Donnelley Financial Solutions, Inc. (Form: 10-Q, Received: 11/03/2021 16:09:48)

Large Accelerated filer

Accelerated filer

Non-Accelerated filer

Smaller reporting company

Emerging growth company

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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

Exhibit 10.41

EXECUTION VERSION

REAL ESTATE SALE AGREEMENT

by and between

DONNELLEY FINANCIAL, LLC,

as Seller

and

hsg acquisitions LLC,

as Purchaser

1500 N. Central avenue, Phoenix, Arizona

THIS REAL ESTATE SALE AGREEMENT (this “Agreement”) is made and entered into as of August ____, 2021 (the “Contract Date”), by and between DONNELLEY FINANCIAL, LLC, a Delaware limited liability company (“Seller”) and HSG ACQUISITIONS LLC, an Illinois limited liability company (“Purchaser”).

PRELIMINARY STATEMENTS

Seller is the owner of approximately 3.293 acres of real estate located at 1500 N. Central Avenue, Phoenix, Arizona (APN# 111-33-150A and 111-33-151) and as generally depicted and legally described on Exhibit A attached hereto (the “Real Property”), which is improved with an approximately 52,000 square foot office/flex building and approximately 187 surface parking spaces; and

During the pendency of this Agreement, Purchaser intends to pursue the proposed development of the Premises (defined below) into a mixed-use project with retail on the ground floor and 250 multi-family units on the upper floors (the “Development Plan”).

Seller desires to sell and Purchaser desires to purchase the Real Property, the improvements thereon and the related property herein described on the terms set forth in this Agreement.

In consideration of the recitals, the mutual covenants hereafter set forth, and other good and valuable considerations, the receipt and sufficiency of which are mutually acknowledged, it is agreed by and between the parties as follows:

Property.

(a)

Premises. The Real Property, together with all buildings and improvements located thereon at Closing (if any) (the “Improvements”) and all rights, easements, tenancies (if any), signage and appurtenances belonging or appertaining thereto, and all right, title and interest of Seller, if any, in and to any and all roads, streets, alleys or public and private rights of way, bounding such property (collectively, the “Premises”).

(b)

Intentionally Omitted.

(c)

Licenses and Permits. To the extent transferable, all of Seller’s right, title and interest, if any, in all licenses and permits relating to the Premises or Improvements (collectively, the “Licenses and Permits”).

The Premises, Improvements, and the Licenses and Permits are herein collectively referred to as the “Property.”

Sale/Conveyance and Assignment. Seller agrees to sell, convey and assign to Purchaser, and Purchaser agrees to buy and assume from Seller, upon the terms and conditions set forth in this Agreement, the Property.

Transfer of Title. Title to the Premises shall be conveyed to Purchaser by a special warranty deed (the “Deed”) executed by Seller, in the form attached hereto as Exhibit B.

Purchase Price; Earnest Money.

(a)

Purchase Price. The purchase price for the Property shall be Twelve Million Five Hundred Thousand and 00/100 Dollars ($12,500,000.00) (the “Purchase Price”), provided that, if the Seller Demolition (as defined below) has been completed prior to Closing, the Purchase Price shall be Twelve Million Eight Hundred Fifty Thousand Dollars ($12,850,000).

(b)

Earnest Money. Within two (2) Business Days after the Contract Date, Purchaser shall deposit with Chicago Title Insurance Company, Chicago office, Attn.: Scott Isaacson (the “Escrow Agent” or “Title Company” as applicable), as earnest money hereunder, the sum of Two Hundred Fifty Thousand and No/Dollars ($250,000.00) (the “Initial Deposit”) by wire transfer of immediately available funds. Within two (2) Business Days after the expiration of the Due Diligence Period, Purchaser shall deposit with Escrow Agent the additional sum of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) (the “Additional Deposit”). The Initial Deposit and the Additional Deposit, together with interest earned thereof, shall be referred to collectively as the “Earnest Money”.

(c)

Deposit Instructions. Escrow Agent shall deposit the Earnest Money (or any portion thereof) into an account selected by the Escrow Agent and approved by Purchaser; all interest accrued on the Earnest Money shall be for the account of whichever party becomes entitled to the Earnest Money under any provision of this Agreement, whether or not the provision specifically refers to interest on the Earnest Money. The Earnest Money shall be held by Escrow Agent for the benefit of the parties hereto pursuant to the provisions of Section 24 of this Agreement.

Due Diligence Period.

(a)

Due Diligence Period. Commencing on the Contract Date and continuing until 5:00 p.m. (CT) until the date which is the later of (i) ninety (90) days after the Contract Date, or (ii) the date that is thirty (30) days after Purchaser receives e-mail notification from Seller that the Seller Demolition is complete (such longer period, the “Due Diligence Period”), Purchaser shall have the right to satisfy itself, in its sole discretion, as to conditions necessary for Purchaser’s proposed ownership, development or other use of the Premises, including, without limitation: the environmental, soil and engineering conditions of the Premises and any other physical, economic and/or suitability conditions necessary, required or desired for Purchaser’s proposed ownership, development or other use of the Premises (collectively, the “Inspections”). If Purchaser desires to terminate this Agreement for any reason or no reason during the Due Diligence Period, Purchaser may terminate this Agreement pursuant to this Section 5(a) by sending written notice to the Seller on or before the expiration of the Due Diligence Period, and upon such notice this Agreement shall immediately terminate and the Initial Deposit shall be returned by Escrow Agent to Purchaser, without further instruction from the parties, and neither party shall

have any rights or obligations under this Agreement except those that expressly survive termination of the Agreement. If Purchaser does not timely provide its notice of termination, Purchaser shall be deemed to have timely elected to terminate this Agreement. If Purchaser elects to proceed by delivering notice of such election to Seller prior to the expiration of the Due Diligence Period, then (i) this Agreement will remain in full force and effect, and (ii) the Earnest Money shall be non-refundable to Purchaser except as otherwise provided in this Agreement.

(b)

If Purchaser elects to proceed prior to the expiration of the Due Diligence Period, then, for the purpose of pursuing preliminary and final site plan approval and all other federal, state, county, and municipal approvals as Purchaser deems sufficient in its sole and absolute discretion to develop the Premises in accordance with the Development Plan (the “Entitlements”), Purchaser shall have a period commencing on the expiration of the Due Diligence Period and continuing until 11:59 p.m. (EST) on the date that is two hundred and eighty-five (285) days thereafter (the “Entitlement Period”) to pursue the Entitlements at its sole cost and expense. Purchaser acknowledges and agrees that, commencing on the first day of the Entitlement Period $70,000 of the Earnest Money shall be non-refundable to Purchaser and shall be released by Escrow Agent to Seller, and every 30-days thereafter, if Purchaser has not previously terminated this Agreement, $35,000 of the Earnest Money shall be non-refundable to Purchaser and shall be released by Escrow Agent to Seller (all such releases of the Earnest Money referred to as the “Nonrefundable Deposit”), provided that Seller shall be required to return the Nonrefundable Deposit to Purchaser if this Agreement is terminated by Purchaser pursuant to Section 11, Section 17(b), Section 17(c), or Section 21; the Nonrefundable Deposit, together with the rest of the Earnest Money shall be credited against the Purchase Price at Closing. Purchaser shall have the right to terminate this Agreement by sending written notice to Seller on or before the expiration of the Entitlement Period if Purchaser has not received the Entitlements, and upon delivery of such notice (1) this Agreement shall immediately terminate, (2) Seller shall have the right to retain the Nonrefundable Deposit released to the Seller prior to the termination of the Agreement, (3) the Earnest Money (other than the Nonrefundable Deposit released to the Seller prior to the termination of the Agreement) shall be returned by Escrow Agent to Purchaser without further instruction from the parties, and (4) neither party shall have any rights or obligations under this Agreement except those that expressly survive termination of the Agreement. If Purchaser does not timely provide its notice of termination prior to the expiration of the then-current Entitlement Period, then Purchaser shall be deemed to have waived its right to terminate this Agreement during the Entitlement Period as set forth in this paragraph, this Agreement will remain in full force and effect, and the Earnest Money shall be non-refundable to Purchaser except as otherwise set forth in this Agreement.

(c)

Property Information. Within two (2) business days after the Contract Date Seller shall deliver copies or will make available to Purchaser digital copies of all information and documentation included on Exhibit C attached hereto or otherwise relating to the Premises that is actually in the possession or control of Seller, and additional items may be requested by Purchaser during the Due Diligence Period and which are actually in the possession of Seller, and do not constitute Excluded Property Records, as hereafter defined (collectively, the “Property Information”). Except as is expressly

provided for in Section 6(a), Purchaser acknowledges that it shall have no right to rely on the accuracy of any of the Property Information obtained from Seller or Seller's agents, that such information is being made available solely as a courtesy and that Seller has not, and shall not be deemed to have, made any representations or warranties whatsoever, express or implied, with respect to the completeness, content or accuracy of the Property Information or with respect to any of the matters disclosed thereby. Notwithstanding any terms to the contrary in this Agreement, (a) Seller shall not be obligated or otherwise required to furnish or make available to Purchaser any of the following (collectively, “Excluded Property Records”): (i) any appraisals or other economic evaluations of, or projections with respect to, all or any portion of the Premises, including, without limitation, any budgets, prepared by or on behalf of Seller or any affiliate of Seller, and (ii) any documents, materials or information which are subject to attorney/client, work product or similar privilege, which constitute attorney communications with respect to the purchase of the Premises by Purchaser, or which are subject to a confidentiality agreement; (b) Property Information shall not include any Excluded Property Records; and (c) Seller shall have no obligation or liability of any kind to Purchaser as a result of Seller not furnishing or making available to Purchaser the Excluded Property Records. It is expressly understood by Purchaser that Property Information is to be subject to the confidentiality provisions of Section 23(n) below.

(d)

Governmental Communications. Seller acknowledges and agrees that at all times during the Due Diligence Period and during the Entitlement Period, Purchaser intends to, and shall have the right to contact the applicable governmental entities in order for Purchaser to timely pursue the Entitlements; provided, however, that notwithstanding anything to the contrary contained herein, Purchaser shall not cause any governmental approvals, such as zoning changes, site plan approvals or other development rights that have the effect of either (1) diminishing existing entitlements related to the Premises, or (2) imposing new obligations on the Premises to become binding or effective as to, or recorded against, the Premises prior to Closing without Seller’s prior written consent, in Seller’s sole and absolute discretion. Purchaser shall have the right to contact and meet with any governmental entity regarding the Premises. Seller (or its designee) shall have the right to be present at any public meeting related to the Entitlements (provided, that Seller’s or its representative’s unavailability shall not delay such contact or meeting). Purchaser shall provide to Seller reasonable updates on the status the Entitlements once per month (status update via email being acceptable).

Representations, Warranties and Covenants.

(a)

Seller’s Representations and Warranties. As a material inducement to Purchaser to execute this Agreement and consummate this transaction, Seller represents and warrants to Purchaser as follows:

(1)

Organization; Authority and Enforceability. Seller has been duly organized and is validly existing under the laws of the State of Delaware and Seller is duly authorized and qualified to do business in the State of Arizona. Seller has the full right and authority and has obtained any and all consents required therefor to enter into this Agreement, consummate or cause to be consummated the sale and

make or cause to be made transfers and assignments contemplated herein. The persons signing this Agreement on behalf of Seller are authorized to do so. This Agreement and all of the documents to be delivered by Seller at the Closing have been authorized and have been or will be properly executed and constitute or will constitute the valid and binding obligations of Seller, enforceable against Seller in accordance with their terms.

(2)

Conflicts. There is no agreement to which Seller is a party or binding on Seller or the Premises which is in conflict with this Agreement or which would limit or restrict the timely performance by Seller of its obligations pursuant to this Agreement.

(3)

Litigation. There is no action, suit or proceeding pending, or, to Seller’s actual knowledge, threatened in writing, which (i) if adversely determined, would adversely affect the Premises, or (ii) which challenges or impairs Seller’s ability to execute, deliver or perform this Agreement or consummate the transaction contemplated hereby.

(4)

Notice of Violations. Seller has not received any written notice, and Seller has no actual knowledge, that either the Premises or the use thereof violates any laws, rules and regulations of any federal, state, city or county government or any agency, body, or subdivision thereof having any jurisdiction over the Premises.

(5)

Withholding Obligation. Seller is not a “foreign person” within the meaning of Section 1445 of the Internal Revenue Code of 1986, as amended (the “Code”).

(6)

Condemnation. There are no pending or, to Seller’s actual knowledge, written threats of condemnation or similar proceedings affecting the Premises or any part thereof.

(7)

Leases. There are no leases, licenses or occupancy agreements affecting the Premises (or any portion thereof).

(8)

Environmental. Except as set forth in the Property Information, Seller has not received any written notice from any governmental entity alleging the presence or release of hazardous materials on or from the Premises or any violations of environmental law.

(9)

Options. Seller is not subject to any commitment, obligation or agreement, including, but not limited to any right of first refusal or option to purchase granted to a third party, which shall prevent it from completing the sale of the Premises to Purchaser under the terms of this Agreement or which would bind Purchaser in any manner subsequent to the consummation of this Agreement.

(10)

Covenants, Conditions, Restrictions or Easements. To Seller’s knowledge, there is no default or breach by Seller nor under any covenants,

conditions, restrictions or easements which may affect the Premises or any portion thereof.

(11)

No Bankruptcy. Seller is not a party to any voluntary or involuntary proceedings in bankruptcy, reorganization or similar proceedings under the Federal bankruptcy laws or under any state laws relating to the protection of debtors, or subject to any general assignment for the benefit of the creditors, and, to Seller's actual knowledge, no such action has been threatened in writing.

(12)

OFAC. Neither Seller nor, to Seller’s actual knowledge, any individual having a beneficial interest in Seller, is a person described by Section 1 of the Executive Order (No. 13224) Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism, 66 Fed. Reg. 49079 (September 25, 2001), and does not engage in any dealings or transactions, and is not otherwise associated with any such persons.

(13)

Tax Appeals. Except as provided by Purchaser in the Property Information, there is no ongoing appeal with respect to taxes or special assessments on the Premises for any year, and any consultants engaged to perform work with respect to appeals of taxes or special assessments on the Premises have been paid in full. Notwithstanding the foregoing, Seller reserves the right, prior to Closing, to protest the Premises’ real estate tax assessment following completion of the Seller Demolition (the “Seller Tax Protest”). Upon initiating the Seller Tax Protest, Seller shall deliver notice to the Purchaser of such action and shall keep Purchaser apprised of the Seller Tax Protest and such action will not be considered a default by the Seller under this Agreement.

(a)

Purchaser’s Representations and Warranties. As a material inducement to Seller to execute this Agreement and consummate this transaction, Purchaser represents and warrants to Seller as follows:

(1)

Organization; Authority and Enforceability. Purchaser has been duly formed and is validly existing under the laws of the State of Illinois. Purchaser has the full right and authority and has obtained any and all consents required therefor to enter into this Agreement, consummate or cause to be consummated the purchase, and make or cause to be made the deliveries and undertakings contemplated herein or hereby. The persons signing this Agreement on behalf of Purchaser are authorized to do so. This Agreement and all of the documents to be delivered by Purchaser at the Closing have been authorized and have been or will be properly executed and constitute or will constitute the valid and binding obligations of Purchaser, enforceable against Purchaser in accordance with their terms.

(2)

OFAC. Neither Purchaser nor, to Purchaser’s actual knowledge, any individual having a beneficial interest in Purchaser, is a person described by Section 1 of the Executive Order (No. 13224) Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support

Terrorism, 66 Fed. Reg. 49079 (September 25, 2001), and does not engage in any dealings or transactions, and is not otherwise associated with any such persons.

(3)

Conflicts. There is no agreement to which Purchaser is a party or binding on Purchaser which is in conflict with this Agreement or which would limit or restrict the timely performance by Purchaser of its obligations pursuant to this Agreement.

(4)

Litigation. There is no action, suit or proceeding pending, or, to Purchaser’s actual knowledge, threatened in writing, which challenges or impairs Purchaser’s ability to execute, deliver or perform this Agreement or consummate the transaction contemplated hereby.

(5)

No Bankruptcy. Purchaser is not a party to any voluntary or involuntary proceedings in bankruptcy, reorganization or similar proceedings under the Federal bankruptcy laws or under any state laws relating to the protection of debtors, or subject to any general assignment for the benefit of the creditors, and, to Purchaser's actual knowledge, no such action has been threatened in writing.

(6)

Financing. Purchaser has all the funds necessary to consummate the transactions contemplated by this Agreement.

(a)

Survival. Seller’s representations and warranties set forth in this Agreement are made as of the Contract Date and are remade as of the Closing Date, and (except for those contained in the Deed) shall survive the Closing until the date that is six (6) months after the Closing (the period beginning on the Closing and ending on such date being herein called the “Survival Period”), at which time such representations and warranties (and any cause of action resulting from a breach thereof) shall terminate except to the extent Purchaser shall have notified Seller of any breach prior to the expiration of the Survival Period. Seller and Purchaser agree that, following the Closing, Seller shall be liable for the direct, but not consequential, incidental, indirect, punitive, special or exemplary, damages or lost profits, resulting from any breach of its representations and warranties expressly set forth in Section 6(a); provided, however, that the total liability of Seller for all such breaches and any matters relating thereto shall not, in the aggregate, exceed two percent (2%) of the Purchase Price and Seller shall not be liable until all such breaches and any matters relating thereto exceed $25,000 (provided that Purchaser shall have the right to recover all damages related to such breach and not only amounts exceeding $25,000).

Covenants of Seller. Seller covenants and agrees that during the period from the Contract Date through and including the Closing Date or earlier termination of this Agreement:

(a)

No New Agreements. Other than agreements required to comply with Seller Demolition (as hereafter defined) or to complete the Seller Tax Protest, Seller shall not enter into any new service contract, lease, occupancy agreement or other agreement affecting the Property. Other than any engagements with respect to the Seller Tax Protest (for which Seller shall remain personally liable) Seller shall terminate all service contracts related to the Property prior to Closing.

(b)

Operation. Except as otherwise set forth herein, Seller shall continue to operate and maintain the Property in accordance with past practices and applicable laws; provided, that, upon the completion of the Seller Demolition Seller shall thereafter maintain the Premises as a vacant lot of land with fencing erected around the Premises’ perimeter. In addition, Seller shall not request or consent to any change, variance or other modification to the Property’s zoning or entitlements.

(c)

Insurance. Seller shall maintain liability insurance of a level and type consistent with the insurance maintained by Seller prior to the execution of this Agreement with respect to the Property; provided, that, such coverage may be updated, as determined by Seller in its sole discretion, to provide coverage commercially reasonable for a vacant lot of land.

(d)

Title Matters. Seller shall not do anything, nor authorize anything to be done, which would affect the condition of title as shown on the Title Commitment.

(e)

No Liens. Seller shall own the Property free and clear of all liens, claims, encumbrances, and rights of others, except for the Permitted Exceptions (defined below) or liens which shall be released by Seller at the time of Closing.

(f)

Exclusivity. Seller shall not list the Property with any broker or otherwise solicit or make or accept any offers to sell the Property, engage in any discussions or negotiations with any third party with respect to the sale or other disposition of the Property, or enter into any contracts or agreements (whether binding or not) regarding any disposition of the Property.

(g)

Updated Information. Seller shall promptly notify Purchaser of any change in the condition of the Property or of the occurrence of any event or circumstance of which Seller becomes actually aware which makes any representation or warranty of Seller under this Agreement untrue, inaccurate or incorrect, or the occurrence of any casualty or condemnation with respect to the Property or the receipt of any notices of violation of any applicable law or building code.

(h)

Seller Demolition. On or before December 31, 2021, Seller shall, at its sole cost and expense, demolish all Improvements located on the Premises and such demolition shall be performed to rough grade and include removal of all building foundations as described in the scope attached as Exhibit E, but shall exclude the removal of the storm water inlet depicted in Exhibit F (together the “Seller Demolition”); provided, that, Seller shall be entitled to force majeure extensions (not to exceed a delay beyond the Entitlement Period) if any events beyond the Seller’s control prevent it from completing the Seller Demolition prior to December 31, 2021. Purchaser acknowledges and agrees that the Seller Demolition will cause utilities to be abandoned to the street which will decommission utilities at the Premises.

Access to Premises Prior to Closing. At any time prior to the Closing Date, upon not less than 24 hours advance notice to Seller, Purchaser and its agents, representatives, employees, planners, designers, consultants, and contractors (collectively, the “Purchaser Parties”) may

inspect the Property for such purposes as Purchaser may reasonably require; provided, that, Purchaser shall (i) not enter the Premises without coordinating access with Seller after providing the required 24 hour advance notice, (ii) agree to abide by all safety and security measures and all policies and procedures of Seller during any site visit, (iii) not engage in any activities which would violate any permit, license, laws, ordinances, rules, and regulations applicable to the Premises (including without limitation any environmental law or regulation), and (iv) conduct its due diligence without interference with the operations and occupancy of the Premises. The Purchaser Parties may also enter upon the Premises for the purpose of taking soil tests, environmental tests, preparing architectural studies and for such other matters as may be reasonably required by Purchaser. In all events Seller shall have the right to have a representative present during any visits to or inspections of the Premises by Purchaser Parties. Purchaser shall have no right to conduct any physically invasive testing without the written consent of Seller and upon requesting any such consent the Purchaser shall deliver to Seller the scope of any invasive testing and/or analysis to be performed, provided that (a) Purchaser shall have the right to conduct geotechnical studies subject to Seller’s reasonable approval of the scope of such studies, and (b) if Purchaser’s Phase I environmental study recommends a Phase II or other further environmental testing, Purchaser shall have the right to undertake such testing or studies subject to Seller’s reasonable approval of the scope of such studies and testing. No testing shall be conducted on any of the existing Improvements that will be demolished without the consent of the Seller to be withheld in its reasonable discretion and if the Closing is not consummated and the existing Improvements are not demolished the Purchaser agrees that it will repair any damage caused by any invasive testing it is allowed to perform. If and to the extent that the Purchaser Parties enter upon the Premises during the course of such inspections, Purchaser shall maintain and use commercially reasonable efforts to cause each of the other Purchaser Parties entering the Premises to maintain and have in effect commercial general liability insurance with (i) limits of not less than $3,000,000 per occurrence for personal injury, including bodily injury and death, and property damage, and (ii) Seller named as an additional insured. Purchaser shall deliver to Seller a copy of the certificates of insurance effectuating the required insurance before any of the Purchaser Parties enter upon the Premises. Upon commencement of the Seller Demolition the Purchaser will not be allowed to be on site at the Premises until the Seller Demolition has been completed, Purchaser shall coordinate with Seller to conduct its onsite testing prior to the commencement of or after the completion of the Seller Demolition. The actual period of time it shall take to complete the Seller Demolition shall be referred to as the “Demolition Period”. It is anticipated that the Demolition Period shall take no longer than thirty (30) days and during the Due Diligence Period it is the intent of the parties that the Purchaser will at minimum have access to the Premises thirty (30) days after the conclusion of the Demolition Period, accordingly the Due Diligence Period may be extended beyond ninety (90) days as set forth in Section 5(a)(ii) to ensure the Purchaser has access to the Premises for up to thirty (30) days after it receives e-mail notification that the Seller Demolition is complete. Purchaser agrees to indemnify, defend and hold Seller harmless from and against all third party loss, liability, damage and costs incurred by Seller that is caused by the Purchaser Parties constituting damage to property or injury to persons as a result of their entry on the Premises, and agrees in the event any physically intrusive testing/analysis is done on the Premises to repair the Property in substantially the same condition as it was prior to the drilling or damage, the obligations set forth in this sentence shall survive the termination of this Agreement and/or the Closing. In no event shall Purchaser’s indemnification obligations apply to any loss, liability, damage and costs that results from or arises out of the gross negligence or willful misconduct of

Seller or its agents, representatives, employees, planners, designers, consultants, and contractors, or any discovery of an existing condition at the Property. Upon Seller’s reasonable request, and within two business days of such request, Purchaser shall furnish to Seller copies of all final surveys, soil test results, engineering, and other studies and reports generated by third parties in connection with Purchaser’s due diligence.

Acknowledgment of Condition of Property

(a)

BY CLOSING THIS TRANSACTION, PURCHASER WILL BE DEEMED TO HAVE ACKNOWLEDGED AND AGREED THAT IT HAS BEEN GIVEN A FULL OPPORTUNITY TO INSPECT AND INVESTIGATE EACH AND EVERY ASPECT OF THE PROPERTY, EITHER INDEPENDENTLY OR THROUGH AGENTS OF PURCHASER’S CHOOSING, AND PURCHASER SPECIFICALLY ACKNOWLEDGES AND AGREES THAT SELLER IS SELLING AND PURCHASER IS PURCHASING THE PROPERTY ON AN “AS IS WITH ALL FAULTS” BASIS AND THAT, EXCEPT WITH RESPECT TO SELLER’S REPRESENTATIONS AND WARRANTIES PROVIDED IN THIS AGREEMENT AND ALL OTHER AGREEMENTS DELIVERED BY SELLER IN CONNECTION HEREWITH (BUT SUBJECT TO THE LIABILITY CAP AND LIABILITY THRESHOLD), PURCHASER IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM SELLER, ITS AGENTS, REPRESENTATIVES, OR BROKERS AS TO ANY MATTERS CONCERNING THE PROPERTY. EXCEPT AS SPECIFICALLY SET FORTH HEREIN, Purchaser agrees that Seller hereby makes no representations or warranties with respect to the physical or environmental conditions of the Property.

(b) Prior to Closing, Purchaser will have the opportunity to inspect the Property and to observe its physical characteristics and existing conditions and the opportunity to conduct such investigations and studies of the Property and adjacent areas as Purchaser deems reasonably necessary. Effective from and after Closing, Purchaser will FOREVER RELEASE AND DISCHARGE AND COVENANT NOT TO SUE Seller and its partners, shareholders, members, managers, trustors, trustees, beneficiaries, officers, directors, agents, employees, property manager, controlling persons, affiliates, successors-in-title, successors and assigns (“Seller Parties”), from any and all liabilities, losses, claims (including third party claims), demands, damages (of any nature whatsoever), causes of action, costs, penalties, fines, judgments, attorneys' fees, consultants' fees and costs and experts' fees, whether direct or indirect, known or unknown, foreseen or unforeseen (collectively, "Claims") that may arise on account of or in any way be connected with the Property or any law or regulation applicable thereto, including but not limited to any Claim or matter (regardless of when it first appeared) relating to or arising from (a) the presence of any environmental problems, or the use, presence, storage, release, discharge or migration of Hazardous Materials on, in, under or around the Property or migrating from the Property, (b) any patent or latent defects or deficiencies with respect to the Property, (c) any and all matters related to the Property or any portion thereof, including the condition and/or operation of the Property and each part thereof, the valuation, salability, or utility

of the Property, or its suitability for any purpose whatsoever, and (d) the presence, release and/or remediation of asbestos and asbestos containing materials in, on or about the Property, regardless of when such asbestos or asbestos containing materials were first introduced in, on or about the Property. However, notwithstanding anything herein to the contrary, no release, waiver or covenant not to sue in this Agreement extends to, and Purchaser expressly excludes from the release and reserves against Seller all rights and remedies related to, claims arising from (A) fraud, gross negligence or willful misconduct by Seller, (B) any claim by a third party for bodily injury, death or property loss or damage first occurring prior to the Closing Date, or (C) claims made under and subject to the terms of Section 6(c) of this Agreement (collectively, the “Excluded Claims”).

(c) To the greatest extent permitted by applicable law, Purchaser hereby agrees, represents and warrants to Seller that Purchaser realizes and acknowledges that factual matters now unknown to Purchaser may have given or may hereafter give rise to Claims which are presently unknown, unanticipated and unsuspected, and Purchaser further agrees, represents and warrants that the waivers and releases herein have been negotiated and agreed upon in light of that realization and that Purchaser nevertheless hereby intends to release Seller from any such unknown Claims, other than Excluded Claims, which might in any way be included as a material portion of the consideration given to Seller by Purchaser in exchange for Seller's performance hereunder. Without limiting the foregoing, if Purchaser has actual knowledge of (i) a default in any of the covenants, agreements or obligations to be performed by Seller under this Agreement and/or (ii) any breach or inaccuracy in any representation of Seller made in this Agreement, and Purchaser nonetheless elects to proceed to Closing, then, upon the consummation of the Closing, Purchaser shall have no Claim against Seller or hereunder with respect thereto. Notwithstanding anything to the contrary set forth herein, and except with respect to the Excluded Claims, Seller shall not have any liability whatsoever to Purchaser with respect to any matter disclosed to Purchaser in writing or actually discovered by Purchaser prior to the Closing Date.

(d) Survival. Section 9 shall indefinitely survive the Closing and shall remain in effect even if the other terms of this Agreement cease to be effective.

10.

Closing.

(a)

Closing Date. The closing of the transactions contemplated by this Agreement (the “Closing”) shall be accomplished through the escrow referred to in Section 10(b) below, and shall take place on the date which is thirty (30) days after the earlier of (i) the date Purchaser delivers written notice to the Seller that Purchaser has obtained the Entitlements, and (ii) expiration of the Entitlement Period (the “Closing Date”).

(b)

Closing Escrow. On or prior to the date set for Closing under this Agreement, the parties shall establish the usual form of deed and money escrow with Escrow Agent. Legal counsel for the respective parties are hereby authorized to deliver closing instruction letters to the Escrow Agent in accordance with normal practice in Phoenix, Arizona.

11.

Conditions to Purchaser’s Obligation to Close. Purchaser shall not be obligated to proceed with the Closing if this Agreement shall have been previously terminated pursuant to any other provision hereof, and unless and until each of the following conditions has been fulfilled or waived in writing by Purchaser:

(a)

Seller shall have performed and complied in all material respects with all of the terms of this Agreement to be performed and complied with by Seller prior to or at Closing.

(b)

On the Closing Date, the representations and warranties of Seller set forth in in Section 6(a) shall be true, complete and accurate in all material respects.

(c)

At Closing, the Escrow Agent shall have issued the Title Policy (defined below) to Purchaser (provided, that the Title Policy may be delivered after the Closing Date if, as of the Closing Date, Escrow Agent issues a currently effective, duly-executed “marked-up” Title Commitment and irrevocably commits in writing to issue the Title Policy in the form of the “marked-up” Title Commitment after the Closing Date).

In the event that any of the foregoing conditions shall not have been fulfilled (or waived by Purchaser, in Purchaser’s sole and absolute discretion) on or before the time for Closing hereunder, then Purchaser may elect, upon written notice to Seller, to terminate this Agreement, in which event the Earnest Money (including the Nonrefundable Deposit) shall promptly be returned to Purchaser, and, except for the provisions of this Agreement that expressly survive Closing or earlier termination of this Agreement, this Agreement shall be void and of no further force and effect, and neither party shall have any liability to the other by reason hereof, provided that if such failure is the result of a default by Seller of the terms of this Agreement then the terms of Section 17(b) below shall apply.

12.

Title Insurance.

(a)

Title Commitment. Purchaser shall promptly order a current commitment (the “Title Commitment”) from the Title Company, together with all of the underlying documentation described in such Title Commitment, for an owner’s title insurance policy, dated as of the Closing Date, in the full amount of the Purchase Price, the form of which shall be the most current form American Land Title Association Owner’s Policy, subject only to the Permitted Exceptions (the “Title Policy”).

As used herein, “Permitted Exceptions” shall mean: (1) any exception arising out of an act of Purchaser or its representatives, agents, employees or independent contractors; (2) zoning and subdivision ordinances and regulations; (3) the specific exceptions in the Title Commitment that the Title Company has not agreed to insure over or remove from the Title Commitment prior to the expiration of the Due Diligence Period (specifically excluding Seller Encumbrances); (4) items shown on the Survey which have not been removed prior to the Closing Date (specifically excluding Seller Encumbrances); and (5) real estate taxes and assessments not yet due and payable.

(b)

Survey. At its sole cost and expense, Purchaser shall order a current ALTA/NSPS Land Title Survey of the Premises prepared by a Registered Public Surveyor or Professional Engineer (the “Survey”).

(c)

Purchaser Review. Prior to the expiration of the Due Diligence Period, Purchaser shall review title to the Premises as disclosed by the Title Commitment and the Survey, and satisfy itself as to the availability from Escrow Agent of the Title Policy and all requested endorsements to such Title Policy.

(d)

Seller Encumbrances. Seller shall have no obligation to remove or cure title objections, except for the following (collectively, “Seller Encumbrances”): (1) liens of an ascertainable amount, which liens Seller shall cause to be released on or prior to the Closing Date or affirmatively insured over by Title Company, (2) any exceptions or encumbrances to title that relate to leases, licenses or occupancy agreements with respect to the Premises and (3) any exceptions or encumbrances to title which are created by Seller after the date of this Agreement without Purchaser’s consent. Seller shall cause the Property to be conveyed to Purchaser at Closing free and clear of all Seller Encumbrances, and subject only to the Permitted Exceptions. Forty five (45) days prior to the expiration of the Due Diligence Period Purchaser may provide Seller and Title Company a letter outlining any title objections Purchaser may have concerning the Premises. With respect to any objections which Purchaser may have (other than Seller Encumbrances), Seller shall notify Purchaser in writing within ten (10) days after receipt of written objections from Purchaser as to which of such objections it elects to cure, if any. Seller’s failure to respond shall be deemed to be an election not to cure matters which it is not required to remove hereunder. In addition, Seller shall provide Title Company with such customary affidavits (collectively, an “Owner’s Affidavit”) as Title Company may require in order to the issue the Title Policy or any endorsements to the Title Policy and remove the standard “mechanics lien” and “GAP” exceptions.

13.

Seller Closing Deliveries. At Closing, Seller shall deliver to Purchaser possession of the Premises and the improvements located thereon, free and clear of any tenants, occupants and/or rights of possession, and shall deliver or cause to be delivered to Purchaser through escrow each of the following instruments and documents:

(a)

Deed. The Deed, in the form attached hereto as Exhibit B.

(b)

FIRPTA. An affidavit, in the form attached hereto as Exhibit D, stating Seller’s U.S. taxpayer identification number and that Seller is a “United States person”, as defined by Internal Revenue Code Section 1445(f)(3) and Section 7701(b).

(c)

Owner’s Affidavit. The Owner’s Affidavit materials referred to in Section 12(d) above.

(d)

Work Product. At no cost to Seller, all documents, work products, project models, consulting reports and similar items related to the Premises that are in Seller’s possession, which, to the extent the same relate solely to the Premises and are owned by

Seller, shall be assigned to Purchaser pursuant to an assignment agreement prepared by Purchaser and reasonably approved by Seller.

(e)

Certificate of Representations and Warranties. A written certificate, duly executed by Seller, certifying that all of the representations and warranties of Seller set forth in Section 6(a) are true and correct as of the Closing.

(f)

License and Permit Assignment. A General Assignment, in a form reasonably agreed to by the parties prior to the Closing assigning the Licenses and Permits from Seller to Purchaser.

(g)

Other Deliveries. Such other documents and instruments as may be required by any other provision of this Agreement or as may reasonably be required to carry out the terms and intent of this Agreement, including (1) an Affidavit of Property Value in the statutory form and (2) an Arizona Department of Water Resources form to transfer any well (if applicable).

14.

Purchaser Closing Deliveries. At Closing, Purchaser shall deliver or cause to be delivered through escrow to Seller each of the following instruments, documents and amounts:

(a)

Purchase Price. The Purchase Price, less a credit for the Earnest Money, subject to further adjustment and proration as provided in this Agreement, by wire transfer of immediately available federal funds.

(b)

Other Documents. Such other documents and instruments as may be required by any other provision of this Agreement or as may reasonably be required to carry out the terms and intent of this Agreement.

15.

Joint Closing Deliveries. At Closing, Purchaser and Seller shall deliver or cause to be delivered each of the following instruments and documents:

(a)

Closing Instruction Letters. Closing Instruction Letters (as described in Section 10(b)).

(b)

Settlement Statement. A fully executed settlement statement.

16.

Pro-rations and Adjustments.

(a)

Adjustment Date. At the Closing, the following items of revenue and expense shall be adjusted and apportioned in cash as of 11:59 p.m. on the day preceding the Closing Date (the “Adjustment Date”):

(1)

Taxes and Assessments. Any applicable real estate and other ad valorem taxes, assessments, personal property or use taxes, on an accrual basis (based on Seller and Purchaser’s period of ownership of the Premises) on the basis of the latest available figures.

(2) Charges. Any water, electricity, sewer, gas, and other similar charges, on an accrual basis (based on Seller and Purchaser’s period of ownership of the Premises), on the basis of, to the extent practicable, final meter readings and final invoices.

(a)

Re-Prorations. If any prorations are based on estimated amounts, then after Closing, Seller and Purchaser shall true-up based on the actual amounts within thirty (30) days after such amounts are known, but in no event later than twelve (12) months after Closing. Notwithstanding the foregoing, solely with respect to any Seller Tax Protest or Purchaser initiated tax protest, the survival period for prorations with respect to such actions shall extend until such actions have concluded and the parties’ reallocation of any real estate taxes and refunds with respect thereto have been applied.

Default; Termination.

(a)

Purchaser Default. If the Closing fails to occur as a result of any default by Purchaser, then provided Seller is not in default, Seller’s sole remedy shall be to terminate this Agreement by giving written notice thereof to Purchaser if such default is not cured after five (5) days written notice to Purchaser, whereupon, the Earnest Money shall be delivered to Seller by the Escrow Agent and retained by Seller as liquidated damages as Seller’s sole and exclusive remedy, and neither party shall have any further liability or obligation to the other except for obligations of Purchaser that expressly survive the termination of this Agreement. The parties acknowledge and agree that Seller’s actual damages in the event of Purchaser’s default are uncertain in amount and difficult to ascertain and that said amount of liquidated damages was reasonably determined.

(b) Seller Default. If the Closing fails to occur as a result of any default by Seller, or if any of Seller’s representations or warranties set forth in Section 6(a) are untrue as of the Contract Date, then provided Purchaser is not in default, Purchaser may, if such default is not cured after five (5) days written notice to Seller, in its sole and absolute discretion, either:

(1)

Terminate. Terminate this Agreement, whereupon the Earnest Money (including the Nonrefundable Deposit) shall be promptly returned to Purchaser by the Escrow Agent, and if such Seller default is material Seller shall promptly reimburse Purchaser for Purchaser’s actual third-party costs and expenses not to exceed One Hundred Fifty Thousand Dollars ($150,000) in the aggregate, and after Purchaser has received all such amounts, neither party shall have any further liability or obligation to the other, except for the provisions of this Agreement which are expressly stated to survive the termination of this Agreement; or

(2)

Specific Performance. Assert and seek judgment against Seller for specific performance; provided, however, any action for specific performance must be filed and served upon Seller within sixty (60) days after Seller’s alleged default, otherwise Purchaser shall be deemed to have elected to proceed in accordance with Section 17(b)(1) above.

(c) Specific Performance Unavailable. Notwithstanding the foregoing, if specific performance of Seller’s obligation to convey the Premises is not available to Purchaser due to an intentional act of Seller (i.e., Seller has sold the Premises to another party), in addition to terminating this Agreement (whereupon the Earnest Money, including the Nonrefundable Deposit, shall be promptly returned to Purchaser by Escrow Agent and Seller as applicable), Purchaser may seek all damages against Seller as determined by a court of competent jurisdiction (with such damages not to exceed the Purchase Price), and after Purchaser has received all such amounts, neither party shall have any further liability or obligation to the other, except for the provisions of this Agreement which are expressly stated to survive the termination of this Agreement.

(d) Survival. This Section 17 shall survive the termination of this Agreement.

Expenses.

(a)

Seller Expenses. At Closing, Seller shall pay (i) the premium for the Title Policy with standard coverage, (ii) one-half of any escrow or closing charges, and (iii) the recording fees and documentary fees related to any corrective instruments or Seller Encumbrances, and

(b)

Purchaser Expenses. At Closing, Purchaser shall pay: (i) all charges and expenses relating to any endorsements or extended coverage to the Title Policy (unless such endorsements are related to Seller Encumbrances), (ii) one-half of any escrow or closing charges charged by Escrow Agent, (iii) the recording and documentary fees incurred in connection with the Deed or otherwise applicable to the Purchaser’s acquisition of the Property, and (iv) all costs related to Purchaser’s acquisition financing, and (v) all charges and expenses relating to the Survey.

(c)

Professional Fees. Each of Seller and Purchaser shall be responsible for its respective attorney and other professional fees incurred in connection with the preparation and execution of this Agreement and the consummation of the Closing.

(d)

Other Customary Costs. All other costs, charges, and expenses shall be borne and paid as provided in this Agreement, or in the absence of such provision, in accordance with local custom in Phoenix, Arizona.

Intermediaries. Seller represents to Purchaser, and Purchaser represents to Seller, that there is no broker, finder, or intermediary of any kind with whom such party has dealt in connection with this transaction, other than Avison Young (the commission of which shall be paid by Seller pursuant to a separate agreement between Seller and Avison Young). If any claim is made against Purchaser for broker’s or finder’s fees or commissions for a party engaged by Seller in connection with the negotiation, execution or consummation of this Agreement or the transactions contemplated hereby, Seller shall defend, indemnify and hold harmless Purchaser from and against any such claim, which obligation shall survive Closing. If any claim is made against Seller for broker’s or finder’s fees or commissions for a party engaged by Purchaser in connection with the negotiation, execution or consummation of this Agreement or the transactions

contemplated hereby, Purchaser shall defend, indemnify and hold harmless Seller from and against any such claim, which obligation shall survive Closing.

Intentionally Omitted.

Condemnation. If, prior to Closing, a condemnation proceeding is commenced or threatened against the Premises in writing by a governmental or quasi-governmental agency with the power of eminent domain (“Condemnation”), then:

(a)

Termination Option. Purchaser may elect, within fourteen (14) days from and after said notice of Condemnation, by written notice to Seller, to terminate this Agreement, and if necessary the time of Closing shall be extended to permit such election. If Purchaser elects to terminate this Agreement, then the Earnest Money (including the Nonrefundable Deposit) shall be returned to Purchaser by Seller and Escrow Agent as applicable, and, except for the provisions of this Agreement that expressly survive Closing or earlier termination of this Agreement, this Agreement shall be void and of no further force and effect, and neither party shall have any liability to the other by reason hereof; or

(b)

Awards. In the event Purchaser does not timely elect to terminate pursuant to Section 21(a) above, then this Agreement shall not terminate, and if the Closing occurs then the Purchase Price shall not be reduced because of such Condemnation; provided, that, at Closing, Seller shall assign to Purchaser its rights in any Condemnation award to be paid to Seller in connection with such Condemnation.

Casualty. In the event of a fire or other casualty Purchaser shall have no right to terminate this Agreement; provided, that, Seller shall continue ensure the debris following such casualty is cleared and the Seller otherwise complies with the Seller Demolition obligations. In no event shall Purchaser be entitled to any insurance proceeds paid in connection with a fire or other casualty occurring in connection with the Property and all such proceeds shall be the sole property of the Seller. This provision shall survive the Closing and Purchaser shall cooperate with Seller to ensure that Seller receives any casualty award it is entitled to if such award is paid after the Closing.

General Provisions.

(a)

Entire Agreement. This written Agreement, including all Exhibits attached hereto and documents to be delivered pursuant hereto, shall constitute the entire agreement and understanding of the parties, and there are no other prior or contemporaneous written or oral agreements, undertakings, promises, warranties, or covenants not contained herein.

(b)

Amendments in Writing. This Agreement may be amended only by a written amendment subsequently executed by all of the parties hereto.

(c)

Waiver. No waiver of any provision or condition of this Agreement by any party shall be valid unless in writing signed by such party. No such waiver shall be taken as a waiver of any other or similar provision or of any future event, act, or default.

(d)

Time of the Essence. Time is of the essence of this Agreement. In the computation of any period of time provided for in this Agreement or by law, any date falling on a Saturday, Sunday or holiday when banks are not open for business in Chicago, Illinois or Phoenix, Arizona shall be deemed to refer to the next “Business Day” (being the next day which is not a Saturday, Sunday, or such holiday).

(e)

Severability. In the event that any provision of this Agreement shall be unenforceable in whole or in part, such provision shall be limited to the extent necessary to render the same valid, or shall be excised from this Agreement, as circumstances require, and this Agreement shall be construed as if said provision had been incorporated herein as so limited, or as if said provision has not been included herein, as the case may be.

(f)

Headings. Headings of sections are for convenience of reference only, and shall not be construed as a part of this Agreement.

(g)

Successors and Assigns. Purchaser shall not assign this Agreement without the prior written consent of Seller, which consent may be granted, conditioned or withheld in its sole and absolute discretion; provided, that, notwithstanding the foregoing, Purchaser may assign this Agreement to any person or entity that is an affiliate of Purchaser or co-controlled by Purchaser, or any entity that is an affiliate of, or co-controlled by, the direct or indirect owners or principals of Purchaser without Seller’s consent; provided, further, that, in the case of any assignment the Purchaser executing this Agreement on the date hereof shall be jointly and severally liable to perform the obligations of Purchaser hereunder. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefits of the parties hereto, and successors, and assigns.

(h)

Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed, or sent by Federal Express, UPS or other recognized overnight courier service for next Business Day delivery, or sent by electronic mail, to the parties as follows:

IF TO SELLER:

Donnelley Financial, LLC
35 W Wacker, 37th Floor

Chicago, Illinois 60601
Attention: General Counsel

Telephone: 312-326-7218
Email: andrea.aktan@DFINsolutions.com

with copies to:

Jones Day

250 Vesey Street

New York, New York 10281

Attention: Tito Escobar

Telephone: 212-326-3891

Email: tescobar@jonesday.com

IF TO PURCHASER:

c/o Hubbard Street Group

225 W. Hubbard St., 4th Floor

Chicago, Illinois 60654

Attn: John McLinden and Kage Brown

Email: jmclinden@hubbardstreetgroup.com; kbrown@hubbardstreetgroup.com

with a copy to:

c/o CP2 Management LLC

225 West Hubbard Street, Suite 501

Chicago, IL 60654

Attn: Legal Department

Email: Sbengtsson@cp2llc.com

With a copy to:

Greenberg Traurig LLP

77 W. Wacker Drive, Suite 3100

Chicago, Illinois 60601

Attn: Michael Baum

Email: baumm@gtlaw.com

If to Escrow Agent:

Chicago Title Insurance Company

10 S. LaSalle Street, Suite 3100

Chicago, Illinois 60603

Attn: Steve Isaacson

Email: steve.isaacson@ctt.com

or to such additional or other persons, at such other address or addresses as may be designated by notice from Purchaser or Seller, as the case may be, to the other. Notice given by electronic mail shall be followed by notice given by an alternate means of permitted notice. Notice shall be deemed given and received on the date on which the notice is actually received, whether notice is given by electronic mail, personal delivery, overnight courier or by mail. Notices may be provided by counsel to Purchaser and Seller on their behalf.

(i)

Governing Law. This Agreement shall be governed by the internal laws of the State of Arizona.

(j)

Counterparts; Faxed and E-Mail Signatures. This Agreement may be executed in multiple counterparts all of which taken together shall constitute one executed original. For purposes of executing this Agreement, any signed document transmitted by

facsimile machine or a PDF document transmitted by email transmission shall be considered as an original signature and shall be considered to have the same binding legal effect as an original document. At the request of any party, any document transmitted by facsimile or email shall be re-executed by the applicable parties in an original form, it being agreed that the failure by any party to so re-execute such document shall not affect the binding legal effect of such document.

(k)

Attorneys’ Fees. In the event of any action or proceeding brought by either party against the other under this Agreement, the prevailing party shall be entitled to recover all costs and expenses including its attorneys’ fees in such action or proceeding in such amount as a court of competent jurisdiction may adjudge reasonable. The prevailing party shall be determined by the court based upon an assessment of which party’s major arguments made or positions taken in the proceedings could fairly be said to have prevailed over the other party’s major arguments or positions on major disputed issues in the court’s decision.

(l)

Construction. This Agreement shall not be construed more strictly against Purchaser merely by virtue of the fact that the same has been prepared by Purchaser or its counsel, it being recognized both of the parties hereto have contributed substantially and materially to the preparation of this Agreement. All words herein which are expressed in the neuter gender shall be deemed to include the masculine, feminine and neuter genders and any word herein which is expressed in the singular or plural shall be deemed, whenever appropriate in the context, to include the plural and the singular.

(m)

Reporting Obligations. Seller and Purchaser hereby designate the Escrow Agent to act as and perform the duties and obligations of the “reporting person” with respect to the transaction contemplated by this Agreement for purposes of 26 C.F.R. Section 1.6045‑4(e)(5) relating to the requirements for information reporting on real estate transaction closed on or after January 1, 1991. Seller, Purchaser and Escrow Agent shall execute at Closing a Designation Agreement prepared by Purchaser’s counsel designating the Escrow Agent as the reporting person with respect to the transaction contemplated by this Agreement.

(n)

Confidentiality. Purchaser and its representatives shall hold in strictest confidence all data and information obtained with respect to the operation and management of the Premises, whether obtained before or after the execution and delivery hereof, and shall not use such data or information for purposes unrelated to this Agreement or disclose the same to others except as expressly permitted hereunder. The preceding sentence shall not be construed to prevent Purchaser from disclosing to its prospective lenders or investors, or to its officers, directors, managers, members, attorneys, accountants, architects, engineers and consultants, data and information to perform their designated tasks in connection with Purchaser’s inspection of the Premises, provided Purchaser advises any such party of the confidential nature of the information disclosed. Seller, Purchaser and their respective representatives shall hold in strictest confidence this Agreement and the terms and conditions contained herein. However, neither party shall have this obligation concerning information which: (a) is published or becomes publicly available through no fault of either the Purchaser or Seller; (b) is rightfully received from

a third party; or (c) is required to be disclosed by law, regulation, code and/or court order (including without limitation any Form 8-k filing required to be filed by Seller with the U.S. Securities and Exchange Commission (“SEC”) and other SEC or NYSE filings, when and as determined by Seller). In the event this Agreement is terminated or Purchaser fails to perform hereunder and provided that Seller so requests, Purchaser shall promptly return to Seller any statements, documents, schedules, exhibits or other written information obtained from Seller in connection with this Agreement or the transactions contemplated hereby, including, without limitation, all Property Information. In the event of a breach or threatened breach by Purchaser or Seller or its agents, consultants and/or lenders of this paragraph, Seller or Purchaser, as applicable, shall be entitled to an injunction restraining the breaching party from disclosing, in whole or in part, such confidential information. The provisions of this Section 23(n) shall survive the termination of this Agreement.

(o)

1031 Exchange. Seller and/or Purchaser may, for the purpose of treating all or part of its sale or acquisition of the Premises as a like-kind exchange of property under Section 1031 of Code, assign certain rights that it has under this Agreement, including its right to sell or acquire the Premises pursuant to this Agreement, to one or more qualified intermediaries, and to provide notice of such assignment to the other party, provided that no such assignment shall release the assigning party from its obligations hereunder and no such assignment shall delay the Closing hereunder. The non-assigning party shall not incur any costs in connection with such exchange. The assigning party agrees to save, indemnify, protect and defend the other party (with counsel reasonably satisfactory to such other party) from and against and hold the other party harmless from any and all expenses and/or liabilities arising from such assignment and exchange and the other party shall not be required to take title to any other property. The provision of this Section 23(o) shall survive the Closing.

Duties of Escrow Agent. Prior to the expiration of the Due Diligence Period, Escrow Agent shall be entitled to rely upon instructions given solely by Purchaser with respect to the Earnest Money. After the expiration of the Due Diligence Period, all instructions to the Escrow Agent must be jointly delivered by Seller and Purchaser. The sole duties of Escrow Agent shall be those described in this Agreement and Escrow Agent shall be under no obligation to determine whether the other parties to this Agreement are complying with any requirements of law or the terms and conditions of any other agreements among said parties. The Escrow Agent may conclusively rely upon and shall be protected in acting upon any notice, consent, order or other document believed by it to be genuine and to have been signed or presented by the proper party or parties, consistent with reasonable due diligence on the Escrow Agent’s part. The Escrow Agent shall have no duty or liability to verify any such notice, consent order or other document, and its sole responsibility shall be to act as expressly set forth in this Agreement. Escrow Agent shall be under no obligation to institute or defend any action, suit or proceeding in connection with this Agreement. If any dispute arises with respect to the disbursement of any monies, Escrow Agent may continue to hold the same pending resolution of such dispute, and the parties to this Agreement hereby indemnify and hold harmless Escrow Agent from any action taken by it in good faith in the execution of its duties under this Agreement. Escrow Agent and its respective representatives shall hold in strictest confidence this Agreement and the terms and conditions contained herein. The provisions of this Section 24 shall survive the termination of this Agreement.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Contract Date.

SELLER:

DONNELLEY FINANCIAL, LLC, a Delaware limited liability company

By: /s/ Jons Besch

Name: Jons Besch

Its: EVP-Operations

PURCHASER:

HSG ACQUISITIONS LLC,

an Illinois limited liability company

By: /s/ John McLinden

Name: John McLinden

Its: Manager

August 20, 2021 (the “Contract Date”)

Signing with respect to Section 24 only:

ESCROW AGENT:

CHICAGO TITLE INSURANCE COMPANY

By: /s/ Ruby Rodriguez

Name: Ruby Rodriguez

Its: Escrow Administrator

CCHI2106028NJ

LIST OF EXHIBITS


EXHIBIT A	DEPICTION AND LEGAL DESCRIPTION OF REAL PROPERTY
EXHIBIT B	FORM OF DEED
EXHIBIT C	PROPERTY INFORMATION
EXHIBIT D	FORM OF FIRPTA
EXHIBIT E	SCOPE OF DEMOLITION
EXHIBIT F	DEPICTION OF STORM WATER INLET

EXHIBIT A

DEPICTION AND LEGAL DESCRIPTION OF real property

[ATTACHED]

EXHIBIT B

FORM OF DEED

When Recorded, Return To:

_______________________

SPECIAL WARRANTY DEED

FOR VALUABLE CONSIDERATION, ___________________________ (“Grantor”), does hereby sell, grant, transfer and convey to ____________________________ (“Grantee”), the real property situated in _______________ County, Arizona, legally described on Exhibit “A” attached hereto and incorporated herein by this reference, together with all of Seller’s right, title and interest, if any, in and to: (a) all buildings, structures, and improvements now or hereafter located thereon, (b) all development rights, credits, reimbursements, refunds, air rights, water, water rights (including any grandfathered groundwater or other groundwater or surface water rights), wells and well rights, and water stock relating to the real property, (c) rights to adjoining strips and gores, streets, alleys, easements, rights-of-way, public ways, or other rights appurtenant, adjacent, or connected to the real property, (d) all oil rights, gas rights, minerals, mineral rights, oil, gas, and other hydrocarbon substances in and under, or that may be produced from, the real property, and (e) all other rights, entitlements, easements, privileges, appurtenances, hereditaments, permits, approvals, reversions, and remainders pertaining to such real property or used in connection therewith (collectively, the “Property”).

SUBJECT ONLY TO THOSE MATTERS SET FORTH ON EXHIBIT B ATTACHED HERETO.

Grantor does hereby bind itself and its successors to warrant and defend title to the Property, against all acts of Grantor, and no other, subject to the matters set forth.

[SIGNATURE PAGE TO FOLLOW]

Dated this ____ day of ___________, 20__.

DONNELLEY FINANCIAL, LLC, a Delaware limited liability company

By______________________________________

Name____________________________________

Its_______________________________________

STATE OF )

)ss.

COUNTY OF )

The foregoing instrument was acknowledged before me this ________ day of ________________, 20___, by ______________________, the ___________________ of ________________________________, on behalf of the company.

WITNESS my hand and official seal.

________________________________________

Notary Public

My Commission Expires:

Exhibit “A”

To Special Warranty Deed

Legal Description

[ATTACHED]

Exhibit “B”

To Special Warranty Deed

[ATTACHED]

TO INCLUDE FINAL EXCEPTIONS TO TITLE POLICY

EXHIBIT c

LIST OF PROPERTY INFORMATION

GENERAL PROPERTY DUE DILIGENCE

Copy of the current title report, including the legal description and ALTA survey.

Real estate tax receipts of the Premises for each of the last 3 years

ENGINEERING & ENVIRONMENTAL

Any and all environmental audits and reports including, but not limited to Phase I ESA, Phase II ESA, geotechnical reports, demolition reports, etc.

Any geotechnical studies/reports, soils reports, density tests, boring studies, etc. performed on the Premises

Any traffic impact or parking analysis studies.

Any information related to protected wildlife and vegetation as it relates to the Premises and surrounding area

Information/reports about any hazardous materials that will require clean-up/remediation, including any asbestos survey’s/reports.

GOVERNMENTAL & REGULATORY

Copies of any agreements, orders or decrees concerning impact fees, linkage fees, exactions, adequate public facilities charges or similar fees or charges

Copies of all violation notices from governing or regulatory authorities, notices of pending rezoning or land use reclassifications, and all pleadings or filings pertaining to zoning, subdivision or land use actions or proceedings

Copies of any specialty licensing agreements

Copies of any notices or correspondence regarding pending or threatened condemnation of the Property.

EXHIBIT D

FIRPTA AFFIDAVIT

Section 1445 of the Internal Revenue Code, as amended, provides that a transferee of a United States real property interest must withhold tax if the transferor is a foreign person. To inform the Transferee (hereinafter defined) that withholding of tax is not required upon the disposition of a United States real property interest by [______________] (the “Transferor”) to [____________] (the “Transferee”) relating to the real property described on Schedule A hereto (the “Transferred Interests”), the undersigned, being first duly sworn upon oath, does hereby depose and say that the following is true as of the date hereof:

The Transferor is not a foreign person; that is, the Transferor is not a nonresident alien, a foreign corporation, foreign partnership, foreign trust or foreign estate (as all such terms are defined in the Internal Revenue Code of 1986, as amended, and United States Treasury Department Income Tax Regulations in effect as of the date hereof);

Transferor is not a disregarded entity as defined in §1.1445-2(b)(2)(iii);

The Transferor’s United States employer identification number is ______________; and

The Transferor’s office address and principal place of business is c/o _________ _____________________________________.

The undersigned and the Transferor understand that this affidavit and certification may be disclosed to the United States Internal Revenue Service by the Transferee and that any false statement contained herein could be punished by fine, imprisonment, or both.

All terms (whether capitalized or not) used but not defined herein shall have the same respective meanings as in the Internal Revenue Code of 1986, as amended, and the United States Treasury Department Income Tax Regulations in effect as of the date hereof.

Under penalties of perjury, the undersigned declares that the undersigned has examined this affidavit and certificate, and to the best knowledge and belief of the undersigned, it is true, correct and complete. The undersigned further declares that the undersigned has authority to sign this affidavit and certificate on behalf of the Transferor.

IN WITNESS WHEREOF, Transferor has executed and delivered this FIRPTA Affidavit as of ____________, 20__.

DONNELLEY FINANCIAL, LLC, a Delaware limited liability company

By:_______________________________

Name:_____________________________

Its:________________________________

[ADD NOTARY BLOCK]

SCHEDULE A

FIRPTA AFFIDAVIT

LEGAL DESCRIPTION

[ATTACHED]

Exhibit E

[Attached]

Exhibit F

[Attached]

Exhibit 31.1

Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

of the Securities Exchange Act of 1934

I, Daniel N. Leib, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Donnelley Financial Solutions, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 3, 2021

/s/ DANIEL N. LEIB

Daniel N. Leib

President and Chief Executive Officer

Exhibit 31.2

Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

of the Securities Exchange Act of 1934

I, David A. Gardella, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Donnelley Financial Solutions, Inc.;

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 3, 2021

/s/ DAVID A. GARDELLA

David A. Gardella

Executive Vice President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b)

AND SECTION 1350 OF CHAPTER 63 OF TITLE 18

OF THE UNITED STATES CODE (18 U.S.C. 1350),

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Donnelley Financial Solutions, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel N. Leib, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 3, 2021

/s/ DANIEL N. LEIB

Daniel N. Leib

President and Chief Executive Officer

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b)

AND SECTION 1350 OF CHAPTER 63 OF TITLE 18

OF THE UNITED STATES CODE (18 U.S.C. 1350),

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Donnelley Financial Solutions, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Gardella, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 3, 2021

/s/ DAVID A. GARDELLA

David A. Gardella

Executive Vice President and Chief Financial Officer