Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
Donnelley Financial Solutions, Inc. and Subsidiaries (“DFIN”)
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 and Basis of Presentation
Description of Business
Donnelley Financial Solutions, Inc. (“DFIN,” or the “Company”) is a leading global risk and compliance solutions company. The Company provides regulatory filing solutions, software-as-a-service (“SaaS”), technology-enabled services and print and distribution solutions to public and private companies, mutual funds and other regulated investment firms, to serve their regulatory and compliance needs. For corporate clients within its capital markets offerings, the Company offers technology-enabled filing solutions that allow U.S. 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 the investment markets, including alternative investment and insurance investment companies, the Company provides technology-enabled filing solutions including cloud-based tools for creating and filing high-quality regulatory documents and solutions for investors designed to improve the speed and accuracy of their access to investment information. Throughout a company’s life cycle, the Company serves its clients’ regulatory and compliance needs. The Company’s deep industry and regulatory expertise and a commitment to exceptional service guides our clients to navigate a high-stakes and ever-changing regulatory environment.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of DFIN 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 and combined financial statements and accompanying notes included in the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on February 27, 2019. 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. These unaudited condensed consolidated interim financial statements include estimates and assumptions of management that affect the amounts reported in the unaudited condensed consolidated financial statements. Actual results could differ from these estimates.
Changes in Presentation
Certain prior year amounts have been restated to conform to the Company’s current reporting unit structure. Due to the sale of the Language Solutions business in 2018, the Company made changes to the reporting units within the U.S. segment. The former Language Solutions and other reporting unit has been renamed “Language Solutions.” Certain results previously included within the former Language Solutions and other reporting unit are now included within the Investment Markets reporting unit.
Note 2. Revenue
Revenue Recognition
The Company manages highly-customized data and materials, such as Exchange Act, Securities Act and Investment Company Act filings with the SEC on behalf of its customers, manages virtual data rooms and performs XBRL and related services. Clients are provided with EDGAR filing services, XBRL compliance services and translation, editing, interpreting, proof-reading and multilingual typesetting services, among others. The Company’s SaaS offerings include the Venue Virtual Data Room (“Venue”), the FundSuiteArc software platform, ActiveDisclosure and data and analytics, among others.
Substantially all of the Company’s revenue is derived from contracts with an initial expected duration of one year or less. Generally, customer payment is due within ten days upon invoicing.
8
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
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 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 are not distinct.
Revenue for the Company’s services and products is recognized either over time or at a point in time, as outlined below.
Over time
The Company recognizes revenue for certain services over time.
|
•
|
The Company’s SaaS solutions, including Venue, the FundSuiteArc software platform, ActiveDisclosure, data and analytics and others, are generally provided on a subscription basis and allow customers access to use the products over the contract period. As a result, revenue for SaaS solutions is recognized ratably over time as the customer receives the benefit throughout the contract period. The timing of invoicing varies, however the customer may be invoiced before the end of the contract period, resulting in a deferred revenue balance.
|
|
•
|
Revenue for warehousing services is recognized ratably over time as the customer receives the benefit throughout the storage period.
|
Point in time
All remaining revenue arrangements are generally recognized at a point in time and are primarily invoiced upon completion of all services or upon shipment to the customer.
|
•
|
Certain of these arrangements include multiple performance obligations and revenue is recognized upon completion of each performance obligation, such as when a document is filed with a regulatory agency and upon completion of printing the related document. For arrangements with multiple performance obligations, the transaction price is allocated to the separate performance obligations. The Company provides customer specific solutions and as such, observable standalone selling price is rarely available. Standalone selling price is more frequently determined using an estimate of the standalone selling price of each distinct service or product, taking into consideration historical selling price by customer for each distinct service or product. These estimates may vary from the final amounts invoiced to the customer and are adjusted upon completion of all performance obligations. Customers may be invoiced subsequent to the recognition of revenue for completed performance obligations
, resulting
in contract asset balances.
|
|
•
|
Revenue for arrangements which include assisting customers in completing regulatory filings for transactions, such as mergers and acquisitions or other public capital market transactions, is recognized upon completion of all promises, including the services performed and printing of the related document, if applicable.
|
|
•
|
Revenue for arrangements without a regulatory filing generally have a single performance obligation, as the services and products provided are not distinct within the context of the contract, and are recognized upon completion of the services performed or upon completion of printing of the related product.
|
|
•
|
Warehousing, fulfillment services and shipping and handling are each separate performance obligations. As a result, when
the Company provides warehousing and future fulfillment services, revenue for the composition services performed and printing of the product is recognized upon completion of the performance obligation(s), as control of the inventory has transferred to the customer and the inventory is being stored at the customer’s request.
|
Because substantially all of the Company’s products are customized, product returns are not significant; however, the Company accrues for the estimated amount of customer credits at the time of sale.
The Company records deferred revenue when amounts are invoiced but the revenue recognition criteria are not yet met. Such revenue is recognized when all criteria are subsequently met.
9
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
Certain revenues earned by the Company require significant judgment to determine if revenue should be recorded gross, as a principal, or net of related costs, as an agent. Billings for shipping and handling costs as well as certain postage costs, and out-of-pocket expenses are recorded gross. Revenue is not recognized for customer-supplied postage. The Company’s printing operations process paper that may be supplied directly by customers or may be purchased by the Company from third parties and sold to customers. Revenue is not recognized for customer-supplied paper, however revenues for Company-supplied paper are recognized on a gross basis. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to authorities.
Disaggregation of revenue
The following tables disaggregate revenue by reporting unit and timing of revenue recognition for the three months ended March 31, 2019 and 2018:
|
Three Months Ended March 31, 2019
|
|
|
Point in time
|
|
|
Over time
|
|
|
Total
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
Capital Markets
|
$
|
85.0
|
|
|
$
|
24.7
|
|
|
$
|
109.7
|
|
Investment Markets
|
|
80.5
|
|
|
|
12.6
|
|
|
|
93.1
|
|
Total U.S.
|
|
165.5
|
|
|
|
37.3
|
|
|
|
202.8
|
|
International
|
|
21.1
|
|
|
|
5.7
|
|
|
|
26.8
|
|
Total net sales
|
$
|
186.6
|
|
|
$
|
43.0
|
|
|
$
|
229.6
|
|
|
Three Months Ended March 31, 2018
|
|
|
Point in time
|
|
|
Over time
|
|
|
Total
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
Capital Markets
|
$
|
93.5
|
|
|
$
|
24.0
|
|
|
$
|
117.5
|
|
Investment Markets*
|
|
76.0
|
|
|
|
13.5
|
|
|
|
89.5
|
|
Language Solutions*
|
|
6.1
|
|
|
|
—
|
|
|
|
6.1
|
|
Total U.S.
|
|
175.6
|
|
|
|
37.5
|
|
|
|
213.1
|
|
International
|
|
37.9
|
|
|
|
4.2
|
|
|
|
42.1
|
|
Total net sales
|
$
|
213.5
|
|
|
$
|
41.7
|
|
|
$
|
255.2
|
|
* Certain prior year amounts were restated to conform to the Company’s current reporting unit structure.
Contract Balances
Contract assets represent revenue recognized for performance obligations completed before an unconditional right to payment exists, and therefore invoicing has not yet occurred. Contract assets were $14.9 million at March 31, 2019 and $8.7 million at December 31, 2018, respectively. Generally, the contract assets balance is impacted by the recognition of additional contract assets, offset by amounts invoiced to customers. For the three months ended March 31, 2019, final amounts invoiced to customers exceeded estimates of standalone selling price as of January 1, 2019 for the related arrangements by approximately $1.3 million. Contract assets are included in accounts receivable on the condensed consolidated balance sheet.
Contract liabilities consist of deferred revenue and progress billings which are included in accrued liabilities on the condensed consolidated balance sheet. Changes in contract liabilities for the three months ended March 31, 2019 and 2018, respectively, were as follows:
Balance at January 1, 2019
|
$
|
12.0
|
|
Deferral of revenue
|
|
12.2
|
|
Revenue recognized
|
|
(12.6
|
)
|
Balance at March 31, 2019
|
$
|
11.6
|
|
10
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
Balance at January 1, 2018
|
$
|
14.2
|
|
Deferral of revenue
|
|
9.4
|
|
Revenue recognized
|
|
(10.5
|
)
|
Balance at March 31, 2018
|
$
|
13.1
|
|
Note 3. Acquisitions and Dispositions
Acquisition
On December 18, 2018, the Company acquired eBrevia, a leading provider of artificial intelligence-based data extraction and contract analytics software solutions. The eBrevia technology provides leading enterprise contract review and analysis solutions, leveraging machine learning to produce faster and more accurate results. eBrevia's software, which extracts and summarizes key legal provisions and other information, can be used in due diligence, contract management, lease abstraction and document drafting. The acquisition enhances the Company’s Venue Deal Solutions offerings to provide clients with secure data aggregation, due diligence, compliance and risk management solutions. The Company previously held a 12.8% investment in eBrevia prior to the acquisition. The purchase price for the remaining equity of eBrevia, which includes the Company’s estimate of contingent consideration, was $23.3 million, net of cash acquired of $0.2 million. $2.0 million of the purchase price, excluding contingent consideration and amounts held in escrow, remains payable as of March 31, 2019. The fair value of the Company’s previously held investment was $3.3 million, resulting in the recognition of a $1.8 million gain, which is reflected in investment and other income in the consolidated statements of operations for the year ended December 31, 2018. The fair value of the previously held investment was determined based on the purchase price paid for the remaining equity less an estimated control premium. The former owners of eBrevia, excluding the Company, may receive additional contingent consideration of up to $3.5 million in cash subject to eBrevia achieving certain financial targets during the twenty-four months post acquisition. As of the acquisition date and March 31, 2019, the Company estimated the fair value of contingent consideration to be $0.8 million using a probability weighting of the potential payouts. Subsequent changes in the estimated contingent consideration from the final purchase price allocation will be recognized in the Company’s consolidated statement of operations. The operations of eBrevia are included within the Capital Markets reporting unit in the U.S. segment.
During the three months ended March 31, 2019, there were no acquisition-related expenses. For the three months ended March 31, 2018, the Company recorded $0.2 million of acquisition-related expenses associated with acquisitions completed or contemplated within selling, general and administrative expenses in the condensed consolidated statement of operations.
The eBrevia acquisition was recorded by allocating the cost of the acquisition to the assets acquired, including other intangible assets, based on their estimated fair values at the acquisition date. The excess of the cost of the acquisition over the net amounts assigned to the fair value of the assets acquired was recorded as goodwill.
There is no tax deductible goodwill related to the eBrevia acquisition.
11
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
The purchase price allocation for eBrevia is preliminary as the Company is still in the process of obtaining data to finalize the estimated fair values of certain
deferred tax
account balances. The final purchase price allocation may differ from what is currently reflected in the consolidated financial statements
. Based on the current valuation, the preliminary purchase price allocation for this acquisition is as follows:
Accounts receivable
|
$
|
0.3
|
|
Other intangible assets
|
|
11.4
|
|
Software
|
|
0.8
|
|
Goodwill
|
|
12.9
|
|
Accounts payable and accrued liabilities
|
|
(0.4
|
)
|
Deferred taxes-net
|
|
(1.7
|
)
|
Total purchase price-net of cash acquired
|
|
23.3
|
|
Less: fair value of the Company's previously held investment in eBrevia
|
|
(3.3
|
)
|
Less: fair value of contingent consideration
|
|
(0.8
|
)
|
Less: payable for initial consideration
|
|
(2.0
|
)
|
Less: amounts held in escrow and liabilities assumed
|
|
(2.5
|
)
|
Net cash paid
|
$
|
14.7
|
|
Disposition
On July 22, 2018, the Company sold its Language Solutions business, which helped companies adapt their business content into different languages for specific countries, markets and regions, for net proceeds of $77.5 million in cash, all of which was received as of December 31, 2018, resulting in a gain of $53.8 million, which was recognized in other operating income in the consolidated statement of operations for the year ended December 31, 2018. Language Solutions' operating results were included within the Language Solutions reporting unit within the U.S. segment as well as the International segment.
Note 4. Inventories
The components of the Company’s inventories, net of excess and obsolescence reserves for raw materials, at March 31, 2019 and December 31, 2018 were as follows:
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Raw materials and manufacturing supplies
|
$
|
4.6
|
|
|
$
|
4.0
|
|
Work in process
|
|
10.2
|
|
|
|
8.1
|
|
Total
|
$
|
14.8
|
|
|
$
|
12.1
|
|
Note 5. Property, Plant and Equipment
The components of the Company’s property, plant and equipment at March 31, 2019 and December 31, 2018 were as follows:
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Land
|
$
|
10.0
|
|
|
$
|
10.0
|
|
Buildings
|
|
36.9
|
|
|
|
36.2
|
|
Machinery and equipment
|
|
113.1
|
|
|
|
106.3
|
|
|
|
160.0
|
|
|
|
152.5
|
|
Less: Accumulated depreciation
|
|
(121.9
|
)
|
|
|
(120.3
|
)
|
Total
|
$
|
38.1
|
|
|
$
|
32.2
|
|
Depreciation expense was $1.5 million and $1.9 million for the three months ended March 31, 2019 and 2018, respectively.
12
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
Note 6. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by segment for the three months ended March 31, 2019 were as follows:
|
U.S.
|
|
|
International
|
|
|
Total
|
|
Net book value as of December 31, 2018
|
$
|
438.5
|
|
|
$
|
11.5
|
|
|
$
|
450.0
|
|
Purchase accounting adjustments
|
|
0.1
|
|
|
|
—
|
|
|
|
0.1
|
|
Foreign exchange and other adjustments
|
|
—
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Net book value as of March 31, 2019
|
$
|
438.6
|
|
|
$
|
11.6
|
|
|
$
|
450.2
|
|
The components of other intangible assets at March 31, 2019 and December 31, 2018 were as follows:
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
Book
|
|
|
Amount
|
|
|
Amortization
|
|
|
Value
|
|
|
Amount
|
|
|
Amortization
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
149.6
|
|
|
$
|
(116.9
|
)
|
|
$
|
32.7
|
|
|
$
|
149.3
|
|
|
$
|
(113.1
|
)
|
|
$
|
36.2
|
|
Trade names
|
|
3.9
|
|
|
|
(3.0
|
)
|
|
|
0.9
|
|
|
|
3.9
|
|
|
|
(2.9
|
)
|
|
|
1.0
|
|
Total other intangible assets
|
$
|
153.5
|
|
|
$
|
(119.9
|
)
|
|
$
|
33.6
|
|
|
$
|
153.2
|
|
|
$
|
(116.0
|
)
|
|
$
|
37.2
|
|
Amortization expense for other intangible assets was $3.7 million and $3.4 million for the three months ended March 31, 2019 and 2018, respectively.
The following table outlines the estimated annual amortization expense related to other intangible assets as of March 31, 2019:
For the year ending December 31,
|
Amount
|
|
2019
|
$
|
14.6
|
|
2020
|
|
13.0
|
|
2021
|
|
0.9
|
|
2022
|
|
0.9
|
|
2023
|
|
0.9
|
|
2024 and thereafter
|
|
7.0
|
|
Total
|
$
|
37.3
|
|
Note 7. Leases
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to put most leases on the balance sheet but recognize expense on the income statement in a manner similar to current accounting. For lessors, ASU 2016-02 also modifies the classification criteria and the accounting for sales-type and direct financing leases. On January 1, 2019, the Company adopted the standard and all related amendments, using the optional transition method applied to leases at the adoption date. The comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods.
The Company elected the optional package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company also elected the practical expedient to not separate lease components from non-lease components for real estate leases.
As a result of the adoption of ASU 2016-02, the Company recognized
a lease liability of $101.6 million and a right-of-use (“ROU”) asset of
$100.8 million for operating leases at January 1, 2019.
The Company has operating leases for certain service centers, office space, warehouses and equipment. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. Upon adoption of ASU 2016-02, ROU assets were adjusted for deferred rent, restructuring liabilities, prepaids and favorable/onerous lease balances as of January 1, 2019. Lease expense is recognized on a straight-line basis over the expected lease term. The Company’s incremental borrowing rate is used in determining the present value of future payments at the commencement date of the lease, or for the adoption of ASU 2016-02, at January 1, 2019. Balances related to operating leases are included in ROU assets, accrued liabilities and noncurrent lease liabilities on the condensed consolidated balance sheet.
13
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
All real estate leases are recorded on the balance sheet. Equipment and other non-real estate leases with an initial term of twelve months or less are not recorded on the balance sheet. Lease agreements for some locations provide for rent escalations and renewal options. Lease terms include the option to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Certain real estate leases require payment for taxes, insurance and maintenance which are considered non-lease components. The Company accounts for real estate leases and the related fixed non-lease components together as a single component.
The Company determines if an arrangement is a lease at inception. The Company must consider whether the contract conveys the right to control the use of an identified asset. Certain arrangements require significant judgment to determine if an asset is specified in the contract and if the Company directs how and for what purpose the asset is used during the term of the contract.
The Company has non-cancelable sublease rental arrangements which did not reduce the future maturities of the operating lease liabilities at March 31, 2019 and did not reduce future rental commitments at December 31, 2018.
The components of lease expense for the three months ended March 31, 2019 were as follows:
|
Three months ended
|
|
|
March 31, 2019
|
|
Operating lease expense
|
$
|
6.8
|
|
Sublease income
|
|
(0.8
|
)
|
Net lease expense
|
$
|
6.0
|
|
Other information related to operating leases for the three months ended March 31, 2019 was as follows:
Lease Term and Discount Rate
|
March 31, 2019
|
|
Weighted average remaining lease term
|
5.0 years
|
|
Weighted average discount rate
|
|
4.5
|
%
|
|
Three months ended
|
|
Lease Liabilities
|
March 31, 2019
|
|
Cash paid related to lease liabilities
|
$
|
6.6
|
|
Non-cash disclosure:
|
|
|
|
Increase in lease liabilities due to new ROU assets
|
$
|
0.2
|
|
Maturities of lease liabilities for operating leases as of March 31, 2019 were as follows:
|
Amount
|
|
2019
(a)
|
$
|
20.7
|
|
2020
|
|
24.4
|
|
2021
|
|
19.7
|
|
2022
|
|
15.4
|
|
2023
|
|
11.6
|
|
2024 and thereafter
|
|
18.2
|
|
Total lease payments
|
|
110.0
|
|
Less: Interest
|
|
(13.7
|
)
|
Present value of lease liabilities
|
$
|
96.3
|
|
|
(a)
|
Excluding payments for the three months ended March 31, 2019
|
As of March 31, 2019
|
|
|
|
Accrued liabilities
|
$
|
22.4
|
|
Noncurrent lease liabilities
|
|
73.9
|
|
Total
|
$
|
96.3
|
|
14
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
Disclosures related to periods prior to adoption of ASU
2016-02
Future minimum rental commitments under non-cancellable operating leases as of December 31, 2018 were expected to be as follows:
Year ended December 31
|
Amount
|
|
2019
|
$
|
26.4
|
|
2020
|
|
22.6
|
|
2021
|
|
16.6
|
|
2022
|
|
10.9
|
|
2023
|
|
8.7
|
|
2024 and thereafter
|
|
16.3
|
|
Total
|
$
|
101.5
|
|
Rent expense for facilities in use and equipment was $6.4 million for the three months ended March 31, 2018.
Note 8. Restructuring, Impairment and Other Charges
Restructuring, Impairment and Other Charges recognized in Results of Operations
For the three months ended March 31, 2019 and 2018, the Company recorded the following net restructuring, impairment and other charges:
Three Months Ended
|
|
Employee
|
|
|
Total
Restructuring
|
|
|
Other
|
|
|
|
|
|
|
March 31, 2019
|
|
Terminations
|
|
|
Charges
|
|
|
Charges
|
|
|
Total
|
|
|
U.S.
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
0.1
|
|
|
$
|
0.6
|
|
|
International
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
—
|
|
|
|
0.6
|
|
|
Corporate
|
|
|
0.9
|
|
|
|
0.9
|
|
|
|
—
|
|
|
|
0.9
|
|
|
Total
|
|
$
|
2.0
|
|
|
$
|
2.0
|
|
|
$
|
0.1
|
|
|
$
|
2.1
|
|
|
Three Months Ended
|
|
Employee
|
|
|
Other
Restructuring
|
|
|
Total
Restructuring
|
|
|
Other
|
|
|
|
|
|
March 31, 2018
|
|
Terminations
|
|
|
Charges
|
|
|
Charges
|
|
|
Charges
|
|
|
Total
|
|
U.S.
|
|
$
|
0.1
|
|
|
$
|
0.5
|
|
|
$
|
0.6
|
|
|
$
|
0.1
|
|
|
$
|
0.7
|
|
International
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
—
|
|
|
|
(0.1
|
)
|
Corporate
|
|
|
0.1
|
|
|
|
—
|
|
|
|
0.1
|
|
|
|
—
|
|
|
|
0.1
|
|
Total
|
|
$
|
0.1
|
|
|
$
|
0.5
|
|
|
$
|
0.6
|
|
|
$
|
0.1
|
|
|
$
|
0.7
|
|
For the three months ended March 31, 2019, the Company recorded net restructuring charges of $2.0 million for employee termination costs for 72 employees, substantially all of whom were terminated as of March 31, 2019. These charges primarily related to the reorganization of certain operations. For the three months ended March 31, 2019, the Company also incurred $0.1 million for other charges associated with Company’s decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate.
For the three months ended March 31, 2018, the Company recorded net restructuring charges of $0.5 million for lease termination and other restructuring costs, $0.1 million for employee termination costs and $0.1 million for other charges associated with Company’s decision to withdraw in 2013 from certain multi-employer pension plans serving facilities that continued to operate.
15
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
Restructuring Reserve
The restructuring reserve as of December 31, 2018 and March 31, 2019, and changes during the three months ended March 31, 2019, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Restructuring
|
|
|
|
|
|
|
Adoption of
|
|
|
Cash
|
|
|
March 31,
|
|
|
2018
|
|
|
Charges
|
|
|
Reversals
|
|
|
ASU 2016-02
|
|
|
Paid
|
|
|
2019
|
|
Employee terminations
|
$
|
0.4
|
|
|
$
|
2.1
|
|
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
|
$
|
(1.0
|
)
|
|
$
|
1.4
|
|
Lease terminations
|
|
1.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1.1
|
)
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
0.2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.2
|
|
Total
|
$
|
1.7
|
|
|
$
|
2.1
|
|
|
$
|
(0.1
|
)
|
|
$
|
(1.1
|
)
|
|
$
|
(1.0
|
)
|
|
$
|
1.6
|
|
The current portion of restructuring reserves of $1.5 million at March 31, 2019 was included in accrued liabilities, while the long-term portion of $0.1 million was included in other noncurrent liabilities at March 31, 2019.
The Company anticipates that payments associated with the employee terminations reflected in the table above will be substantially completed by September 30, 2019.
The restructuring liabilities classified as “lease terminations” consisted of lease terminations, other facility closing costs and contract termination costs. Upon adoption of ASU 2016-02, the restructuring liabilities as of January 1, 2019 were recorded as a reduction to the related ROU assets recorded on January 1, 2019. Refer to Note 7,
Leases
, for further information.
Note 9. Retirement Plans
The components of the estimated net pension plan income for DFIN’s pension plans for the three months ended March 31, 2019 and 2018 were as follows:
|
Three Months Ended
|
|
|
March 31,
|
|
|
2019
|
|
|
2018
|
|
Pension expense (income)
|
|
|
|
|
|
|
|
Interest cost
|
$
|
2.8
|
|
|
$
|
2.6
|
|
Expected return on assets
|
|
(3.7
|
)
|
|
|
(4.0
|
)
|
Amortization, net
|
|
0.4
|
|
|
|
0.6
|
|
Net pension income
|
$
|
(0.5
|
)
|
|
$
|
(0.8
|
)
|
Note 10. Share-Based Compensation
The Company’s share-based compensation plan under which it may grant future awards, the 2016 Donnelley Financial Solutions, Inc. Performance Incentive Plan (“2016 PIP”), was approved by the Board of Directors to provide incentives to key employees of the Company. Awards under the 2016 PIP may include, cash or stock bonuses, stock options, stock appreciation rights, restricted stock or restricted stock units (“RSUs”). In addition, non-employee members of the Board of Directors may receive awards under the 2016 PIP. There were 3.5 million shares of common stock reserved and authorized for issuance under the 2016 PIP. At March 31, 2019, there were no remaining shares of common stock authorized and available for grant under the 2016 PIP.
16
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
Share-based compensation expense
For all share-based awards granted to employees and directors, including stock options, RSUs, performance based restricted stock and performance share units (“PSUs”), the Company recognizes compensation expense based on estimated grant date fair values based on certain assumptions as of the grant date. The Company estimates the number of awards expected to vest based, in part, on historical forfeiture rates and also based on management’s expectations of employee turnover within the specific employee groups receiving each type of award. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates. The Company recognizes compensation costs for RSUs expected to vest, on a straight-line basis over the requisite service period of the award, which is generally the vesting term of three years. Compensation expense for performance based restricted stock awards granted in 2016, which vest on a graded basis, is recognized utilizing a graded vesting schedule. Compensation expense for performance based restricted stock awards granted in 2017, which cliff vest, is recognized on a straight-line basis over the performance period of the award. The Company recognizes compensation costs for PSUs, which cliff vest, on a straight-line basis over the performance period of the award. Compensation expense for stock options is recognized on a straight-line basis over the requisite service period of the award, which is generally the vesting term of four years.
The stock options, RSUs, performance based restricted stock and PSUs granted during 2017, 2018, and 2019 are subject to forfeiture upon termination of employment prior to vesting, subject in some cases to early vesting upon specified events, including death or permanent disability of the grantee or a change in control of the Company. In addition, upon a change in control of the Company, performance based restricted stock and PSUs will be measured at 100% attainment of the target performance metrics and will remain subject to time based vesting until the end of the vesting period; provided that the award will vest in full if, within three months prior to or two years after the date of the change in control of the Company, the grantee’s employment is terminated without cause by the Company or for good reason by the grantee.
Total compensation expense related to all share-based compensation plans was $1.5 million and $1.8 million for the three months ended March 31, 2019 and 2018, respectively. The income tax benefit related to share-based compensation expense was $0.4 million and $0.5 million for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, $22.2 million of total unrecognized compensation expense related to share-based compensation plans is expected to be recognized over a weighted-average period of 2.5 years.
Stock Options
The Company granted 195,500 options, with a weighted-average grant date fair market value of $4.67, during the three months ended March 31, 2019. The fair market value of each stock option award was estimated using the Black-Scholes-Merton option pricing model and the Company used the following methods to determine its underlying assumptions:
|
•
|
Expected volatility was estimated based on a weighted-average of historical volatilities for the Company’s peer group
|
|
•
|
The risk-free interest rate was based on the U.S Treasury yield curve in effect on the date of grant
|
|
•
|
The expected term of options granted was based on the simplified method of using the mid-point between the vesting term and the original contractual term
|
|
•
|
The expected dividend yield was based on the Company’s current dividend rate
|
The weighted-average assumptions used to determine the weighted-average fair market value of the stock options granted during the three months ended March 31, 2019 and 2018 were as follows:
|
2019
|
|
|
2018
|
|
Expected volatility
|
|
27.47
|
%
|
|
|
27.75
|
%
|
Risk-free interest rate
|
|
2.58
|
%
|
|
|
2.71
|
%
|
Expected life (years)
|
6.25
|
|
|
6.25
|
|
Expected dividend yield
|
|
0.00
|
%
|
|
|
0.00
|
%
|
17
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
Stock option awards outstanding as of December 31, 2018 and March 31, 2019, and changes during the three months ended March 31, 2019, were as follows:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
Shares Under
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
Option
|
|
|
Exercise
|
|
|
Term
|
|
|
Value
|
|
|
(thousands)
|
|
|
Price
|
|
|
(years)
|
|
|
(millions)
|
|
Outstanding at December 31, 2018
|
|
635
|
|
|
$
|
21.44
|
|
|
|
7.2
|
|
|
$
|
—
|
|
Granted
|
|
196
|
|
|
|
14.15
|
|
|
|
9.9
|
|
|
|
|
|
Outstanding at March 31, 2019
|
|
831
|
|
|
|
19.85
|
|
|
|
7.7
|
|
|
|
—
|
|
Vested and expected to vest at March 31, 2019
|
|
790
|
|
|
|
19.94
|
|
|
|
7.6
|
|
|
|
—
|
|
Exercisable at March 31, 2019
|
|
—
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on March 31, 2019 and December 31, 2018, respectively, and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options on March 31, 2019 and December 31, 2018. This amount will change in future periods based on the fair market value of the Company’s stock and the number of options outstanding. There were no stock option exercises during the three months ended March 31, 2019. Total intrinsic value of options exercised was $1.0 million for the three months ended March 31, 2018 and there were no excess tax benefits on stock option exercises for the three months ended March 31, 2018.
Compensation expense related to stock options was $0.2 million and $0.1 million for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, $2.8 million of total unrecognized compensation expense related to stock options is expected to be recognized over a weighted average period of 3.1 years.
Restricted Stock Units
Nonvested restricted stock unit awards as of December 31, 2018 and March 31, 2019, and changes during the three months ended March 31, 2019, were as follows:
|
|
|
|
|
Weighted
|
|
|
Shares
|
|
|
Average Grant
|
|
|
(Thousands)
|
|
|
Date Fair Value
|
|
Nonvested at December 31, 2018
|
|
700
|
|
|
$
|
19.60
|
|
Granted
|
|
514
|
|
|
|
14.15
|
|
Vested
|
|
(251
|
)
|
|
|
|
|
Forfeited
|
|
(14
|
)
|
|
|
|
|
Nonvested at March 31, 2019
|
|
949
|
|
|
$
|
16.18
|
|
Compensation expense related to RSUs was $1.3 million and $0.9 million for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, there was $12.7 million of unrecognized share-based compensation expense related to 0.9 million restricted stock unit awards, with a weighted-average grant date fair value of $16.18, that are expected to vest over a weighted-average period of 2.4 years. The fair value of these awards was determined based on the Company’s stock price on the grant date, as the Company currently does not anticipate paying any cash dividends in the foreseeable future.
Restricted Stock
There were no restricted stock awards granted during the three months ended March 31, 2019 and 2018. Compensation expense for the restricted stock awards is currently being recognized based on 95% attainment of the targeted performance metrics for the restricted stock awards granted in 2017 and is being recognized based on 100% actual achievement of the performance metrics for the restricted stock awards granted in 2016. The total potential payout for awards granted during 2017 ranges from zero to 129,400 shares, should certain performance targets be achieved. The maximum payout of 156,169 shares was achieved as of December 31, 2017 for the restricted stock awards granted during 2016, of which 50% vested during the fourth quarter of 2018. Compensation expense for restricted stock awards was $0.3 million and $0.6 million for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, there was $0.8 million of unrecognized compensation expense related to restricted stock awards, which is expected to be recognized over a weighted average period of 0.7 years.
18
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
Performance Share Units
Nonvested performance share units as of December 31, 2018 and March 31, 2019, and changes during the three months ended March 31, 2019, were as follows:
|
|
|
|
|
Weighted
|
|
|
Shares
|
|
|
Average Grant
|
|
|
(Thousands)
|
|
|
Date Fair Value
|
|
Nonvested at December 31, 2018
|
|
251
|
|
|
$
|
18.23
|
|
Granted
|
|
329
|
|
|
|
14.15
|
|
Nonvested at March 31, 2019
|
|
580
|
|
|
$
|
15.91
|
|
During the three months March 31, 2019, 329,400 PSUs were granted to certain executive officers and senior management, payable upon the achievement of certain established performance targets. The performance period for the shares awarded is January 1, 2019 through December 31, 2021. Distributions under the 2019 awards are payable at the end of the performance period in either common stock or cash at the discretion of the Compensation Committee of the Board of Directors; provided that distribution greater than 75% in common stock is contingent upon the stockholders of the Company approving an increase in the number of shares authorized and available to issue under the 2016 PIP during the 2019 Annual Stockholders’ Meeting to be held in May 2019. The Company accounts for the March 2019 PSU grants as equity awards and will continue to assess the classification as an equity award throughout the life of the award. The total potential payout for awards granted during the three months ended March 31, 2019 ranges from zero to 497,800 shares, should certain performance targets be achieved. The fair value of these awards was determined based on the Company’s stock price on the grant date.
Compensation expense for the PSUs granted in 2019, 2018, and 2017 is currently being recognized based on 100%, 48% and 95% attainment of the targeted performance metrics or 329,400, 105,696 and 28,880 shares, net of forfeitures, for each respective period. During the three months ended March 31, 2019, the Company recognized a $0.3 million reversal of compensation expense related to PSUs due to a change in the estimated attainment of the 2018 and 2017 awards. Compensation expense related to PSUs was $0.2 million for the three months ended March 31, 2018. As of March 31, 2019, there was $5.9 million of unrecognized compensation expense related to PSUs, which is expected to be recognized over a weighted average period of 2.7 years.
Note 11. Earnings per Share
Basic earnings (loss) per share is calculated by dividing net earnings (loss) 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.
19
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
The reconciliation of the numerator and denominator of the basic and diluted (loss) earnings per share calculation and the anti-dilutive share-based awards for the three months ended March 31, 2019 and 2018 were as follows:
|
Three Months Ended
|
|
|
March 31,
|
|
|
2019
|
|
|
2018
|
|
Net (loss) earnings per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.04
|
)
|
|
$
|
0.23
|
|
Diluted
|
$
|
(0.04
|
)
|
|
$
|
0.23
|
|
Numerator:
|
|
|
|
|
|
|
|
Net (loss) earnings
|
$
|
(1.4
|
)
|
|
$
|
7.7
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
34.0
|
|
|
|
33.7
|
|
Dilutive awards
|
|
—
|
|
|
|
0.2
|
|
Diluted weighted average number of common shares outstanding
|
|
34.0
|
|
|
|
33.9
|
|
Weighted average number of anti-dilutive share-based awards:
|
|
|
|
|
|
|
|
Restricted stock units
|
|
0.1
|
|
|
|
0.1
|
|
Stock options
|
|
0.7
|
|
|
|
0.5
|
|
Total
|
|
0.8
|
|
|
|
0.6
|
|
Note 12. Comprehensive Income
The components of other comprehensive income and income tax expense allocated to each component for the three months ended March 31, 2019 and 2018 were as follows:
|
Three Months Ended
|
|
|
March 31, 2019
|
|
|
Before Tax
|
|
|
Income Tax
|
|
|
|
|
Net of Tax
|
|
|
Amount
|
|
|
Expense
|
|
|
|
|
Amount
|
|
Translation adjustments
|
$
|
2.2
|
|
|
$
|
—
|
|
|
|
|
$
|
2.2
|
|
Adjustment for net periodic pension plan and other postretirement benefits plan cost
|
|
0.6
|
|
|
|
0.2
|
|
|
|
|
|
0.4
|
|
Other comprehensive income
|
$
|
2.8
|
|
|
$
|
0.2
|
|
|
|
|
$
|
2.6
|
|
|
Three Months Ended
|
|
|
March 31, 2018
|
|
|
Before Tax
|
|
|
Income Tax
|
|
|
|
|
Net of Tax
|
|
|
Amount
|
|
|
Expense
|
|
|
|
|
Amount
|
|
Translation adjustments
|
$
|
0.7
|
|
|
$
|
—
|
|
|
|
|
$
|
0.7
|
|
Adjustment for net periodic pension plan and other postretirement benefits plan cost
|
|
0.6
|
|
|
|
0.1
|
|
|
|
|
|
0.5
|
|
Other comprehensive income
|
$
|
1.3
|
|
|
$
|
0.1
|
|
|
|
|
$
|
1.2
|
|
Accumulated other comprehensive loss by component as of December 31, 2018 and March 31, 2019 were as follows:
|
Pension and Other Postretirement Benefits Plan Cost
|
|
|
Translation Adjustments
|
|
|
Total
|
|
Balance at December 31, 2018
|
$
|
(66.0
|
)
|
|
$
|
(16.7
|
)
|
|
$
|
(82.7
|
)
|
Other comprehensive income before reclassifications
|
|
0.1
|
|
|
|
2.2
|
|
|
|
2.3
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
0.3
|
|
|
|
—
|
|
|
|
0.3
|
|
Net change in accumulated other comprehensive loss
|
|
0.4
|
|
|
|
2.2
|
|
|
|
2.6
|
|
Balance at March 31, 2019
|
$
|
(65.6
|
)
|
|
$
|
(14.5
|
)
|
|
$
|
(80.1
|
)
|
20
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
Accumulated other comprehensive loss by component as of December 31, 2017 and March 31, 2018 were as follows:
|
Pension and Other Postretirement Benefits Plan Cost
|
|
|
Translation Adjustments
|
|
|
Total
|
|
Balance at December 31, 2017
|
$
|
(52.9
|
)
|
|
$
|
(11.7
|
)
|
|
$
|
(64.6
|
)
|
Other comprehensive income before reclassifications
|
|
—
|
|
|
|
0.7
|
|
|
|
0.7
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
0.5
|
|
|
|
—
|
|
|
|
0.5
|
|
Net change in accumulated other comprehensive loss
|
|
0.5
|
|
|
|
0.7
|
|
|
|
1.2
|
|
Balance at March 31, 2018
|
$
|
(52.4
|
)
|
|
$
|
(11.0
|
)
|
|
$
|
(63.4
|
)
|
Reclassifications from accumulated other comprehensive loss for the three months ended March 31, 2019 and 2018 were as follows:
|
Three Months Ended
|
|
|
Classification in the Condensed
|
|
March 31,
|
|
|
Consolidated
|
|
2019
|
|
|
2018
|
|
|
Statements of Operations
|
Amortization of pension and other postretirement benefits plan cost:
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
$
|
0.4
|
|
|
$
|
0.6
|
|
|
(a)
|
Reclassifications before tax
|
|
0.4
|
|
|
|
0.6
|
|
|
|
Income tax expense
|
|
0.1
|
|
|
|
0.1
|
|
|
|
Reclassifications, net of tax
|
$
|
0.3
|
|
|
$
|
0.5
|
|
|
|
(a)
|
This accumulated other comprehensive loss component is included in the calculation of net periodic pension and other postretirement benefits plan income recognized in investment and other income in the unaudited condensed consolidated statements of operations (see Note 9,
Retirement Plans
).
|
Note 13. Segment Information
The Company’s segments are summarized below:
United States
The U.S. segment serves capital market and investment market clients in the U.S. by delivering products and services to help create, manage, and deliver, accurate and timely financial communications to investors and regulators. The Company also provides virtual data rooms to facilitate the deal management requirements of capital markets and mergers and acquisitions transactions, and provides data and analytics services that help professionals uncover intelligence from disclosures contained within public filings made with the SEC. The U.S. segment also includes commercial print. In addition, the U.S. segment included language solutions capabilities, through which the Company translated documents and created content in up to 140 different languages for its clients.*
International
The International segment includes the Company’s operations in Asia, Europe, Canada and Latin America. The international business is primarily focused on working with international capital markets clients on capital markets offerings and regulatory compliance related activities into or within the United States. In addition, the international segment provided language translation services and shareholder communication services to investment market clients.*
*The Company sold its Language Solutions business on July 22, 2018. Refer to Note 3,
Acquisitions and
Dispositions
, for further information.
Corporate
Corporate consists of unallocated general and administrative activities and associated expenses including, in part, executive, legal, finance, communications and certain facility costs. In addition, certain costs and earnings of employee benefit plans, such as pension and other postretirement benefit plan expense (income) and allocated costs for share-based compensation, are included in Corporate and not allocated to the operating segments.
21
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
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 consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss)
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
Total
|
|
|
Intersegment
|
|
|
Net
|
|
|
from
|
|
|
Assets of
|
|
|
and
|
|
|
Capital
|
|
|
Sales
|
|
|
Sales
|
|
|
Sales
|
|
|
Operations
|
|
|
Operations
|
|
|
Amortization
|
|
|
Expenditures
|
|
Three Months Ended
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
$
|
204.9
|
|
|
$
|
(2.1
|
)
|
|
$
|
202.8
|
|
|
$
|
21.3
|
|
|
$
|
801.6
|
|
|
$
|
10.3
|
|
|
$
|
15.0
|
|
International
|
|
27.3
|
|
|
|
(0.5
|
)
|
|
|
26.8
|
|
|
|
(3.3
|
)
|
|
|
92.5
|
|
|
|
1.6
|
|
|
|
—
|
|
Total operating segments
|
|
232.2
|
|
|
|
(2.6
|
)
|
|
|
229.6
|
|
|
|
18.0
|
|
|
|
894.1
|
|
|
|
11.9
|
|
|
|
15.0
|
|
Corporate
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11.4
|
)
|
|
|
108.3
|
|
|
|
0.2
|
|
|
|
0.1
|
|
Total operations
|
$
|
232.2
|
|
|
$
|
(2.6
|
)
|
|
$
|
229.6
|
|
|
$
|
6.6
|
|
|
$
|
1,002.4
|
|
|
$
|
12.1
|
|
|
$
|
15.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss)
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
Total
|
|
|
Intersegment
|
|
|
Net
|
|
|
from
|
|
|
Assets of
|
|
|
and
|
|
|
Capital
|
|
|
Sales
|
|
|
Sales
|
|
|
Sales
|
|
|
Operations
|
|
|
Operations
|
|
|
Amortization
|
|
|
Expenditures
|
|
Three Months Ended
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
$
|
214.6
|
|
|
$
|
(1.5
|
)
|
|
$
|
213.1
|
|
|
$
|
26.4
|
|
|
$
|
714.8
|
|
|
$
|
8.9
|
|
|
$
|
6.1
|
|
International
|
|
42.7
|
|
|
|
(0.6
|
)
|
|
|
42.1
|
|
|
|
2.5
|
|
|
|
95.9
|
|
|
|
1.4
|
|
|
|
0.1
|
|
Total operating segments
|
|
257.3
|
|
|
|
(2.1
|
)
|
|
|
255.2
|
|
|
|
28.9
|
|
|
|
810.7
|
|
|
|
10.3
|
|
|
|
6.2
|
|
Corporate
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9.5
|
)
|
|
|
104.5
|
|
|
|
0.1
|
|
|
|
0.2
|
|
Total operations
|
$
|
257.3
|
|
|
$
|
(2.1
|
)
|
|
$
|
255.2
|
|
|
$
|
19.4
|
|
|
$
|
915.2
|
|
|
$
|
10.4
|
|
|
$
|
6.4
|
|
Note 14. Debt
The Company’s debt as of March 31, 2019 and December 31, 2018 consisted of the following:
|
March 31,
|
|
|
December 31,
|
|
|
2019
|
|
|
2018
|
|
8.25% senior notes due October 15, 2024
|
$
|
300.0
|
|
|
$
|
300.0
|
|
Term Loan Credit Facility
|
|
71.4
|
|
|
|
71.3
|
|
Borrowings under the Revolving Facility
|
|
48.5
|
|
|
|
—
|
|
Unamortized debt issuance costs
|
|
(8.2
|
)
|
|
|
(8.6
|
)
|
Total debt
|
|
411.7
|
|
|
|
362.7
|
|
Less: current portion
|
|
—
|
|
|
|
—
|
|
Long-term debt
|
$
|
411.7
|
|
|
$
|
362.7
|
|
The fair value of the senior 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 senior notes was $303.4 million and $298.1 million at March 31, 2019 and December 31, 2018, respectively.
The Company has a Credit Agreement (“the Credit Agreement”) which provides for a $
350.0
million senior secured term loan B facility (the “Term Loan Credit Facility”) and a $
300.0
million senior secured revolving credit facility (the “Revolving Facility”, and, together with the Term Loan Credit Facility, the “Credit Facilities”). The Credit Agreement contains a number of covenants, including a minimum Interest Coverage Ratio and a maximum 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.
22
Donnelley Financial Solutions, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
(in millions, except per share data, unless otherwise indicated)
On December 18, 2018, the Company entered into a second amendment to the Credit Agreement which extended the maturity date of the Revolving Facility to December 18, 2023, reduced the interest rate margin percentages and facility fees applicable to the Revolving Facility, increased the allowable annual dividends from $15.0 million to $20.0 million in the aggregate and modified the financial maintenance and negative covenants in the Credit Agreement.
As of March 31, 2019, there was $48.5 million of outstanding borrowings under the Revolving Facility.
The weighted average interest rate on borrowings under the Revolving Facility was 5.1% and 4.8% for the three months ended March 31, 2019 and 2018, respectively.
The Company’s 8.25% senior unsecured notes due October 15, 2024 (the “Notes”) were issued pursuant to an indenture where certain wholly-owned domestic subsidiaries of the Company guarantee the Notes (the “Guarantors”). The Notes are jointly and severally guaranteed, on an unsecured basis, by the Guarantors, which are comprised of each of the Company’s existing and future direct and indirect wholly-owned U.S. subsidiaries that guarantee the Company’s obligations under the Credit Facilities. The Notes are not guaranteed by the Company’s foreign subsidiaries or unrestricted subsidiaries. The Notes and the related guarantees will be the Company and the Guarantors’, respective, senior unsecured obligations and will rank equally in right of payment to all present and future 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 indenture governing the Notes contains 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 is subject to important exceptions and qualifications.
Note 15. 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.
Note 16. New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, which requires lessees to put most leases on the balance sheet but recognize expense on the income statement in a manner similar to the former accounting standard. The Company adopted the standard and all related amendments on January 1, 2019 using the optional transition method.
The comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods. Refer to Note 7,
Leases
, for further information.