Overview, Basis of Presentation and Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2022

Accounting Policies [Abstract]

Basis of Presentation

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.

Use of Estimates

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.

Allowance for Expected Losses

Allowance for Expected Losses—Transactions affecting the current expected credit loss (“CECL”) reserve during the nine months ended September 30, 2022 and 2021 were as follows:

	September 30,
	2022			2021
Balance, beginning of year (a)	$	12.7		$	10.5
Provisions charged to expense		6.2			2.2
Write-offs, reclassifications and other		(1.4	)		0.3
Balance, end of period (a)	$	17.5		$	13.0

__________

(a)As of September 30, 2022, the CECL reserve balance was comprised of a $16.7 million provision for accounts receivable and a $0.8 million provision for unbilled receivables and contract assets. As of December 31, 2021, the CECL reserve balance was comprised of a $12.0 million provision for accounts receivable and a $0.7 million provision for unbilled receivables and contract assets.

Property, Plant and Equipment, net

Property, Plant and Equipment, net—The components of the Company’s property, plant and equipment, net at September 30, 2022 and December 31, 2021 were as follows:

	September 30, 2022			December 31, 2021
Land	$	0.3		$	0.3
Buildings		20.5			20.8
Machinery and equipment		68.6			68.5
		89.4			89.6
Less: Accumulated depreciation		(71.7	)		(70.9	)
Total	$	17.7		$	18.7

Assets Held for Sale

Assets Held for Sale—As of September 30, 2022 and December 31, 2021, the Company had land held for sale with a carrying value of $2.6 million. On August 30, 2022, the Company entered into an agreement to sell the land for $13.0 million. The closing of this transaction is subject to a due diligence period, a period to obtain needed entitlements and customary closing conditions. There is no assurance that this sale will be completed.

Software

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 $9.8 million and $8.2 million for the three months ended September 30, 2022 and 2021, respectively, and $28.1 million and $24.5 million for the nine months ended September 30, 2022 and 2021, respectively.

Investments

Investments—The carrying value of the Company’s investments in equity securities was $8.5 million and $8.0 million at September 30, 2022 and December 31, 2021, 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, 2022, the Company recorded an unrealized gain of $0.5 million, and 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.

Recently Issued Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update No. 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers," which requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, as if it had originated the contracts, rather than at fair value. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Adoption of this standard is not expected to have a material impact on the Company's Unaudited Condensed Consolidated Financial Statements.

Revenue Recognition

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.

The timing of revenue recognition may differ from the timing of invoicing to 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 the 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, the 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.

Lessee Leases Policy

The Company has operating leases for certain service centers, office space, warehouses and equipment. The Company made payments of $5.6 million and $5.5 million for the three months ended September 30, 2022 and 2021, respectively, and $16.3 million and $17.5 million for the nine months ended September 30, 2022 and 2021, respectively, related to its operating lease liabilities.

The Company has finance leases, primarily related to certain IT equipment. During the three and nine months ended September 30, 2022, the Company made payments of $0.5 million and $1.4 million, respectively related to its finance lease liabilities. 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.

Restructuring

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 and other related costs associated with exit or disposal activities.

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 ("RSUs"), performance share units ("PSUs") and restricted stock.