’s estimate of variable consideration and the application of the constraint.

Substantially all of the Company’s contracts with significant remaining performance obligations have an initial expected duration of one year or less.

Contract liabilities consist of deferred revenue and progress billings which are included in accrued liabilities on the Unaudited Condensed Consolidated Balance Sheets. Changes in contract liabilities were as follows:


Balance at January 1, 2021	$	21.7
Deferral of revenue		102.9
Revenue recognized		(86.1	)
Balance at September 30, 2021	$	38.5


Balance at January 1, 2020	$	13.1
Deferral of revenue		37.4
Revenue recognized		(32.3	)
Balance at September 30, 2020	$	18.2

Note 3. Goodwill and Other Intangible Assets

The balances of goodwill by reporting unit are presented below:


	Gross book value at December 31, 2020		Accumulated impairment charges at December 31, 2020			Net book value at December 31, 2020		Foreign exchange and other adjustments		Net book value at September 30, 2021
Capital Markets - Software Solutions	$	103.7	$	—		$	103.7	$	—	$	103.7
Capital Markets - Compliance and Communications Management		253.0		—			253.0		—		253.0
Investment Companies - Software Solutions		53.2		—			53.2		—		53.2
Investment Companies - Compliance and Communications Management		40.6		(40.6	)		—		—		—
Total	$	450.5	$	(40.6	)	$	409.9	$	—	$	409.9

The components of other intangible assets at September 30, 2021 and December 31, 2020 were as follows:


	September 30, 2021							December 31, 2020
	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Gross Carrying Amount		Accumulated Amortization			Net Book Value
Customer relationships (useful life of 15 years)	$	10.4	$	(1.9	)	$	8.5	$	10.4	$	(1.4	)	$	9.0
Trade names (useful life of 5 years)		1.0		(0.5	)		0.5		1.0		(0.4	)		0.6
Software license (useful life of 3 years)		0.3		(0.2	)		0.1		0.3		(0.1	)		0.2
Total other intangible assets	$	11.7	$	(2.6	)	$	9.1	$	11.7	$	(1.9	)	$	9.8

Amortization expense for other intangible assets was $0.3 million and $3.4 million for the three months ended September 30, 2021 and 2020, respectively, and $0.8 million and $10.1 million for the nine months ended September 30, 2021 and 2020, respectively. The weighted-average remaining useful life of the unamortized intangible assets as of September 30, 2021 is approximately twelve years.

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

The following table outlines the estimated annual amortization expense related to other intangible assets:


For the year ending December 31,	Amount
2021 (excluding the nine months ended September 30, 2021)	$	0.3
2022		1.0
2023		0.9
2024		0.7
2025		0.7
2026 and thereafter		5.5
Total	$	9.1

Note 4. Leases

The Company has operating leases for certain service centers, office space, warehouses and equipment. The Company made payments of $5.5 million and $5.9 million for the three months ended September 30, 2021 and 2020, respectively, and $17.5 million and $18.8 million for the nine months ended September 30, 2021 and 2020, respectively, related to its operating lease liabilities.

The Company has finance leases, primarily related to certain IT equipment. Finance lease right-of-use ("ROU") assets and finance lease liabilities are recognized based on the present value of the minimum lease payments over the lease term at commencement date. During both the three and nine months ended September 30, 2021, the Company made payments of $0.4 million related to its finance lease liabilities.

The components of lease expense for the three and nine months ended September 30, 2021 and 2020 were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Operating lease expense:
Operating lease expense	$	4.7		$	7.1		$	14.4		$	21.0
Sublease income		(1.1	)		(1.3	)		(3.3	)		(3.5	)
Net operating lease expense	$	3.6		$	5.8		$	11.1		$	17.5

Finance lease expense:
Amortization of ROU asset	$	0.4		$	—		$	0.4		$	—
Total finance lease expense	$	0.4		$	—		$	0.4		$	—

The Company’s finance leases are presented within the Company’s Unaudited Condensed Consolidated Balance Sheets as follows:


	September 30, 2021
Property, plant and equipment, net	$	7.9

Accrued liabilities	$	1.6
Other noncurrent liabilities		6.3
Total	$	7.9

Other information related to finance leases as of and for the nine months ended September 30, 2021 were as follows:


	September 30, 2021
Non-cash disclosure:
Increase in finance lease liabilities due to new ROU assets	$	8.3
Weighted-average remaining lease term	4.7 years
Weighted-average discount rate		2.25	%

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

Note 5. Restructuring, Impairment and Other Charges

Restructuring, Impairment and Other Charges recognized in Results of Operations

The Company records restructuring charges associated with management-approved restructuring plans, which could include the elimination of job functions, closure or relocation of facilities, reorganization of operations, changes in management structure, workforce reductions or other actions. Restructuring charges may include ongoing and enhanced termination benefits related to employee separations, contract termination costs, impairment of certain assets and other related costs associated with exit or disposal activities.

For the three months ended September 30, 2021 and 2020, the Company recorded the following net restructuring, impairment and other charges by segment:


Three Months Ended September 30, 2021	Employee Terminations			Other Restructuring Charges		Impairment Charges		Total
Capital Markets - Software Solutions	$	0.2		$	—	$	—	$	0.2
Capital Markets - Compliance and Communications Management		(0.1	)		—		2.8		2.7
Investment Companies - Software Solutions		—			—		—		—
Investment Companies - Compliance and Communications Management		0.1			0.2		—		0.3
Corporate		0.1			—		—		0.1
Total	$	0.3		$	0.2	$	2.8	$	3.3


Three Months Ended September 30, 2020	Employee Terminations		Impairment Charges		Other Charges		Total
Capital Markets - Software Solutions	$	0.2	$	—	$	—	$	0.2
Capital Markets - Compliance and Communications Management		0.5		2.0		—		2.5
Investment Companies - Software Solutions		—		2.2		—		2.2
Investment Companies - Compliance and Communications Management		0.2		—		—		0.2
Corporate		0.2		1.3		0.4		1.9
Total	$	1.1	$	5.5	$	0.4	$	7.0

For the nine months ended September 30, 2021 and 2020, the Company recorded the following net restructuring, impairment and other charges by segment:


Nine Months Ended September 30, 2021	Employee Terminations		Other Restructuring Charges		Impairment Charges		Other Charges		Total
Capital Markets - Software Solutions	$	0.3	$	—	$	—	$	—	$	0.3
Capital Markets - Compliance and Communications Management		0.4		—		2.8		0.1		3.3
Investment Companies - Software Solutions		0.1		—		—		—		0.1
Investment Companies - Compliance and Communications Management		2.1		0.8		—		—		2.9
Corporate		0.3		—		—		—		0.3
Total	$	3.2	$	0.8	$	2.8	$	0.1	$	6.9

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)


Nine Months Ended September 30, 2020	Employee Terminations		Impairment Charges		Other Charges		Total
Capital Markets - Software Solutions	$	1.0	$	—	$	—	$	1.0
Capital Markets - Compliance and Communications Management		5.6		14.1		0.2		19.9
Investment Companies - Software Solutions		0.4		2.2		—		2.6
Investment Companies - Compliance and Communications Management		5.4		—		—		5.4
Corporate		2.6		1.3		2.4		6.3
Total	$	15.0	$	17.6	$	2.6	$	35.2

For the three and nine months ended September 30, 2021, the Company recorded net restructuring charges of $0.3 million and $3.2 million, respectively, related to employee termination costs for approximately 170 employees for the nine months ended September 30, 2021, substantially all of whom will be terminated by December 31, 2021. The restructuring actions were primarily the result of the implementation of SEC Rule 30e-3 and amendments to SEC Rule 498A.

For the three and nine months ended September 30, 2021, the Company recorded a $2.8 million impairment charge related to the demolition of an office building, as further described in Note 1, Overview, Basis of Presentation and Significant Accounting Policies.

For the three and nine months ended September 30, 2020, the Company recorded net restructuring charges of $1.1 million and $15.0 million, respectively, related to employee termination costs for approximately 490 employees during the nine months ended September 30, 2020, substantially all of whom were terminated as of December 31, 2020. The restructuring actions were primarily the result of the implementation of SEC Rule 30e-3 and amendments to SEC Rule 498A and the reorganization of certain capital markets operations, as well as selling and administrative functions.

The Company abandoned certain operating leases during the three and nine months ended September 30, 2020 with the intent to sublease. As the fair value of the ROU assets was less than the carrying value, the Company recognized impairments of ROU assets of $3.7 million and $15.8 million for the three and nine months ended September 30, 2020, respectively, reducing the carrying value of the ROU assets to an estimated combined fair value of $3.6 million. The Company recognized further impairments related to these ROU assets of $2.4 million in the fourth quarter of 2020. The fair value of these assets was estimated utilizing inputs from market comparables in order to estimate future cash flows expected from sublease income over the remaining lease terms. Future changes in the estimated amount or timing of sublease arrangements could result in further impairment charges. For the three and nine months ended September 30, 2020, the Company also recorded $1.8 million of net impairment charges related to certain software assets.

For the three and nine months ended September 30, 2020, the Company also incurred $0.4 million and $2.6 million, respectively, of other charges, primarily related to the realignment of the Company’s operating segments.

Restructuring Reserve – Employee Terminations

The Company’s employee terminations liability is included in accrued liabilities in the Company’s Unaudited Condensed Consolidated Balance Sheets. Changes in the accrual for employee terminations during the nine months ended September 30, 2021, were as follows:


	December 31, 2020		Restructuring Charges		Reversals			Cash Paid			September 30, 2021
Employee terminations	$	8.5	$	3.4	$	(0.2	)	$	(8.3	)	$	3.4

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

Note 6. Retirement Plans

The components of the estimated net periodic benefit income for the Company’s pension plans for the three and nine months ended September 30, 2021 and 2020 were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Interest cost	$	1.5		$	2.2		$	4.6		$	6.6
Expected return on assets		(3.5	)		(3.4	)		(10.6	)		(10.4	)
Amortization, net		0.9			0.7			2.8			2.3
Net pension plan income	$	(1.1	)	$	(0.5	)	$	(3.2	)	$	(1.5	)

Note 7. Commitments and Contingencies

Litigation

From time to time, the Company’s customers and others file voluntary petitions for reorganization under United States bankruptcy laws. In such cases, certain pre-petition payments received by the Company from these parties could be considered preference items and subject to return. In addition, the Company may be party to certain litigation arising in the ordinary course of business. Management believes that the final resolution of these preference items and litigation will not have a material effect on the Company’s consolidated results of operations, financial position or cash flows.

Multiemployer Pension Plans Obligation

On April 13, 2020, LSC Communications, Inc. (“LSC”) announced that it, along with most of its U.S. subsidiaries, voluntarily filed for business reorganization under Chapter 11 of the U.S. Bankruptcy Code (“LSC Chapter 11 Filing”). LSC and the Company separated from R. R. Donnelley & Sons Company (“RRD”) in a tax-free distribution to shareholders effective October 1, 2016 (the “Separation”). In the second quarter of 2020, the Company became aware that, subsequent to the LSC Chapter 11 Filing, LSC failed to make certain required monthly and quarterly withdrawal liability payments to multiemployer pension plans from which RRD had withdrawn prior to the Separation. Responsibility for certain pre-Separation withdrawal liability obligations, resulting in such monthly and quarterly payment obligations (the “LSC MEPP Liabilities”), had been assigned to LSC pursuant to the September 14, 2016 Separation and Distribution Agreement among the Company, RRD and LSC (the “Separation Agreement”), however, the Company and RRD remained jointly and severally liable for the LSC MEPP Liabilities pursuant to laws and regulations governing multiemployer pension plans. The Company believes the total undiscounted LSC MEPP Liabilities for which LSC was responsible at the time of the LSC Chapter 11 Filing were approximately $103 million (or approximately $57 million on a discounted basis, assuming a blended discount rate of approximately 10%) and were payable over approximately a 15-year period (through 2034), with annual payments ranging from $1.6 million to $8.5 million at the time.

On July 24, 2020, the Company and RRD signed an agreement agreeing to submit to mediation and, if required, arbitration to determine the final liability allocation between the Company and RRD with respect to the LSC MEPP Liabilities. DFIN and RRD also agreed to share all required monthly and quarterly withdrawal liability payment obligations that become due during the mediation/arbitration period, with an adjustment and repayment to be made for any such payments according to the final allocation. The Company and RRD were unable to agree upon the final liability allocation in mediation and on March 22, 2021 submitted the matter to arbitration pursuant to the terms of the Separation Agreement, which is expected to take place during the fourth quarter of 2021.

The Company is required to record a liability when it is probable that a loss has been incurred and the amount can be reasonably estimated. In 2020, the Company recorded a charge of $19.0 million and had $15.2 million accrued as of December 31, 2020 for its estimated payments related to the LSC MEPP Liabilities, including the Company’s low end of the range of potential outcomes as well as the Company’s estimated shared payments until a final allocation is determined.

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

In March 2021 and April 2021, the Company and RRD reached settlements with two of the LSC multiemployer pension plan funds, which represented approximately $59 million of the estimated $103 million total undiscounted LSC MEPP Liabilities at the time of the LSC Chapter 11 filing. The Company and RRD each made lump sum payments in the second quarter of 2021 to settle all obligations related to these funds. An adjustment and repayment will be made, as needed, based on the final allocation of the LSC MEPP Liabilities between the Company and RRD.

As of September 30, 2021, the Company had $5.8 million accrued related to the remaining contingent liability and the Company’s estimated share of required payments until a final allocation is determined. The Company is not able to reasonably estimate the maximum potential loss due to the uncertainty related to the outcome of the final allocation of the LSC MEPP Liabilities between the Company and RRD. The expense associated with this liability has been recorded in selling, general and administrative ("SG&A") expenses within the Corporate segment in the Company’s Unaudited Condensed Consolidated Statements of Operations.

There can be no assurance that the Company’s actual future liabilities relating to the LSC MEPP Liabilities will not differ materially from the contingency amount recorded in the Company’s Unaudited Condensed Consolidated Financial Statements. The Company’s outstanding LSC MEPP Liabilities could also be affected by the financial stability of other employers participating in such plans and decisions by those employers to withdraw from such plans in the future, including the financial stability of RRD.

Non-income Taxes

The Company does not collect sales, use or similar taxes on all amounts invoiced in all jurisdictions in which the Company has sales based on its understanding that certain transactions are not subject to tax. Sales, use and similar tax laws vary greatly by jurisdiction and may require judgment to determine the applicability to the Company’s transactions. In 2020, the Company identified certain jurisdictions where the Company has not historically collected or remitted sales tax on certain services and that the Company believes it is probable that the jurisdiction would assess sales tax. As of September 30, 2021 and December 31, 2020, the Company accrued a contingent liability of $3.7 million and $5.2 million, respectively, for certain estimated sales tax exposures. The income statement impact associated with this liability is recorded in SG&A expenses in the Company’s Unaudited Condensed Consolidated Statements of Operations. Although management believes its estimates are reasonable, the resolution of the Company’s tax matters could result in tax liabilities that are higher or lower than what has been estimated by the Company.

Note 8. Debt

The Company’s debt as of September 30, 2021 and December 31, 2020 consisted of the following:


	September 30, 2021			December 31, 2020
8.25% senior notes due October 15, 2024	$	233.0		$	233.0
Unamortized debt issuance costs		(2.0	)		(2.5	)
Total debt		231.0			230.5
Less: short-term debt		40.5			—
Long-term debt	$	190.5		$	230.5

Maturities—At September 30, 2021, the Company’s debt was comprised of the 8.25% senior unsecured notes due October 15, 2024 (“Notes”). On September 15, 2021, the Company provided an irrevocable notice to Wells Fargo Bank, N.A. (the “Trustee”) of its intent to redeem the Notes on October 15, 2021. The Company completed the redemption process on October 15, 2021, as further described below.

Fair Value—The fair value of the Notes, which was determined using the market approach based upon interest rates available to the Company for borrowings with similar terms and maturities, was determined to be Level 2 under the fair value hierarchy. The fair value of the Company’s Notes was $238.5 million and $247.5 million as of September 30, 2021 and December 31, 2020, respectively. The fair value of the Company's outstanding borrowings under the Revolving Facility (as defined below) is classified as Level 2 under the fair value hierarchy and approximates its carrying value as the Revolving Facility carries a variable rate of interest reflecting current market rate.

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

8.25% Senior Notes Due 2024—On October 15, 2021, the Company redeemed the remaining outstanding Notes balance of $233.0 million at the redemption price of 102.063, plus accrued and unpaid interest of $9.6 million, using $200.0 million of proceeds from the Company's Delayed-Draw Term Loan A Facility (as further described below) and cash. The Notes principal balance that was paid using $33.0 million of cash and $7.5 million of the Delayed-Draw Term Loan A Facility, which is due within twelve months of the draw, was classified as short-term debt on the Unaudited Condensed Consolidated Balance Sheet as of September 30, 2021. The Company expects to record a pre-tax loss on the extinguishment of the Notes of $6.8 million in the fourth quarter of 2021.

In the first quarter of 2020, the Company purchased and retired $66.5 million (notional amount) of the Notes at an average price of 95.25 and recognized a pre-tax gain on the extinguishment of debt of $2.3 million, which was net of unamortized debt issuance costs, and is recorded within interest expense, net in the Unaudited Condensed Consolidated Statements of Operations. In the third quarter of 2020, the Company repurchased and retired $0.5 million (notional amount) of the Notes at an average price of 98.75.

Prior to their redemption, the Company’s Notes were issued pursuant to an indenture (the "Indenture") where certain wholly-owned domestic subsidiaries of the Company guaranteed the Notes (the “Guarantors”). As of September 30, 2021, the Notes were jointly and severally guaranteed, on an unsecured basis, by the Guarantors, which were comprised of each of the Company’s direct and indirect wholly-owned U.S. subsidiaries that guaranteed the Company’s obligations under the Credit Facilities. The Notes were not guaranteed by the Company’s foreign subsidiaries or unrestricted subsidiaries. The Notes and the related guarantees were the Company and the Guarantors’, respective, senior unsecured obligations and ranked equally in right of payment to all senior debt, including the obligations under the Company’s Credit Facilities, senior in right of payment to all subordinated debt, and effectively subordinated in right of payment to any of the Company and the Guarantors’ secured debt, to the extent of the value of the assets securing such debt. The Indenture governing the Notes contained certain covenants applicable to the Company and its restricted subsidiaries, including limitations on: (1) liens; (2) indebtedness; (3) mergers, consolidations and acquisitions; (4) sales, transfers and other dispositions of assets; (5) loans and other investments; (6) dividends and other distributions, stock repurchases and redemptions and other restricted payments; (7) restrictions affecting subsidiaries; (8) transactions with affiliates; and (9) designations of unrestricted subsidiaries. Each of these covenants was subject to important exceptions and qualifications.

Credit Agreement—On May 27, 2021 (the "Restatement Effective Date"), the Company amended and restated its credit agreement dated as of September 30, 2016 (as in effect prior to such amendment and restatement, the “Credit Agreement,” and the Credit Agreement, as so amended and restated, the “Amended and Restated Credit Agreement”), by and among the Company, the lenders party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, to, among other things, provide for a $200 million delayed-draw term loan A facility (the “Delayed-Draw Term Loan A Facility”), extend the maturity of the $300 million revolving facility (the "Revolving Facility") to May 27, 2026 and modify the financial maintenance and negative covenants in the Credit Agreement. On October 14, 2021, the Company drew $200.0 million from the Delayed-Draw Term Loan A Facility and used the proceeds to redeem the Company's Notes on October 15, 2021, as further described above. The principal amount of loans under the Delayed-Draw Term Loan A Facility are due and payable in equal quarterly installments of 1.25% of the original principal amount of the loans during the first three years after the Restatement Effective Date, commencing on March 31, 2022, and 2.50% of the original principal amount of the loans thereafter. The entire unpaid principal amount of the loans will be due and payable in full on May 27, 2026. Voluntary prepayments of the Delayed-Draw Term Loan A Facility are permitted at any time, in minimum principal amounts, as defined in the Amended and Restated Credit Agreement, without premium or penalty.

In October 2021, the Company prepaid $45.0 million of the Delayed-Draw Term Loan A Facility. As a result, the required quarterly installments of the original principal amount are not due until the second quarter of 2025.

The Amended and Restated Credit Agreement contains a number of covenants, including a minimum Interest Coverage Ratio and the Consolidated Net Leverage Ratio, as defined in and calculated pursuant to the Credit Agreement, that, in part, restrict the Company’s ability to incur additional indebtedness, create liens, engage in mergers and consolidations, make restricted payments and dispose of certain assets. The Credit Agreement generally allows annual dividend payments of up to $20.0 million in the aggregate.

Revolving Credit Facility—As of September 30, 2021, there were no borrowings outstanding under the Revolving Facility. The weighted average interest rate on borrowings under the Revolving Facility was 2.8% and 2.6% for the nine months ended September 30, 2021 and 2020, respectively.

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

The following table summarizes interest expense, net included in the Unaudited Condensed Consolidated Statements of Operations:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Interest incurred	$	6.1		$	6.3		$	17.6		$	19.5
Less: Gain on debt extinguishment and other interest income		(0.2	)		(0.4	)		(0.5	)		(2.7	)
Interest expense, net	$	5.9		$	5.9		$	17.1		$	16.8

Note 9. Earnings per Share

Basic earnings per share is calculated by dividing net earnings by the weighted average number of common shares outstanding for the period. In computing diluted earnings per share, basic earnings per share is adjusted for the assumed issuance of all potentially dilutive share-based awards, including stock options, restricted stock units, performance share units and restricted stock.

The reconciliation of the numerator and denominator of the basic and diluted earnings per share calculation and the anti-dilutive share-based awards for the three and nine months ended September 30, 2021 and 2020 were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net earnings per share:
Basic	$	1.25	$	0.21	$	3.57	$	0.29
Diluted	$	1.22	$	0.21	$	3.48	$	0.29
Numerator:
Net earnings	$	42.2	$	7.1	$	120.3	$	9.9
Denominator:
Weighted average number of common shares outstanding		33.7		34.0		33.7		34.0
Dilutive awards		1.0		0.2		0.9		—
Diluted weighted average number of common shares outstanding		34.7		34.2		34.6		34.0
Weighted average number of anti-dilutive share-based awards:
Restricted stock units		—		0.4		—		1.1
Stock options		—		0.7		—		0.8
Total		—		1.1		—		1.9

Note 10. Capital Stock

The Company has 65 million shares of $0.01 par value common stock authorized for issuance. DFIN’s common stock is currently traded under the ticker symbol “DFIN” on the New York Stock Exchange.

The Company has one million shares of $0.01 par value preferred stock authorized for issuance. The Board may divide the preferred stock into one or more series and fix the redemption, dividend, voting, conversion, sinking fund, liquidation and other rights. The Company has no present plans to issue any preferred stock.

Common Stock Repurchases—On February 4, 2020, the Board authorized a stock repurchase program, under which the Company is authorized to repurchase up to $25.0 million of its outstanding common stock from time to time in one or more transactions on the open market or in privately negotiated purchases in accordance with all applicable securities laws. During 2020, the Company repurchased 1,149,489 shares in open market transactions for $10.3 million at an average price of $8.92 per share. As of December 31, 2020, the remaining authorized amount under the authorization was $14.7 million.

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

On February 18, 2021, the Board authorized an increase to its stock repurchase program to bring the total remaining available repurchase authorization for shares on or after February 18, 2021 to $50.0 million and extended the expiration date of the repurchase program through December 31, 2022. The stock repurchase program may be suspended or discontinued at any time. The timing and amount of any shares repurchased are determined by the Company based on its evaluation of market conditions and other factors and may be completed from time to time in one or more transactions on the open market or in privately negotiated purchases in accordance with all applicable securities laws and regulations and all repurchases in the open market will be made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so.

For the three and nine months ended September 30, 2021, the Company repurchased 238,072 shares for $8.2 million at an average price of $34.37 per share and 615,321 shares for $18.7 million at an average price of $30.32 per share, respectively. As of September 30, 2021, the remaining authorized amount was $31.4 million.

Note 11. Comprehensive Income

The components of other comprehensive (loss) income and income tax expense (benefit) allocated to each component for the three and nine months ended September 30, 2021 and 2020 were as follows:


	Three Months Ended September 30, 2021									Nine Months Ended September 30, 2021
	Before Tax			Income Tax			Net of Tax			Before Tax			Income Tax			Net of Tax
Translation adjustments	$	(1.0	)	$	(0.3	)	$	(0.7	)	$	(0.3	)	$	(0.1	)	$	(0.2	)
Adjustment for net periodic pension plan and other postretirement benefits plan		0.9			0.3			0.6			2.8			0.8			2.0
Other comprehensive (loss) income	$	(0.1	)	$	—		$	(0.1	)	$	2.5		$	0.7		$	1.8


	Three Months Ended September 30, 2020								Nine Months Ended September 30, 2020
	Before Tax			Income Tax		Net of Tax			Before Tax			Income Tax		Net of Tax
Translation adjustments	$	(0.5	)	$	—	$	(0.5	)	$	(2.2	)	$	—	$	(2.2	)
Adjustment for net periodic pension plan and other postretirement benefits plan		1.6			0.2		1.4			3.2			0.7		2.5
Other comprehensive income	$	1.1		$	0.2	$	0.9		$	1.0		$	0.7	$	0.3

The following table summarizes changes in accumulated other comprehensive loss by component for the nine months ended September 30, 2021:


	Pension and Other Postretirement Benefits Plan Cost			Translation Adjustments			Total
Balance at December 31, 2020	$	(67.6	)	$	(13.2	)	$	(80.8	)
Other comprehensive income before reclassifications		—			0.2			0.2
Amounts reclassified from accumulated other comprehensive loss		2.0			(0.4	)		1.6
Net change in accumulated other comprehensive loss		2.0			(0.2	)		1.8
Balance at September 30, 2021	$	(65.6	)	$	(13.4	)	$	(79.0	)

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

The following table summarizes changes in accumulated other comprehensive loss by component for the nine months ended September 30, 2020:


	Pension and Other Postretirement Benefits Plan Cost			Translation Adjustments			Total
Balance at December 31, 2019	$	(70.9	)	$	(13.7	)	$	(84.6	)
Other comprehensive loss before reclassifications		—			(2.2	)		(2.2	)
Amounts reclassified from accumulated other comprehensive loss		2.5			—			2.5
Net change in accumulated other comprehensive loss		2.5			(2.2	)		0.3
Balance at September 30, 2020	$	(68.4	)	$	(15.9	)	$	(84.3	)

Reclassifications from accumulated other comprehensive loss for the three and nine months ended September 30, 2021 and 2020 were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021			2020
Amortization of pension and other postretirement benefits plan cost:
Net actuarial loss (a)	$	0.9	$	1.6	$	2.8		$	3.2
Reclassification of translation adjustment (b)		—		—		(0.5	)		—
Reclassifications before tax		0.9		1.6		2.3			3.2
Income tax expense		0.3		0.2		0.7			0.7
Reclassifications, net of tax	$	0.6	$	1.4	$	1.6		$	2.5

(a)

These accumulated other comprehensive loss components are included in the calculation of net periodic pension and other postretirement benefits plan income recognized in investment and other income, net in the Unaudited Condensed Consolidated Statements of Operations (see Note 6, Retirement Plans).

(b)

Translation adjustment reclassification resulting from the liquidation of a foreign subsidiary is included in investment and other income, net in the Unaudited Condensed Consolidated Statements of Operations.

Note 12. Segment Information

The Company operates its business through four operating and reportable segments: Capital Markets – Software Solutions, Capital Markets – Compliance and Communications Management, Investment Companies – Software Solutions and Investment Companies – Compliance and Communications Management. Corporate is not an operating segment and consists primarily of unallocated SG&A activities and associated expenses including, in part, executive, legal, finance and certain facility costs. In addition, certain costs and earnings of employee benefit plans, such as pension and other postretirement benefit plan expense (income) as well as share-based compensation expense, are included in Corporate and not allocated to the operating segments.

Capital Markets

The Company provides software solutions, tech-enabled services and print and distribution solutions to public and private companies for deal solutions and compliance to companies that are, or are preparing to become, subject to the filing and reporting requirements of the Securities Act of 1933, as amended (the “Securities Act”) and the Exchange Act. The Company’s operating segments associated with its capital markets services and products offerings are as follows:

Capital Markets – Software Solutions—The Company provides software solutions to public and private companies to help manage public and private transaction processes; extract data and analyze contracts; collaborate; and tag, validate and file SEC documents.

Capital Markets – Compliance & Communications Management—The Company provides tech-enabled services and print and distribution solutions to public and private companies for deal solutions and SEC compliance requirements.

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)

Investment Companies

The Company provides software solutions, tech-enabled services and print, distribution and fulfillment solutions to its investment companies clients that are subject to the filing and reporting requirements of the Investment Company Act of 1940, as amended (the “Investment Company Act”), primarily mutual fund companies, alternative investment companies, insurance companies and third-party fund administrators. The Company’s operating segments associated with its investment companies services and products offerings are as follows:

Investment Companies – Software Solutions—The Company provides software solutions that enable clients to store and manage compliance and regulatory information in a self-service, central repository for documents to be easily accessed, assembled, edited, translated, rendered and submitted to regulators.

Investment Companies – Compliance & Communications Management—The Company provides its investment company clients tech-enabled services to prepare and file registration forms, as well as XBRL-formatted filings pursuant to the Investment Company Act, through the SEC’s EDGAR system. In addition, the Company provides print and distribution solutions for its clients to communicate with their investors.

Information by Segment

The Company has disclosed income (loss) from operations as the primary measure of segment earnings (loss). This is the measure of profitability used by the Company’s chief operating decision maker and is most consistent with the presentation of profitability reported within the Unaudited Condensed Consolidated Financial Statements.


	Net Sales		Income (Loss) from Operations			Depreciation and Amortization		Capital Expenditures
Three Months Ended September 30, 2021
Capital Markets - Software Solutions	$	48.1	$	7.5		$	4.2	$	4.1
Capital Markets - Compliance and Communications Management		142.5		67.8			1.5		0.8
Investment Companies - Software Solutions		21.2		1.4			3.0		4.2
Investment Companies - Compliance and Communications Management		35.9		2.8			1.2		1.0
Total operating segments		247.7		79.5			9.9		10.1
Corporate		—		(14.5	)		0.1		0.4
Total	$	247.7	$	65.0		$	10.0	$	10.5


	Net Sales		Income (Loss) from Operations			Depreciation and Amortization		Capital Expenditures
Three Months Ended September 30, 2020
Capital Markets - Software Solutions	$	34.1	$	2.1		$	3.2	$	4.4
Capital Markets - Compliance and Communications Management		96.1		37.2			3.6		1.3
Investment Companies - Software Solutions		17.0		(0.8	)		2.9		2.1
Investment Companies - Compliance and Communications Management		62.3		(0.9	)		2.8		0.8
Total operating segments		209.5		37.6			12.5		8.6
Corporate		—		(22.4	)		0.1		0.2
Total	$	209.5	$	15.2		$	12.6	$	8.8

Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)

Notes to the Unaudited Condensed Consolidated Financial Statements (continued)

(in millions, except per share data, unless otherwise indicated)


	Net Sales		Income (Loss) from Operations			Assets(a)		Depreciation and Amortization		Capital Expenditures
Nine Months Ended September 30, 2021
Capital Markets - Software Solutions	$	130.4	$	23.3		$	185.2	$	12.0	$	12.3
Capital Markets - Compliance and Communications Management		434.1		191.5			451.0		4.5		2.1
Investment Companies - Software Solutions		65.8		6.9			92.7		9.8		8.7
Investment Companies - Compliance and Communications Management		130.2		11.2			60.5		3.4		2.3
Total operating segments		760.5		232.9			789.4		29.7		25.4
Corporate		—		(55.0	)		205.1		0.2		2.8
Total	$	760.5	$	177.9		$	994.5	$	29.9	$	28.2


	Net Sales		Income (Loss) from Operations			Assets(a)		Depreciation and Amortization		Capital Expenditures
Nine Months Ended September 30, 2020
Capital Markets - Software Solutions	$	97.1	$	4.9		$	167.6	$	9.9	$	11.4
Capital Markets - Compliance and Communications Management		316.0		87.9			424.7		11.6		2.9
Investment Companies - Software Solutions		48.9		(0.3	)		95.5		9.0		7.6
Investment Companies - Compliance and Communications Management		222.2		3.2			136.9		7.8		1.8
Total operating segments		684.2		95.7			824.7		38.3		23.7
Corporate		—		(64.7	)		105.6		1.4		0.8
Total	$	684.2	$	31.0		$	930.3	$	39.7	$	24.5

__________

(a) Certain assets are recorded within a segment based on predominant usage, however, as they benefit more than one segment, the related operating expenses are allocated between segments.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used in this management’s discussion and analysis, unless otherwise specified or the context otherwise requires, the “Company,” “DFIN,” “we,” “our,” and “us” refer to Donnelley Financial Solutions, Inc. and its consolidated subsidiaries. This discussion and analysis should be read together with the Company’s Unaudited Condensed Consolidated Financial Statements and the notes thereto, as well as the Company’s audited Consolidated Financial Statements for the year ended December 31, 2020.

Company Overview

Technological advancements, regulatory changes, and evolving workflow preferences have led to the Company’s clients managing more of the financial disclosure process themselves, changing the marketplace for the Company’s services and products. DFIN’s strategy in its Software Solutions segments (CM-SS and IC-SS, as defined below) aligns with the changing marketplace by focusing the Company’s investments and resources in its advanced software solutions, primarily ActiveDisclosure®, Arc Suite and Venue® Virtual Data Room (“Venue”), while making targeted investments, such as the Company’s acquisition of eBrevia, Inc. (“eBrevia”) to further broaden its solution set. In its Compliance & Communications Management segments (CM-CCM and IC-CCM, as defined below), the Company’s strategy focuses on maintaining its market-leading position by offering a high-touch, service-oriented experience, using its unique combination of tech-enabled services and print and distribution capabilities.

Market Volatility/Cyclicality

The Company’s Capital Markets segments (CM-SS and CM-CCM, as defined below), in particular, are subject to market volatility in the United States and world economy, as the success of the transactional and Venue offerings is largely dependent on the global market for initial public offerings (“IPOs”), secondary offerings, mergers and acquisitions (“M&A”), public and private debt offerings, leveraged buyouts, spinouts and other transactions. A variety of factors impact the global markets for transactions, including economic activity levels, market volatility, the regulatory and political environment, civil unrest and global pandemics, amongst others. Due to the significant net sales and profitability derived from transactional and Venue offerings, market volatility can lead to uneven financial performance when comparing to previous periods. The Company mitigates a portion of this volatility through its compliance offerings, supporting the quarterly and annual public company reporting processes through its filing services and ActiveDisclosure, as well as its Investment Companies segments (IC-SS and IC-CCM, as defined below) regulatory and shareholder communications offerings, including Arc Suite. The Company also mitigates some of that risk by offering services in higher demand during a down market, such as document management tools for the bankruptcy/restructuring process and by moving upstream in the filing process with products like Venue.

The quarterly/annual public company reporting process work subjects the Company to filing seasonality shortly after the end of each fiscal quarter, with peak periods during the course of the year. Additionally, investment companies clients require the Company to manage the financial and regulatory reporting and filing for mutual funds on an annual basis as well as annual prospectus filings, which peaks during the second fiscal quarter. The seasonality and associated operational implications include the need to increase staff during peak periods through a combined strategy of hiring temporary personnel, increasing the premium time of existing staff and outsourcing production for a number of services.

Services and Products

The Company separately reports its net sales and related cost of sales for its software solutions, tech-enabled services and print and distribution offerings. The Company’s software solutions consist of Venue, ActiveDisclosure, eBrevia, Arc Suite, and others. The Company’s tech-enabled services offerings consist of document composition, compliance-related SEC Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) filing services and transaction solutions. The Company’s print and distribution offerings primarily consist of conventional and digital printed products as well as related shipping.

Regulatory Developments

On June 5, 2018, the SEC adopted Rule 30e-3 which provides certain registered investment companies with an option to electronically deliver shareholder reports and other materials rather than providing such reports in paper. Investors who prefer to receive reports in paper will continue to receive them in that format. While Rule 30e-3 was effective January 1, 2019, default electronic distribution pursuant to the rule began on January 1, 2021 due to a 24-month transition period, during which registered investment companies notified investors of the upcoming change in transmission format of shareholder reports. The Company expects a significant decline in the volume of printed annual and semi-annual shareholder reports in 2021 and beyond as a result of Rule 30e-3. Based on the requirements of the rule, the Company is expecting an increase in revenue from the ArcDigital software solution during 2021.

On March 11, 2020, the SEC announced that it has adopted a new rule 498A under the Securities Act of 1933, as amended (the “Securities Act”) and related regulatory amendments permitting variable annuity and variable life insurance contracts to use a more concise summary prospectus to provide disclosures to investors. More detailed information about the variable annuity or variable life insurance contract will be available online, and an investor can now choose to have that information delivered on paper. The new rule and related form amendments became effective on July 1, 2020 with compliance required by January 1, 2022. The Company expects a decline in printed prospectus volume in 2021 and beyond. Based on the requirements of the rule, the Company is also expecting an increase in revenue from the ArcPro software solutions and related regulatory filings.

Segments

The Company operates its business through four operating and reportable segments: Capital Markets – Software Solutions (“CM-SS”), Capital Markets – Compliance and Communications Management (“CM-CCM”), Investment Companies – Software Solutions (“IC-SS”), and Investment Companies – Compliance and Communications Management (“IC-CCM”). Corporate is not an operating segment and consists primarily of unallocated selling, general and administrative activities and associated expenses including, in part, executive, legal, finance and certain facility costs. In addition, certain costs and earnings of employee benefit plans, such as pension and other postretirement benefit plan expense (income) as well as share-based compensation expense, are included in Corporate and not allocated to the operating segments.

Capital Markets

The Company provides software solutions, tech-enabled services and print and distribution solutions to public and private companies for deal solutions and compliance to companies that are, or are preparing to become, subject to the filing and reporting requirements of the Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company’s operating segments associated with its capital markets services and products offerings are as follows:

Capital Markets – Software Solutions—The CM-SS segment provides Venue, ActiveDisclosure, eBrevia and EDGAR Online solutions to public and private companies to help manage public and private transaction processes, extract data and analyze contracts; collaborate; and tag, validate and file SEC documents.

Capital Markets – Compliance & Communications Management—The CM-CCM segment provides tech-enabled services and print and distribution solutions to public and private companies for deal solutions and SEC compliance requirements. In addition, the Company offers clients the use of private conferencing facilities in major global cities. This service helps clients maintain confidentiality in deal negotiations and provide clients a place to host in-person working groups to meet, strategize and prepare documents for the transaction deal stream. Due to the COVID-19 pandemic, the Company transformed its production platform and service delivery model for a fully-virtual experience while replicating the in-person experience. The Company anticipates that in the future, clients will utilize the range of options available to them, including a hybrid approach with working group members working both virtually and in-person during drafting sessions for their transactions.

Investment Companies

Investment Companies – Software Solutions—The IC-SS segment provides clients with the proprietary Arc Suite platform that contains a comprehensive suite of cloud-based solutions and services that enable storage and management of compliance and regulatory information in a self-service, central repository so that documents can be easily accessed, assembled, edited, translated, rendered and submitted to regulators.

Investment Companies – Compliance & Communications Management—The IC-CCM segment provides clients with tech-enabled services for creating and filing regulatory communications and solutions for investor communications, as well as eXtensible Business Reporting Language (“XBRL”) formatted filings pursuant to the Investment Company Act, through the SEC EDGAR system. The IC-CCM segment also provides turnkey proxy services, including discovery, planning and implementation, print and mail management, solicitation, tabulation services, shareholder meeting review and expert support.

Executive Overview

Third Quarter Overview

Net sales for the three months ended September 30, 2021 increased by $38.2 million, or 18.2%, to $247.7 million from $209.5 million for the three months ended September 30, 2020, including a $0.8 million, or 0.4%, increase due to changes in foreign exchange rates. Net sales increased primarily due to higher capital markets transactional and compliance volumes and higher software solutions volumes in Venue, Arc Suite and ActiveDisclosure, partially offset by lower insurance and investment companies compliance volumes as a result of the impact of SEC Rule 30e-3 and 498A on the Company's business.

Income from operations for the three months ended September 30, 2021 increased by $49.8 million to $65.0 million from $15.2 million for the three months ended September 30, 2020, primarily due to higher sales volumes, a favorable sales mix, cost savings as a result of consolidation of the print platform and a $5.6 million decrease in LSC multiemployer pension plan obligation expense, partially offset by higher selling expense as a result of increased sales volume and higher incentive compensation expense.

Year-to-Date Overview

Net sales for the nine months ended September 30, 2021 increased by $76.3 million, or 11.2%, to $760.5 million from $684.2 million for the nine months ended September 30, 2020, including a $5.2 million, or 0.8%, increase due to changes in foreign exchange rates. Net sales increased primarily due to higher capital markets transactional and compliance volumes and higher software solutions volumes in Venue, Arc Suite and ActiveDisclosure, partially offset by lower insurance and investment companies compliance volumes as a result of the impact of SEC Rule 30e-3 and 498A on the Company's business.

Income from operations for the nine months ended September 30, 2021 increased by $146.9 million to $177.9 million from $31.0 million for the nine months ended September 30, 2020, primarily due to higher sales volume, a favorable sales mix, a decrease in restructuring, impairment and other charges, net, cost savings as a result of consolidation of the print platform, cost control initiatives and a $10.4 million decrease in LSC multiemployer pension plan obligation expense, partially offset by higher selling expense a result of increased sales volume and higher incentive compensation expense.

Redemption of 8.25% Senior Notes Due 2024

On October 15, 2021, the Company redeemed the remaining outstanding 8.25% senior unsecured notes due October 15, 2024 (“Notes”) balance of $233.0 million at the redemption price of 102.063, plus accrued and unpaid interest of $9.6 million, using $200.0 million of proceeds from the Company's Delayed-Draw Term Loan A Facility (as further described in Note 8, Debt) and cash. The Company expects to record a pre-tax loss on the extinguishment of the Notes of $6.8 million in the fourth quarter of 2021.

COVID-19

In December 2019, a novel strain of coronavirus, known as COVID-19 (“COVID-19”), was identified in China and has since extensively impacted the global health and economic environment. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. Although COVID-19 has adversely impacted the Company’s financial condition, results of operations and overall financial performance, the extent of that impact is currently uncertain and depends on factors including the impact on the Company’s customers, employees and vendors.

The COVID-19 pandemic has had and may continue to have a material adverse impact on certain of the Company’s customers’ financial results, which has and may continue to force those clients to alter their plans for purchasing the Company’s services and products. In addition, the global markets were disrupted due to the COVID-19 pandemic, which negatively impacted the Company’s transactional offerings. This stabilized in the third quarter of 2020 and the Company continues to experience an increase in transactional offerings. However, there remains uncertainty for future periods with the possibility of a resurgence of the COVID-19 pandemic, including potentially new strains of COVID-19, resulting in renewal of mitigation measures, including targeted shutdowns. Some of this volatility is mitigated through the Company’s compliance offerings, supporting the quarterly and annual public company reporting processes, as well as its investment companies regulatory and shareholder communications offerings. If the Company’s customers reduce, defer or cancel their spending with DFIN, it would materially adversely impact the Company’s business, results of operations and overall financial performance.

Some of the Company’s operations also have been affected by a range of external factors related to the COVID-19 pandemic that are not within the Company’s control. For example, many jurisdictions imposed a wide range of restrictions on the physical movement of the Company’s employees and vendors to limit the spread of COVID-19, although most of these restrictions have been rescinded, in whole or in part. If any of these external factors or widespread geographic shutdowns are renewed, or if the COVID-19 pandemic and related mitigation measures otherwise have a substantial impact on the Company’s or vendors’ employee attendance or productivity, the Company’s operations are expected to be adversely affected, and in turn the Company’s business, results of operations, liquidity and overall financial performance would be harmed. Furthermore, the Company’s insurance costs may increase.

In response to the COVID-19 pandemic, the Company has taken numerous steps, and will continue to take further actions to ensure the safety of the Company's employees. At the beginning of the pandemic, the Company reviewed and implemented an updated business continuity plan, required all non-essential employees to work from home, prohibited non-essential travel and conducted client and employee meetings virtually. During the third quarter of 2021, the Company implemented a flexible model that allows employees the option to continue to work from home, with the exception of essential employees whose roles require them to be on site. In the Company's manufacturing locations, the Company is following all federal, state and local safety requirements including social distancing where possible, wearing masks and increased cleaning. The Company continues to reevaluate these measures on an ongoing basis to ensure continuity of the Company's business operations and the safety of the Company's workforce. Incremental expenses incurred related to the COVID-19 pandemic included incremental vendor costs and premium wages paid to certain employees as well as costs to clean and disinfect the Company’s facilities more frequently. As a result of the incremental expenses, starting in the second quarter of 2020, the Company invoiced certain customers COVID-19-related sales surcharges to recoup some of the expenses. In the second half of 2020, the Company also received certain government subsidies in connection with COVID-19, primarily related to employee wages at certain international locations. The Company could incur such costs in future periods, however, the impact of such costs on the Company’s business, results of operations, liquidity and overall financial performance cannot be predicted at this time. The Company recorded COVID-19 recoveries, net of $1.0 million, related to an insurance reimbursement for COVID-19 expenses, and incurred $0.9 million of incremental expense, net of sales surcharges, during the nine months ended September 30, 2021 and 2020, respectively. The Company also continues to work closely with its clients to support them as they implement their own contingency plans, helping them access the Company’s services and products and continue to meet their regulatory requirements.

The Company believes that implementing cost reduction efforts helped mitigate the impact that reduced revenues in the first half of 2020 had on income from operations. The Company has reduced expenses and may take further actions that alter its business operations as the situation evolves. The ultimate impact of the COVID-19 pandemic and the effects on the Company’s business, results of operations, liquidity and overall financial performance cannot be predicted at this time.

Multiemployer Pension Plans Obligation

On July 24, 2020, the Company and RRD signed an agreement agreeing to submit to mediation and, if required, arbitration to determine the final liability allocation between the Company and RRD with respect to the LSC MEPP Liabilities. DFIN and RRD also agreed to share all required monthly and quarterly withdrawal liability payment obligations that become due during the mediation/arbitration period, with an adjustment and repayment to be made for any such payments according to the final allocation. The Company and RRD were unable to agree on the final liability allocation in mediation and on March 22, 2021 submitted the matter to arbitration pursuant to the terms of the Separation Agreement, which is expected to take place in the fourth quarter of 2021.

Financial Review

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires the extensive use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities as well as disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates. The Company’s significant accounting policies and critical estimates are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 25, 2021 (the “Annual Report”).

In the financial review that follows, the Company discusses its unaudited condensed consolidated results of operations, cash flows and certain other information. This discussion should be read in conjunction with the Company’s Unaudited Condensed Consolidated Financial Statements and the related notes.

Results of Operations for the Three and Nine Months Ended September 30, 2021 as Compared to the Three and Nine Months Ended September 30, 2020

The following table shows the results of operations for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,												Nine Months Ended September 30,
	2021			2020			$ Change			% Change			2021			2020			$ Change			% Change
	(in millions, except percentages)
Net sales
Tech-enabled services	$	142.1		$	104.5		$	37.6			36.0	%	$	394.6		$	301.8		$	92.8			30.7	%
Software solutions		69.3			51.1			18.2			35.6	%		196.2			146.0			50.2			34.4	%
Print and distribution		36.3			53.9			(17.6	)		(32.7	%)		169.7			236.4			(66.7	)		(28.2	%)
Total net sales		247.7			209.5			38.2			18.2	%		760.5			684.2			76.3			11.2	%
Cost of sales (a)
Tech-enabled services		39.6			42.6			(3.0	)		(7.0	%)		123.3			132.9			(9.6	)		(7.2	%)
Software solutions		26.9			23.3			3.6			15.5	%		76.5			71.8			4.7			6.5	%
Print and distribution		26.6			46.6			(20.0	)		(42.9	%)		121.1			181.6			(60.5	)		(33.3	%)
Total cost of sales		93.1			112.5			(19.4	)		(17.2	%)		320.9			386.3			(65.4	)		(16.9	%)
Selling, general and administrative expenses (a)		77.0			62.2			14.8			23.8	%		225.6			192.0			33.6			17.5	%
Depreciation and amortization		10.0			12.6			(2.6	)		(20.6	%)		29.9			39.7			(9.8	)		(24.7	%)
Restructuring, impairment and other charges, net		3.3			7.0			(3.7	)		(52.9	%)		6.9			35.2			(28.3	)		(80.4	%)
Other operating income, net		(0.7	)		—			(0.7	)	nm				(0.7	)		—			(0.7	)	nm
Income from operations		65.0			15.2			49.8		nm				177.9			31.0			146.9		nm
Interest expense, net		5.9			5.9			—			—			17.1			16.8			0.3			1.8	%
Investment and other income, net		(1.7	)		(0.4	)		(1.3	)	nm				(4.0	)		(1.3	)		(2.7	)	nm
Earnings before income taxes		60.8			9.7			51.1		nm				164.8			15.5			149.3		nm
Income tax expense		18.6			2.6			16.0		nm				44.5			5.6			38.9		nm
Net earnings	$	42.2		$	7.1		$	35.1		nm			$	120.3		$	9.9		$	110.4		nm

(a)

Exclusive of depreciation and amortization.

nm – Not meaningful

Consolidated

Three Months Ended September 30, 2021 compared to the Three Months Ended September 30, 2020

Net sales of tech-enabled services of $142.1 million for the three months ended September 30, 2021 increased $37.6 million, or 36.0%, as compared to the three months ended September 30, 2020. Net sales of tech-enabled services increased primarily due to increased capital markets transactional and compliance volumes, partially offset by lower insurance and investment companies compliance volumes.

Net sales of software solutions of $69.3 million for the three months ended September 30, 2021 increased $18.2 million, or 35.6%, as compared to the three months ended September 30, 2020. Net sales of software solutions increased primarily due to increased Venue, ArcDigital, ActiveDisclosure and ArcPro volumes.

Net sales of print and distribution of $36.3 million for the three months ended September 30, 2021 decreased $17.6 million, or 32.7%, as compared to the three months ended September 30, 2020. Net sales of print and distribution decreased primarily due to lower insurance and investment companies compliance volumes as a result of the impact of SEC Rule 30e-3 and 498A on the Company's business, partially offset by higher capital markets transactional print volumes.

Tech-enabled services cost of sales of $39.6 million for the three months ended September 30, 2021 decreased $3.0 million, or 7.0%, as compared to the three months ended September 30, 2020. Tech-enabled services cost of sales decreased primarily due to a favorable sales mix, partially offset by the impact of higher sales volumes. As a percentage of tech-enabled services net sales, tech-enabled services cost of sales decreased 12.9%, primarily driven by a favorable sales mix.

Software solutions cost of sales of $26.9 million for the three months ended September 30, 2021 increased $3.6 million, or 15.5%, as compared to the three months ended September 30, 2020. Software solutions cost of sales increased primarily due to increased sales volume and a higher allocation of overhead costs, partially offset by a favorable sales mix. As a percentage of software solutions net sales, software solutions cost of sales decreased 6.8%, primarily driven by a favorable sales mix, partially offset by a higher allocation of overhead costs.

Print and distribution cost of sales of $26.6 million for the three months ended September 30, 2021 decreased $20.0 million, or 42.9%, as compared to the three months ended September 30, 2020. Print and distribution cost of sales decreased primarily due to the impact of lower sales volumes as a result of the impact of SEC Rule 30e-3 and 498A on the Company's business, cost savings as a result of consolidation of the print platform and a lower allocation of overhead costs. As a percentage of print and distribution net sales, print and distribution cost of sales decreased 13.2%, primarily driven by the print platform consolidation savings and a lower allocation of overhead costs.

SG&A expenses of $77.0 million for the three months ended September 30, 2021 increased $14.8 million, or 23.8%, as compared to the three months ended September 30, 2020. SG&A expenses increased primarily due to higher selling expense as a result of increased sales volume and higher incentive compensation expense, partially offset by a $5.6 million decrease in LSC multiemployer pension plan obligation expense. As a percentage of net sales, SG&A expenses increased 1.4% to 31.1% for the three months ended September 30, 2021, as compared to 29.7% for the three months ended September 30, 2020, primarily driven by higher selling expense and higher incentive compensation expense, partially offset by the decrease in LSC multiemployer pension plan obligation expense.

Depreciation and amortization of $10.0 million for the three months ended September 30, 2021 decreased $2.6 million, or 20.6%, as compared to the three months ended September 30, 2020. Depreciation and amortization decreased primarily due to intangible assets that were fully amortized by the end of fiscal year 2020. Depreciation and amortization included $0.3 million and $3.4 million of amortization of other intangible assets related to customer relationships and a tradename for the three months ended September 30, 2021 and 2020, respectively.

Restructuring, impairment and other charges, net of $3.3 million for the three months ended September 30, 2021 decreased $3.7 million, or 52.9%, compared to $7.0 million for the three months ended September 30, 2020. In 2021, these charges primarily related to a $2.8 million impairment charge related to the demolition of an office building, as further described in Note 1, Overview, Basis of Presentation and Significant Accounting Policies. In 2020, these charges included $5.5 million of impairment charges related to operating lease right-of-use ("ROU") assets and certain capitalized software and $1.1 million of employee termination costs.

Other operating income, net of $0.7 million for the three months ended September 30, 2021 includes a net gain on the sale of machinery and equipment at facilities being exited.

Income from operations of $65.0 million for the three months ended September 30, 2021 increased $49.8 million as compared to the three months ended September 30, 2020, primarily due to higher sales volumes, a favorable sales mix, cost savings as a result of consolidation of the print platform and a $5.6 million decrease in LSC multiemployer pension plan obligation expense, partially offset by higher selling expense as a result of increased sales volume and higher incentive compensation expense.

Interest expense, net of $5.9 million for the three months ended September 30, 2021 was flat compared to the three months ended September 30, 2020.

Investment and other income, net of $1.7 million for the three months ended September 30, 2021 increased $1.3 million primarily due to an unrealized gain on an investment and an increase in net pension plan income.

The effective income tax rate was 30.6% for the three months ended September 30, 2021 compared to 26.8% for the three months ended September 30, 2020. The increase in the effective income tax rate for the three months ended September 30, 2021 was primarily driven by a higher forecasted annual effective rate as the favorable impact of permanent deductions and credits was diluted as a result of higher earnings in 2021.

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020

Net sales of tech-enabled services of $394.6 million for the nine months ended September 30, 2021 increased $92.8 million, or 30.7%, as compared to the nine months ended September 30, 2020. Net sales of tech-enabled services increased primarily due to increased capital markets transactional and compliance volumes, partially offset by lower insurance and investment companies compliance volumes.

Net sales of software solutions of $196.2 million for the nine months ended September 30, 2021 increased $50.2 million, or 34.4%, as compared to the nine months ended September 30, 2020. Net sales of software solutions increased primarily due to increased Venue, ArcDigital, ActiveDisclosure and ArcPro volumes.

Net sales of print and distribution of $169.7 million for the nine months ended September 30, 2021 decreased $66.7 million, or 28.2%, as compared to the nine months ended September 30, 2020. Net sales of print and distribution decreased primarily due to lower insurance and investment companies compliance volumes as a result of the impact of SEC Rule 30e-3 and 498A on the Company's business, partially offset by higher capital markets transactional print volumes.

Tech-enabled services cost of sales of $123.3 million for the nine months ended September 30, 2021 decreased $9.6 million, or 7.2%, as compared to the nine months ended September 30, 2020. Tech-enabled services cost of sales decreased primarily due to a favorable sales mix and cost control initiatives, partially offset by the impact of higher sales volumes, a higher allocation of overhead costs and higher incentive compensation expense. As a percentage of tech-enabled services net sales, tech-enabled services cost of sales decreased 12.8%, primarily driven by a favorable sales mix and cost control initiatives, partially offset by a higher allocation of overhead costs and higher incentive compensation expense.

Software solutions cost of sales of $76.5 million for the nine months ended September 30, 2021 increased $4.7 million, or 6.5%, as compared to the nine months ended September 30, 2020. Software solutions cost of sales increased primarily due to increased sales volume, a higher allocation of overhead costs and higher incentive compensation expense, partially offset by a favorable sales mix and cost control initiatives. As a percentage of software solutions net sales, software solutions cost of sales decreased 10.2%, primarily driven by a favorable sales mix and cost control initiatives, partially offset by a higher allocation of overhead costs and higher incentive compensation expense.

Print and distribution cost of sales of $121.1 million for the nine months ended September 30, 2021 decreased $60.5 million, or 33.3%, as compared to the nine months ended September 30, 2020. Print and distribution cost of sales decreased primarily due to the impact of lower sales volumes as a result of the impact of SEC Rule 30e-3 and 498A on the Company's business, cost savings as a result of the consolidation of the print platform and a lower allocation of overhead costs, partially offset by higher incentive compensation expense. As a percentage of print and distribution net sales, print and distribution cost of sales decreased 5.4%, primarily driven by cost savings as a result of the consolidation of the print platform and a lower allocation of overhead costs, partially offset by higher incentive compensation expense.

SG&A expenses of $225.6 million for the nine months ended September 30, 2021 increased $33.6 million, or 17.5%, as compared to the nine months ended September 30, 2020. SG&A expenses increased primarily due to higher selling expense as a result of increased sales volume, higher incentive compensation expense and higher share-based compensation expense, partially offset by a $10.4 million decrease in LSC multiemployer pension plan obligation expense. As a percentage of net sales, SG&A expenses increased to 29.7% for the nine months ended September 30, 2021 from 28.1% for the nine months ended September 30, 2020, primarily driven by higher selling expenses, higher incentive compensation expense and higher share-based compensation expense, partially offset by the decrease in LSC multiemployer pension plan obligation expense.

Depreciation and amortization of $29.9 million for the nine months ended September 30, 2021 decreased $9.8 million, or 24.7%, as compared to the nine months ended September 30, 2020. Depreciation and amortization decreased primarily due to intangible assets that were fully amortized by the end of fiscal year 2020. Depreciation and amortization included $0.8 million and $10.1 million of amortization of other intangible assets related primarily to customer relationships and a tradename for the nine months ended September 30, 2021 and 2020, respectively.

Restructuring, impairment and other charges, net of $6.9 million for the nine months ended September 30, 2021 decreased $28.3 million, or 80.4%, as compared to the nine months ended September 30, 2020. In 2021, these charges included $3.2 million of employee termination costs for approximately 170 employees and a $2.8 million impairment charge related to the demolition of an office building. In 2020, these charges included $15.0 million of employee termination costs for approximately 490 employees, impairment charges of $17.6 million related to operating lease ROU assets and certain capitalized software and $2.6 million for other charges, primarily related to the realignment of the Company’s operating segments.

Other operating income, net of $0.7 million for the nine months ended September 30, 2021 includes a net gain on the sale of machinery and equipment at facilities being exited.

Income from operations of $177.9 million for the nine months ended September 30, 2021 increased $146.9 million as compared to the nine months ended September 30, 2020, primarily due to higher sales volume, a favorable sales mix, a decrease in restructuring, impairment and other charges, net, cost savings as a result of consolidation of the print platform, cost control initiatives and a $10.4 million decrease in LSC multiemployer pension plan obligation expense, partially offset by higher selling expense a result of increased sales volume and higher incentive compensation expense.

Interest expense, net of $17.1 million for the nine months ended September 30, 2021 increased $0.3 million as compared to the nine months ended September 30, 2020. Interest expense, net increased primarily due to the $2.3 million gain on debt extinguishment recorded during the nine months ended September 30, 2020, as further described in Note 8, Debt, to the Unaudited Condensed Consolidated Financial Statements, partially offset by a lower average Revolving Facility (as defined below) balance during 2021 compared to 2020.

Investment and other income, net of $4.0 million for the nine months ended September 30, 2021 increased $2.7 million primarily due to an increase in net pension plan income and other income.

The effective income tax rate was 27.0% for the nine months ended September 30, 2021, as compared to 36.1% for the nine months ended September 30, 2020. The decrease in the effective income tax rate for the nine months ended September 30, 2021 was primarily driven by the increase in earnings in 2021, the favorable impact of the vesting of the Company's equity awards during the nine months ended September 30, 2021 and an inability to recognize a tax benefit on certain losses during the nine months ended September 30, 2020.

Information by Segment

The following tables summarize net sales, income (loss) from operations, operating margin and certain items impacting comparability within each of the Company's operating segments and Corporate.

Capital Markets – Software Solutions


	Three Months Ended September 30,												Nine Months Ended September 30,
	2021			2020			$ Change			% Change			2021			2020			$ Change			% Change
	(in millions, except percentages)
Net sales	$	48.1		$	34.1		$	14.0			41.1	%	$	130.4		$	97.1		$	33.3			34.3	%
Income from operations		7.5			2.1			5.4		nm				23.3			4.9			18.4		nm
Operating margin		15.6	%		6.2	%								17.9	%		5.0	%
Items impacting comparability
Restructuring, impairment and other charges, net		0.2			0.2			—			—			0.3			1.0			(0.7	)		(70.0	%)
Accelerated rent expense		—			0.4			(0.4	)		(100.0	%)		—			0.5			(0.5	)		(100.0	%)
Non-income tax, net		(0.2	)		2.7			(2.9	)	nm				(0.9	)		2.7			(3.6	)	nm

nm – Not meaningful

Three Months Ended September 30, 2021 compared to the Three Months Ended September 30, 2020

Net sales for the three months ended September 30, 2021 were $48.1 million, an increase of $14.0 million, or 41.1%, as compared to the three months ended September 30, 2020. Net sales increased primarily due to higher Venue, ActiveDisclosure and other compliance software solutions volumes.

Income from operations increased $5.4 million to $7.5 million for the three months ended September 30, 2021, as compared to $2.1 million for the three months ended September 30, 2020, primarily due to higher sales volumes, a favorable sales mix and a reduction of non-income tax, net expense, partially offset by higher selling expense as a result of increased sales volume and a higher allocation of overhead costs.

Operating margins increased from 6.2% for the three months ended September 30, 2020 to 15.6% for the three months ended September 30, 2021, primarily due to a favorable sales mix and a reduction of non-income tax, net expense, which had a positive impact on the change in operating margin of 6.0%, partially offset by higher selling expense and a higher allocation of overhead costs.

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020

Net sales for the nine months ended September 30, 2021 were $130.4 million, an increase of $33.3 million, or 34.3%, as compared to the nine months ended September 30, 2020. Net sales increased primarily due to higher Venue, ActiveDisclosure, other compliance software solutions volumes and eBrevia.

Income from operations increased $18.4 million to $23.3 million for the nine months ended September 30, 2021, as compared to $4.9 million for the nine months ended September 30, 2020, primarily due to higher sales volumes, a favorable sales mix, cost savings initiatives and a reduction of non-income tax, net expense, partially offset by higher selling expense as a result of increased sales volume, a higher allocation of overhead costs, an increase in depreciation and amortization expense, higher incentive compensation expense and higher marketing expense.

Operating margins increased from 5.0% for the nine months ended September 30, 2020 to 17.9% for the nine months ended September 30, 2021, primarily due to a favorable sales mix, cost savings initiatives and a reduction of non-income tax, net expense, which had a positive impact on the change in operating margin of 2.8%, partially offset by higher selling expense, a higher allocation of overhead costs, an increase in depreciation and amortization expense, higher incentive compensation expense and higher marketing expense.

Capital Markets – Compliance and Communications Management


	Three Months Ended September 30,												Nine Months Ended September 30,
	2021			2020			$ Change			% Change			2021			2020			$ Change			% Change
	(in millions, except percentages)
Net sales	$	142.5		$	96.1		$	46.4			48.3	%	$	434.1		$	316.0		$	118.1			37.4	%
Income from operations		67.8			37.2			30.6			82.3	%		191.5			87.9			103.6		nm
Operating margin		47.6	%		38.7	%								44.1	%		27.8	%
Items impacting comparability
Restructuring, impairment and other charges, net		2.7			2.5			0.2			8.0	%		3.3			19.9			(16.6	)		(83.4	%)
COVID-19 related recoveries, net		—			(0.8	)		0.8			(100.0	%)		(0.3	)		(1.6	)		1.3			(81.3	%)
Accelerated rent expense		—			0.6			(0.6	)		(100.0	%)		—			0.8			(0.8	)		(100.0	%)
Non-income tax, net		(0.1	)		—			(0.1	)	nm				(0.2	)		—			(0.2	)	nm

nm – Not meaningful

Three Months Ended September 30, 2021 compared to the Three Months Ended September 30, 2020

Net sales for the three months ended September 30, 2021 were $142.5 million, an increase of $46.4 million, or 48.3%, as compared to the three months ended September 30, 2020. Net sales increased primarily due to higher transactional and compliance volumes.

Income from operations increased $30.6 million, or 82.3%, to $67.8 million for the three months ended September 30, 2021 as compared to $37.2 million for the three months ended September 30, 2020, primarily due to higher sales volumes, a favorable sales mix and a decrease in depreciation and amortization expense, partially offset by higher selling expense as a result of increased sales volume.

Operating margins increased from 38.7% for the three months ended September 30, 2020 to 47.6% for the three months ended September 30, 2021, primarily due to higher sales volume, a favorable sales mix and a decrease in depreciation and amortization expense, partially offset by higher selling expense.

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020

Net sales for the nine months ended September 30, 2021 were $434.1 million, an increase of $118.1 million, or 37.4%, as compared to the nine months ended September 30, 2020. Net sales increased primarily due to higher transactional and compliance volumes.

Income from operations increased $103.6 million to $191.5 million for the nine months ended September 30, 2021 as compared to $87.9 million for the nine months ended September 30, 2020, primarily due to higher sales volume, a favorable sales mix, a decrease in restructuring, impairment, and other charges, net, cost savings initiatives, a decrease in depreciation and amortization expense and a decrease in rent expense, partially offset by higher selling expense as a result of increased sales volume, a higher allocation of overhead costs and higher incentive compensation expense.

Operating margins increased from 27.8% for the nine months ended September 30, 2020 to 44.1% for the nine months ended September 30, 2021, primarily due to a favorable sales mix, a decrease in restructuring, impairment, and other charges, net, which had a positive impact on the change in operating margin of 3.8%, cost savings initiatives, a decrease in depreciation and amortization expense and a decrease in rent expense, partially offset by higher selling expense, a higher allocation of overhead costs and higher incentive compensation expense.

Investment Companies – Software Solutions


	Three Months Ended September 30,												Nine Months Ended September 30,
	2021			2020			$ Change			% Change			2021			2020			$ Change			% Change
	(in millions, except percentages)
Net sales	$	21.2		$	17.0		$	4.2			24.7	%	$	65.8		$	48.9		$	16.9			34.6	%
Income (loss) from operations		1.4			(0.8	)		2.2		nm				6.9			(0.3	)		7.2		nm
Operating margin		6.6	%		(4.7	%)								10.5	%		(0.6	%)
Items impacting comparability
Restructuring, impairment and other charges, net		—			2.2			(2.2	)		(100.0	%)		0.1			2.6			(2.5	)		(96.2	%)
Accelerated rent expense		—			0.1			(0.1	)		(100.0	%)		—			0.1			(0.1	)		(100.0	%)
Non-income tax, net		(0.1	)		—			(0.1	)	nm				(0.2	)		—			(0.2	)	nm

nm – Not meaningful

Three Months Ended September 30, 2021 compared to the Three Months Ended September 30, 2020

Net sales for the three months ended September 30, 2021 were $21.2 million, an increase of $4.2 million, or 24.7%, as compared to the three months ended September 30, 2020. Net sales increased primarily due to higher ArcDigital volume resulting from the total compliance management offering, which supports compliance with SEC Rule 30e-3 and 498A regulatory requirements, and higher ArcPro volumes driven by iXBRL requirements and increased funds volume.

Income from operations increased $2.2 million to $1.4 million for the three months ended September 30, 2021 as compared to an operating loss of $0.8 million for the three months ended September 30, 2020, primarily due to higher sales volumes and a decrease in restructuring, impairment, and other charges, net, partially offset by a higher allocation of overhead costs.

Operating margins increased from a negative margin of 4.7% for the three months ended September 30, 2020 to 6.6% for the three months ended September 30, 2021, primarily due to higher sales volumes, a decrease in restructuring, impairment, and other charges, net, which had a positive impact on the change in operating margin of 10.4%, partially offset by a higher allocation of overhead costs.

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020

Net sales for the nine months ended September 30, 2021 were $65.8 million, an increase of $16.9 million, or 34.6%, as compared to the nine months ended September 30, 2020, primarily due to higher ArcDigital volume resulting from the total compliance management offering, which supports compliance with SEC Rule 30e-3 and 498A regulatory requirements, and higher ArcPro volumes driven by iXBRL requirements.

Income from operations increased $7.2 million to $6.9 million for the nine months ended September 30, 2021, as compared to an operating loss of $0.3 million for the nine months ended September 30, 2020, primarily due to higher sales volumes, a favorable sales mix and a decrease in restructuring, impairment, and other charges, net partially offset by higher incentive compensation expense, higher selling expense as a result of increased sales volume and a higher allocation of overhead costs.

Operating margins increased from a negative margin of 0.6% for the nine months ended September 30, 2020 to 10.5% for the nine months ended September 30, 2021, primarily due to higher sales volume, a favorable sales mix and a decrease in restructuring, impairment, and other charges, net, which had a positive impact on the change in operating margin of 3.8%, partially offset by higher incentive compensation expense, higher selling expense and a higher allocation of overhead costs.

Investment Companies – Compliance and Communications Management


	Three Months Ended September 30,												Nine Months Ended September 30,
	2021			2020			$ Change			% Change			2021			2020			$ Change			% Change
	(in millions, except percentages)
Net sales	$	35.9		$	62.3		$	(26.4	)		(42.4	%)	$	130.2		$	222.2		$	(92.0	)		(41.4	%)
Income (loss) from operations		2.8			(0.9	)		3.7		nm				11.2			3.2			8.0		nm
Operating margin		7.8	%		(1.4	%)								8.6	%		1.4	%
Items impacting comparability
Restructuring, impairment and other charges, net		0.3			0.2			0.1			50.0	%		2.9			5.4			(2.5	)		(46.3	%)
Gain on sale of long-lived assets, net		(0.7	)		—			(0.7	)	nm				(0.7	)		—			(0.7	)	nm
COVID-19 related expenses (recoveries), net		—			(0.2	)		0.2			(100.0	%)		(0.7	)		2.4			(3.1	)	nm
Accelerated rent expense		—			0.1			(0.1	)		(100.0	%)		—			0.4			(0.4	)		(100.0	%)
Non-income tax, net		(0.1	)		—			(0.1	)	nm				(0.1	)		—			(0.1	)	nm

nm – Not meaningful

Three Months Ended September 30, 2021 compared to the Three Months Ended September 30, 2020

Net sales for the three months ended September 30, 2021 were $35.9 million, a decrease of $26.4 million, or 42.4%, as compared to the three months ended September 30, 2020. Net sales decreased primarily due to lower insurance and investment companies compliance volumes as a result of SEC Rule 30e-3 and 498A eliminating print requirements, partially offset by higher transactional volumes.

Income from operations increased $3.7 million to $2.8 million for the three months ended September 30, 2021 as compared to an operating loss of $0.9 million for the three months ended September 30, 2020, primarily due to cost savings as a result of the print platform consolidation, a lower allocation of overhead costs and a reduction in depreciation and amortization expense, partially offset by lower sales volume.

Operating margins increased from a negative margin of 1.4% for the three months ended September 30, 2020 to 7.8% for the three months ended September 30, 2021, primarily due to cost savings as a result of the print platform consolidation, a lower allocation of overhead costs and a reduction in depreciation and amortization expense.

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020

Net sales for the nine months ended September 30, 2021 were $130.2 million, a decrease of $92.0 million, or 41.4%, as compared to the nine months ended September 30, 2020, primarily due to lower insurance and investment companies compliance volumes as a result of SEC Rule 30e-3 and 498A eliminating print requirements and lower commercial volumes.

Income from operations increased $8.0 million to $11.2 million for the nine months ended September 30, 2021, as compared to $3.2 million for the nine months ended September 30, 2020, primarily due to cost savings as a result of the print platform consolidation, a lower allocation of overhead costs, a reduction in depreciation and amortization expense, a decrease in COVID-19 related expenses, net, and a decrease in restructuring, impairment and other charges, net, partially offset by lower sales volume and higher incentive compensation expense.

Operating margins increased from 1.4% for the nine months ended September 30, 2020 to 8.6% for the nine months ended September 30, 2021, primarily due to cost savings as a result of the print platform consolidation, a lower allocation of overhead costs, a reduction in depreciation and amortization expense as well as a decrease in COVID-19 related expenses, net, and restructuring, impairment and other charges, net, which combined to have a positive impact on the change in operating margin of 4.3%, partially offset by higher incentive compensation expense.

Corporate

The following table summarizes unallocated operating expenses and certain items impacting comparability within the activities presented as Corporate:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2021		2020			2021		2020
	(in millions)
Operating expenses	$	14.5	$	22.4		$	55.0	$	64.7
Items impacting comparability
Share-based compensation expense		5.2		4.4			14.2		9.8
Restructuring, impairment and other charges, net		0.1		1.9			0.3		6.3
LSC multiemployer pension plans obligation		0.2		5.8			7.7		18.1
COVID-19 related expenses, net		—		—			—		0.1
Accelerated rent expense		—		0.1			—		0.1
eBrevia contingent consideration		—		(0.4	)		—		(0.8	)

Three Months Ended September 30, 2021 compared to the Three Months Ended September 30, 2020

Corporate operating expenses for the three months ended September 30, 2021 decreased $7.9 million as compared to the three months ended September 30, 2020, primarily due to a decrease in LSC multiemployer pension plan obligation expense, lower legal and consulting expenses and a decrease in restructuring, impairment and other charges, net, partially offset by higher incentive compensation expense.

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020

Corporate operating expenses for the nine months ended September 30, 2021 decreased $9.7 million as compared to the nine months ended September 30, 2020, primarily due to a decrease in LSC multiemployer pension plan obligation expense, lower legal and consulting expenses and a decrease in restructuring, impairment and other charges, net, partially offset by higher incentive compensation expense and higher share-based compensation expense.

Non-GAAP Measures

The Company believes that certain Non-GAAP measures, such as Non-GAAP adjusted EBITDA (“Adjusted EBITDA”), provide useful information about the Company’s operating results and enhance the overall ability to assess the Company’s financial performance. The Company uses these measures, together with other measures of performance under GAAP, to compare the relative performance of operations in planning, budgeting and reviewing the performance of its business. Adjusted EBITDA allows investors to make a more meaningful comparison between the Company’s core business operating results over different periods of time. The Company believes that Adjusted EBITDA, when viewed with the Company’s results under GAAP and the accompanying reconciliations, provides useful information about the Company’s business without regard to potential distortions. By eliminating potential differences in results of operations between periods caused by factors such as historic cost and age of assets, restructuring, impairment and other charges as well as other items, as described below, the Company believes that Adjusted EBITDA can provide a useful additional basis for comparing the current performance of the underlying operations being evaluated.

Adjusted EBITDA is not presented in accordance with GAAP and has important limitations as an analytical tool. These measures should not be considered as a substitute for analysis of the Company’s results as reported under GAAP. In addition, these measures are defined differently by different companies and, accordingly, such measures may not be comparable to similarly-titled measures of other companies.

In addition to the factors listed above, the following items are excluded from Adjusted EBITDA:



Share-based compensation expense. Although share-based compensation is a key incentive offered to certain of the Company’s employees, business performance is evaluated excluding share-based compensation expenses. Depending upon the size, timing and the terms of grants, non-cash compensation expense may vary but will recur in future periods.



COVID-19 related (recoveries) expenses, net. Recoveries recognized and incremental expenses incurred as a result of the COVID-19 pandemic. Incremental expenses included incremental vendor costs and premium wages paid to certain employees as well as costs to clean and disinfect the Company’s facilities more frequently. As a result of these incremental expenses, the Company invoiced certain customers COVID-19 related surcharges as well as received an insurance reimbursement associated with certain COVID-19 related expenses. In 2020, the Company also received certain government subsidies, primarily related to employee wages at certain international locations.

A reconciliation of net earnings to Adjusted EBITDA for the three and nine months ended September 30, 2021 and 2020 is presented in the following table:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
	(in millions)
Net earnings	$	42.2		$	7.1		$	120.3		$	9.9
Restructuring, impairment and other charges, net		3.3			7.0			6.9			35.2
Share-based compensation expense		5.2			4.4			14.2			9.8
LSC multiemployer pension plans obligation		0.2			5.8			7.7			18.1
Gain on sale of long-lived assets, net		(0.7	)		—			(0.7	)		—
Gain on equity investments, net		(0.6	)		—			(0.4	)		—
Non-income tax, net		(0.5	)		2.7			(1.4	)		2.7
COVID-19 related (recoveries) expenses, net		—			(1.0	)		(1.0	)		0.9
Accelerated rent expense		—			1.3			—			1.9
eBrevia contingent consideration		—			(0.4	)		—			(0.8	)
Depreciation and amortization		10.0			12.6			29.9			39.7
Interest expense, net		5.9			5.9			17.1			16.8
Investment and other income, net		(1.1	)		(0.4	)		(3.6	)		(1.3	)
Income tax expense		18.6			2.6			44.5			5.6
Adjusted EBITDA	$	82.5		$	47.6		$	233.5		$	138.5

Restructuring, impairment and other charges, net—The three and nine months ended September 30, 2021 included employee termination costs of $0.3 million and $3.2 million, respectively, as well as a $2.8 million impairment charge related to the demolition of an office building, as further described in Note 1, Overview, Basis of Presentation and Significant Accounting Policies. The three months ended September 30, 2020 included $1.1 million of employee termination costs and impairment charges of $5.5 million on operating lease ROU assets and certain capitalized software. The nine months ended September 30, 2020 included $15.0 million of employee termination costs, impairment charges of $17.6 million on operating lease ROU assets and certain capitalized software and $2.6 million for other charges, primarily related to the realignment of the Company’s operating segments. Refer to Note 5, Restructuring, Impairment and Other Charges, for additional information.

Share-based compensation expense—Included charges of $5.2 million and $14.2 million for the three and nine months ended September 30, 2021, respectively, and $4.4 million and $9.8 million for the three and nine months ended September 30, 2020, respectively.

LSC multiemployer pension plans obligation—Included charges of $0.2 million and $7.7 million for the three and nine months ended September 30, 2021, respectively, and charges of $5.8 million and $18.1 million for the three and nine months ended September 30, 2020, respectively, for the Company's accrual related to the LSC MEPP Liabilities. Refer to Note 7, Commitments and Contingencies, for additional information.

Gain on sale of long-lived assets, net—Included a net gain of $0.7 million for both the three and nine months ended September 30, 2021, primarily related to the sale of machinery and equipment at facilities being exited as a result of restructuring actions.

Gain on equity investments, net—Included a net unrealized gain of $0.6 million and $0.4 million for the three and nine months ended September 30, 2021, respectively.

Non-income tax, net—Included income of $0.5 million and $1.4 million for the three and nine months ended September 30, 2021, respectively, and a charge of $2.7 million for both the three and nine months ended September 30, 2020, related to the Company's accrual for certain estimated non-income tax exposures. Refer to Note 7, Commitments and Contingencies, for additional information.

COVID-19 related (recoveries) expenses, net—The nine months ended September 30, 2021 included net recoveries of $1.0 million, primarily related to an insurance reimbursement of COVID-19 expenses. The three and nine months ended September 30, 2020 included net recoveries of $1.0 million and net charges of $0.9 million, respectively, primarily related to incremental vendor costs, premium wages and incentive compensation paid to certain employees, net of COVID-19 sales surcharges invoiced to certain customers and government subsidies, as described above.

Accelerated rent expense—Included charges of $1.3 million and $1.9 million for the three and nine months ended September 30, 2020, respectively, for the acceleration of rent expense associated with abandoned operating leases.

eBrevia contingent consideration—Included a gain of $0.4 million and $0.8 million for the three and nine months ended September 30, 2020, respectively, as a result of a decrease in the contingent consideration to be paid to the former owners of eBrevia.

Liquidity and Capital Resources

The Company believes it has sufficient liquidity to support its ongoing operations and to invest in future growth to create value for its shareholders. Cash on hand, operating cash flows and the Company’s $300.0 million senior secured revolving credit facility (the “Revolving Facility”) are the primary sources of liquidity and are expected to be used for, among other things, payment of interest and principal on the Company’s debt obligations, capital expenditures necessary to support productivity improvement and growth, acquisitions and completion of restructuring programs.

The Company maintains cash pooling structures that enable participating international locations to draw on the pools’ cash resources to meet local liquidity needs. Foreign cash balances may be loaned from certain cash pools to U.S. operating entities on a temporary basis in order to reduce the Company’s short-term borrowing costs or for other purposes. The Company has the ability to repatriate any previously taxed foreign cash associated with the foreign earnings subject to the U.S. parent with minimal tax consequences. The Company maintains its assertion of indefinite reinvestment on all foreign earnings and other outside basis differences to indicate that the Company remains indefinitely reinvested in operations outside of the U.S., with the exception of the previously taxed foreign cash already subject to U.S. tax. The Company did not make cash repatriations during 2020 and is evaluating whether to make any cash repatriations in the future.

Cash and cash equivalents were $122.9 million at September 30, 2021, which included $75.7 million in the U.S. and $47.2 million at international locations.

The following describes the Company’s cash flows for the nine months ended September 30, 2021 and 2020.


	Nine Months Ended September 30,
	2021			2020
	(in millions)
Net cash provided by operating activities	$	103.2		$	52.5
Net cash used in investing activities		(27.3	)		(13.2	)
Net cash used in financing activities		(27.5	)		(14.5	)
Effect of exchange rate on cash and cash equivalents		0.9			(1.1	)
Net increase in cash and cash equivalents	$	49.3		$	23.7

Cash Flows Provided By Operating Activities

Operating cash inflows and outflows are largely attributable to sales of the Company’s services and products as well as recurring expenditures for labor, rent, raw materials and other operating activities.

Net cash provided by operating activities was $103.2 million for the nine months ended September 30, 2021 compared to $52.5 million for the nine months ended September 30, 2020. The increase in cash provided by operating activities was primarily due to the significant increase in net earnings, partially offset by the timing of vendor payments, an increase in income taxes paid and a decrease in collections due to the timing of customer payments. Accounts payable and accrued liabilities and other increased operating cash flows by $13.7 million for the nine months ended September 30, 2021, as compared to a $47.3 million increase in operating cash flows for the nine months ended September 30, 2020, primarily due to higher incentive compensation and commission payments and payments related to the LSC MEPP liability during 2021. The Company's income tax payments increased by $19.6 million to $32.0 million for the nine months ended September 30, 2021 from $12.4 million, primarily due to federal and state income tax payments made in the nine months ended September 30, 2021. Accounts receivable decreased operating cash flow by $73.5 million for the nine months ended September 30, 2021, as compared to $59.4 million for the nine months ended September 30, 2020.

Cash Flows Used in Investing Activities

Net cash used in investing activities was $27.3 million for the nine months ended September 30, 2021, which primarily consisted of capital expenditures of $28.2 million, driven by investments in software development. The Company expects that capital expenditures for 2021 will be approximately $45 million.

Net cash used in investing activities was $13.2 million for the nine months ended September 30, 2020, which primarily consisted of capital expenditures of $24.5 million, mostly driven by investments in software development, partially offset by $12.8 million of proceeds from the sale of one of the Company's investments in equity securities.

Cash Flows Used in Financing Activities

Net cash used in financing activities was $27.5 million for the nine months ended September 30, 2021. During the nine months ended September 30, 2021, the Company received $278.0 million of proceeds from the Revolving Facility borrowings, offset by $278.0 million of payments on the Revolving Facility borrowings. The Company’s common stock repurchases for the nine months ended September 30, 2021 totaled $26.5 million, which included $17.8 million of repurchases under the stock repurchase program and $8.7 million associated with vesting of the Company employees’ equity awards.

Net cash used in financing activities was $14.5 million for the nine months ended September 30, 2020. During the nine months ended September 30, 2020, the Company received $305.5 million of proceeds from the Revolving Facility borrowings, partially offset by $244.0 million of payments on the Revolving Facility borrowings, as well as utilized $63.8 million for the purchase and retirement of certain of the Company’s Notes. The Company’s common stock repurchases for the nine months ended September 30, 2020 totaled $10.3 million.

Debt

The Company’s debt as of September 30, 2021 and December 31, 2020 consisted of the following (in millions):


	September 30, 2021			December 31, 2020
8.25% senior notes due October 15, 2024	$	233.0		$	233.0
Unamortized debt issuance costs		(2.0	)		(2.5	)
Total debt		231.0			230.5
Less: short-term debt		40.5			—
Long-term debt	$	190.5		$	230.5

8.25% Senior Notes Due 2024— On September 30, 2016, DFIN (the “Parent”) issued $300.0 million of 8.25% senior unsecured notes due October 15, 2024 (the “Notes”). On September 15, 2021, the Company provided an irrevocable notice to Wells Fargo Bank, N.A. (the "Trustee") of its intent to redeem the Notes on October 15, 2021. The Company’s Notes were issued pursuant to an indenture (the “Indenture”) where certain wholly-owned domestic subsidiaries of the Company guaranteed the Notes (the “Guarantors”). On October 15, 2021, the Company redeemed the remaining outstanding Notes balance of $233.0 million at the redemption price of 102.063, plus accrued and unpaid interest of $9.6 million using $200.0 million of proceeds from the Company's Delayed-Draw Term Loan A Facility (as further described below) and cash. The Notes principal balance that was paid using $33.0 million of cash and $7.5 million of the Delayed-Draw Term Loan A Facility, which is due within twelve months of the draw, was classified as short-term debt on the Unaudited Condensed Consolidated Balance Sheet as of September 30, 2021. The Company expects to record a pre-tax loss on the extinguishment of the Notes of $6.8 million in the fourth quarter of 2021. In the first quarter of 2020, the Company purchased and retired $66.5 million (notional amount) of the Notes at an average price of 95.25 and recognized a pre-tax gain on the extinguishment of debt of $2.3 million, which was net of unamortized debt issuance costs, and is recorded within interest expense, net in the Unaudited Condensed Consolidated Statements of Operations. In the third quarter of 2020, the Company purchased and retired $0.5 million (notional amount) of the Notes at an average price of 98.75.

Prior to the repayment, the Notes were fully and unconditionally as well as jointly and severally guaranteed, on an unsecured basis, by the Guarantors, which were comprised of each of the Company’s direct and indirect wholly-owned U.S. subsidiaries that guaranteed the Company’s obligations under the Credit Facilities, including Donnelley Financial, LLC and DFS International Holding, Inc. The Notes were not guaranteed by the Company’s foreign subsidiaries or unrestricted subsidiaries (“Nonguarantors”). The Indenture governing the Notes contained certain covenants applicable to the Company and its restricted subsidiaries, including limitations on: (1) liens; (2) indebtedness; (3) mergers, consolidations and acquisitions; (4) sales, transfers and other dispositions of assets; (5) loans and other investments; (6) dividends and other distributions, stock repurchases and redemptions and other restricted payments; (7) restrictions affecting subsidiaries; (8) transactions with affiliates; and (9) designations of unrestricted subsidiaries. Each of these covenants was subject to important exceptions and qualifications.

The Notes and the related guarantees were the Company and the Guarantors’, respective, senior unsecured obligations and ranked equally in right of payment to all present senior debt, including the obligations under the Company’s Credit Facilities, senior in right of payment to all present and future subordinated debt, and effectively subordinated in right of payment to any of the Company and the Guarantors’ secured debt, to the extent of the value of the assets securing such debt.

The guarantee of the Notes by a subsidiary guarantor would be automatically released under certain situations, including upon the sale or disposition of such subsidiary guarantor to a person that is not DFIN or a subsidiary guarantor of the notes, the liquidation or dissolution of such subsidiary guarantor, and if such subsidiary guarantor was released from its guarantee obligations under the Company’s Credit Facilities.

The following summarized financial information of both the Parent and the Guarantors is presented on a combined basis; intercompany balances and transactions between the Parent and the Guarantors have been eliminated and the summarized financial information does not reflect investments of the Parent or the Guarantors in Nonguarantors. The Parent’s or Guarantor’s amounts due from, amounts due to, and transactions with Nonguarantors are disclosed below:


	September 30, 2021		December 31, 2020
	(in millions)
Current assets	$	307.5	$	226.2
Noncurrent assets		1,048.9		931.7
Current liabilities		283.1		235.8
Noncurrent liabilities		310.0		370.9


	Nine Months Ended
	September 30, 2021
	(in millions)
Total net sales	$	657.9
Total cost of sales		265.5
Income from operations		160.5
Net earnings		107.4

During the nine months ended September 30, 2021, Nonguarantors intercompany revenue and cost of sales totaled $0.1 million each. As of December 31, 2020, an intercompany short-term note receivable due to Nonguarantors from the Parent totaled $27.5 million; there was no intercompany short-term note receivable outstanding as of September 30, 2021. As of September 30, 2021 and December 31, 2020 an intercompany accounts receivable due to Parent from Nonguarantors totaled $3.6 million as of the end of each period.

Credit Agreement—On May 27, 2021 (the "Restatement Effective Date"), the Company amended and restated its credit agreement dated as of September 30, 2016 (as in effect prior to such amendment and restatement, the "Credit Agreement," and the Credit Agreement, as so amended and restated, the "Amended and Restated Credit Agreement") to, among other things, extend the maturity of the $300 million Revolving Facility to May 27, 2026 and modify certain financial maintenance and negative covenants in the Credit Agreement. The Amended and Restated Credit Agreement provides for a $200 million Delayed-Draw Term Loan A Facility. On October 14, 2021, the Company drew $200.0 million from the Delayed-Draw Term Loan A Facility and used the proceeds to redeem the Company's Notes on October 15, 2021, as further described above. The principal amount of loans under the Delayed-Draw Term Loan A Facility are due and payable in equal quarterly installments of 1.25% of the original principal amount of the loans during the first three years after the Restatement Effective Date, commencing on March 31, 2022, and 2.50% of the original principal amount of the loans thereafter. The entire unpaid principal amount of the loans will be due and payable in full on May 27, 2026. Voluntary prepayments of the Delayed-Draw Term Loan A Facility are permitted at any time, in minimum principal amounts, as defined in the Amended and Restated Credit Agreement, without premium or penalty.

In October 2021, the Company prepaid $45.0 million of the Delayed-Draw Term Loan A Facility. As a result, the required quarterly installment of the original principal amount are not due until the second quarter of 2025.

The Credit Agreement contains a number of covenants, including, but not limited to, a minimum Interest Coverage Ratio and the Consolidated Net Leverage Ratio, as defined in and calculated pursuant to the Credit Agreement, that, in part, restrict the Company’s ability to incur additional indebtedness, create liens, engage in mergers and consolidations, make restricted payments and dispose of certain assets. The Credit Agreement generally allows annual dividend payments of up to $20.0 million in aggregate, though additional dividends may be allowed subject to certain conditions. Each of these covenants is subject to important exceptions and qualifications. Refer to Note 8, Debt, for additional information.

As of September 30, 2021, there were no borrowings outstanding under the Revolving Facility and $2.3 million of outstanding letters of credit that reduced the availability under the Revolving Facility. Based on the Company’s results of operations for the twelve months ended September 30, 2021 and existing debt, the Company would have had the ability to utilize the remaining $297.7 million of the $300.0 million Revolving Facility and not have been in violation of the terms of the agreement.

The current availability under the Revolving Facility and net available liquidity as of September 30, 2021 are presented in the table below:


	September 30, 2021
Availability	(in millions)
Revolving Facility	$	300.0
Availability reduction from covenants		—
	$	300.0
Usage
Borrowings under the Revolving Facility	$	—
Impact on availability related to outstanding letters of credit		2.3
	$	2.3

Current availability	$	297.7
Cash		122.9
Net Available Liquidity	$	420.6

The Company was in compliance with its debt covenants as of September 30, 2021, and expects to remain in compliance based on management’s estimates of operating and financial results for 2021 and the foreseeable future. However, declines in market and economic conditions or demand for certain of the Company’s services and products could impact the Company’s ability to remain in compliance with its debt covenants in future periods.

The failure of a financial institution supporting the Revolving Facility would reduce the size of the Company’s committed facility unless a replacement institution was added. As of September 30, 2021, the Revolving Facility is supported by fifteen U.S. and international financial institutions. As of September 30, 2021, the Company had $3.4 million in outstanding letters of credit and bank guarantees.

As of September 30, 2021, the Company met all the conditions required to borrow under the Revolving Facility, and management expects the Company to continue to meet the applicable borrowing conditions.

Acquisitions

The Company’s acquisition of eBrevia closed on December 18, 2018. During the year ended December 31, 2019, the Company paid $4.5 million related to the acquisition of eBrevia. An additional $1.9 million of the purchase price, which was held in the event of potential claims, was paid during the year ended December 31, 2020 pursuant to the terms of the acquisition agreement.

OTHER INFORMATION

Litigation and Contingent Liabilities

For a discussion of certain litigation involving the Company, see Note 7, Commitments and Contingencies, to the Unaudited Condensed Consolidated Financial Statements.

Critical Accounting Policies and Estimates

There were no changes to critical accounting policies and estimates from those disclosed in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” of the Annual Report.

New Accounting Pronouncements

Recently adopted accounting standards and their effect on the Company’s Unaudited Condensed Consolidated Financial Statements are described in Note 1, Overview, Basis of Presentation and Significant Accounting Policies, to the Unaudited Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes to the Company’s market risk previously disclosed in the Annual Report.

Item 4. Controls and Procedures

(a)

Disclosure controls and procedures.

Management, together with the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(b) and Rule 15d-15(e) of the Exchange Act) as of September 30, 2021. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2021.

(b)

Changes in internal control over financial reporting.

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended September 30, 2021 that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of certain litigation involving the Company, see Note 7, Commitments and Contingencies, to the Unaudited Condensed Consolidated Financial Statements.

Item 1A. Risk Factors

There were no material changes during the three months ended September 30, 2021 to the risk factors identified in the Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (a)
July 1, 2021 - July 31, 2021		400	$	29.86		400	$	39,616,389
August 1, 2021 - August 31, 2021		3,711		33.90		—		39,616,389
September 1, 2021 - September 30, 2021 (b)		238,092		34.38		237,672		31,444,932
Total		242,203	$	34.37		238,072

(a)

On February 2, 2020, the Board of Directors (the “Board”) authorized a stock repurchase program, under which the Company is authorized to repurchase up to $25.0 million of its outstanding common stock from time to time in one or more transactions on the open market or in privately negotiated purchases in accordance with all applicable securities laws and regulations. On February 18, 2021, the Board authorized an increase to its stock repurchase program to bring the total remaining available repurchase authorization for shares on or after February 18, 2021 to $50 million and extended the expiration date of the repurchase program through December 31, 2022. The stock repurchase program may be suspended or discontinued at any time. The timing and amount of any shares repurchased are determined by the Company based on its evaluation of market conditions and other factors and may be completed from time to time in one or more transactions on the open market or in privately negotiated purchases in accordance with all applicable securities laws and regulations and all repurchases in the open market will be made in compliance with Rule 10b-18 under the Exchange Act. Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so.

(b)

Includes 26,000 shares, valued at $0.9 million, for which the Company placed orders prior to or on September 30, 2021 that were not settled until the fourth quarter of 2021.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


3.1			Amended and Restated Certificate of Incorporation of Donnelley Financial Solutions, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

3.2			Amended and Restated By-laws of Donnelley Financial Solutions, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

4.1			Indenture, dated as of September 30, 2016, among Donnelley Financial Solutions, Inc., the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)

4.2			Description of the Donnelley Financial Solutions, Inc. Securities Registered under Section 12 of the Exchange Act (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K dated December 31, 2019, filed on February 26, 2020)

10.1			Amended and Restated Credit Agreement dated as of May 27, 2021, by and among Donnelley Financial Solutions, Inc. the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 27, 2021, filed on June 1, 2021)

10.2			2016 Donnelley Financial Solutions, Inc. Performance Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)*

10.3			Amended and Restated Donnelley Financial Solutions, Inc. 2016 Performance Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 18, 2017, filed on May 23, 2017)*

10.4			Amendment to the Donnelley Financial Solutions, Inc. Amended and Restated 2016 Performance Incentive Plan dated May 20, 2019 (incorporated herein by reference to Appendix A of the Company’s definitive proxy statement on Schedule 14A (file No. 001-37728) filed April 22, 2019)*

10.5			Amendment to Amended and Restated Donnelley Financial Solutions, Inc. 2016 Performance Incentive Plan dated June 27, 2019 (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 10-Q dated June 30, 2019, filed on August 1, 2019)*

10.6			Donnelley Financial Solutions, Inc. Non-Employee Director Compensation Plan (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K dated December 31, 2020, filed on February 25, 2021)*

10.7			Policy on Retirement Benefits, Phantom Stock Grants and Stock Options for Directors (incorporated by reference to Exhibit 10.1 to R.R Donnelley & Sons Company Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed on August 6, 2008)*

10.8			Donnelley Financial Solutions, Inc. Nonqualified Deferred Compensation Plan, dated as of September 22, 2016 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)*

10.9			Donnelley Financial Unfunded Supplemental Pension Plan effective October 1, 2016 (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)*

10.10			Donnelley Financial Solutions, Inc. Amended and Restated Executive Severance Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 15, 2020, filed on July 20, 2020)*


10.11		Letter Agreement to Employment Agreement, dated as of April 20, 2018, between the Company and Daniel N. Leib (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 10, 2018, filed on April 16, 2018)*

10.12		Amended and Restated Employment Agreement, dated as of July 13, 2017, between the Company and Daniel N. Leib (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 13, 2017, filed on July 14, 2017)*
10.13		Amendment dated as of July 15, 2020 to Amended and Restated Employment Agreement dated as of July 13, 2017 between the Company and Daniel N. Leib (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated July 15, 2020, filed on July 20, 2020)*

10.14		Assignment of Employment Agreement and Acceptance of Assignment, dated as of September 29, 2016, between Donnelley Financial Solutions, Inc., R. R. Donnelley & Sons Company and Thomas F. Juhase (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)*

10.15		Waiver of Severance Benefits, dated as of June 1, 2017, by and between Thomas F. Juhase and the Company (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 30, 2017, filed on June 5, 2017)*

10.16		Agreement dated June 26, 2020, between Donnelley Financial Solutions, Inc. and Thomas F. Juhase (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 26, 2020, filed on June 26, 2020)*

10.17		Assignment of Employment Agreement and Acceptance of Assignment, dated as of September 29, 2016, between Donnelley Financial Solutions, Inc., R. R. Donnelley & Sons Company and David A. Gardella (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)*

10.18		Waiver of Severance Benefits, dated as of June 1, 2017, by and between David A. Gardella and the Company (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated May 30, 2017, filed on June 5, 2017)*

10.19		Assignment of Severance Agreement and Acceptance of Assignment, dated as of September 29, 2016, between Donnelley Financial Solutions, Inc., R. R. Donnelley & Sons Company and Jennifer B. Reiners (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K dated September 30, 2016, filed on October 3, 2016)*

10.20		Waiver of Severance Benefits, dated as of June 1, 2017, by and between Jennifer B. Reiners and the Company (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated May 30, 2017, filed on June 5, 2017)*

10.21		Donnelley Financial Solutions Annual Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated March 2, 2018, filed on March 13, 2018)*

10.22		Form of Performance Share Unit Award Agreement (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K dated December 31, 2017, filed on February 28, 2018)*

10.23		Form of Performance Share Unit Award Agreement (for 2019) (incorporated by reference to Exhibit 10.25 to the Company’s Quarterly Report on Form 10-Q dated March 31, 2018, filed on May 2, 2019)*

10.24		Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.18 to the Company’s Quarterly Report on Form 10-Q dated March 31, 2017, filed on May 4, 2017)*

10.25		Form of Restricted Stock Unit Award (2021) (incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K dated December 31, 2020, filed on February 25, 2021)*

10.26		Form of Stock Option Award Agreement (incorporated by reference to Exhibit 10.19 to the Company’s Quarterly Report on Form 10-Q dated March 31, 2017, filed on May 4, 2017)*

10.27		Form of Performance Cash Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 2, 2020, filed on March 6, 2020)*

10.28		Form of Performance Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated March 2, 2020, filed on March 6, 2020)*



10.29		Form of Performance Restricted Stock Unit Award Agreement (2021) (incorporated by reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K dated December 31, 2020, filed on February 25, 2021)*

10.30		Form of Director Restricted Stock Unit Award (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)*

10.31		Form of Restricted Stock Unit Award Agreement for directors converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.21 to the R.R. Donnelley & Sons Company Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed on March 14, 2005)*

10.32		Form of Restricted Stock Unit Award Agreement for directors converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.25 to the R.R. Donnelley & Sons Company Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed on February 27, 2008)*

10.33		Form of Restricted Stock Unit Award Agreement for directors converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.23 to the R.R. Donnelley & Sons Company Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on February 25, 2009)*

10.34		Form of Amendment to Director Restricted Stock Unit Awards converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.22 to the R.R. Donnelley & Sons Company Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on February 25, 2009)*

10.35		Form of Amendment to Director Restricted Stock Unit Awards dated May 21, 2009 converted from R.R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.23 to the R.R. Donnelley & Sons Company Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, filed on August 5, 2009)*

10.36		Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q dated September 30, 2016, filed on November 9, 2016)

10.37		Agreement, dated February 17, 2019, by and among the Company, Simcoe Capital Management, LLC and, solely for purposes of Section 2(g) thereof, Jeffrey Jacobowitz (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 17, 2019, filed on February 19, 2019)

10.38		Amended and Restated Agreement of Sale and Purchase, dated as of September 6, 2019, between Donnelley Financial, LLC and SECA-NJ, LLC (incorporated by reference to Exhibit 10.39 to the Company’s Quarterly Report on Form 10-Q dated September 30, 2019, filed on November 5, 2019)

10.39		First Amendment to Amended and Restated Agreement of Sale and Purchase, dated as of September 25, 2019, between Donnelley Financial, LLC and SECA-NJ, LLC (incorporated by reference to Exhibit 10.40 to the Company’s Quarterly Report on Form 10-Q dated September 30, 2019, filed on November 5, 2019)

10.40		Second Amendment to Amended and Restated Agreement of Sale and Purchase, dated as of September 26, 2019, between Donnelley Financial, LLC and SECA-NJ, LLC (incorporated by reference to Exhibit 10.41 to the Company’s Quarterly Report on Form 10-Q dated September 30, 2019, filed on November 5, 2019)

10.41		Real Estate Sale Agreement, dated as of August 20, 2021, between Donnelley Financial, LLC and HSG Acquisitions, LLC (filed herewith)

14.1		Code of Ethics for the Chief Executive Officer and Senior Financial Officers (incorporated by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K dated December 31, 2016, filed on February 28, 2017)

22.1		Guarantor subsidiaries of the Registrant of the Registrant’s 8.25% Senior Notes due October 15, 2024 (incorporated by reference to Exhibit 22.1 to the Company’s Quarterly Report on Form 10-Q dated March 31, 2020, filed on May 7, 2020)

31.1		Certification by Daniel N. Leib, President and Chief Executive Officer, required by Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith)

31.2		Certification by David A. Gardella, Executive Vice President and Chief Financial Officer, required by Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith)



32.1		Certification by Daniel N. Leib, President and Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code (filed herewith)

32.2		Certification by David A. Gardella, Executive Vice President and Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code (filed herewith)

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101

* Management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	DONNELLEY FINANCIAL SOLUTIONS, INC.

	By:		/s/ DAVID A. GARDELLA
			David A. Gardella
			Executive Vice President and Chief Financial Officer

Date: November 3, 2021