2. Discontinued Operations

Immediately following the Distribution, the Company held approximately 6.2 million shares of Donnelley Financial Solutions common stock and approximately 6.2 million shares of LSC common stock. The Company accounts for these investments as available-for-sale equity securities. In March 2017, the Company sold the 6.2 million shares of LSC common stock it retained upon spinoff for net proceeds of $121.4 million, resulting in a realized loss of $51.6 million, which was recorded within investment and other income (expense)-net in the Condensed Consolidated Statements of Operations for the six months ended June 30, 2017. In June 2017, the Company completed a non-cash debt-for-equity exchange, in which RRD exchanged 6,143,208 of its retained shares of Donnelley Financial for the extinguishment of $111.6 million in aggregate principal amount of RRD indebtedness. See Note 15, Debt, for additional details of this debt-for-equity transaction. As of June 30, 2017, the fair value of the remaining 99,594 retained shares of Donnelley Financial common stock was $2.3 million.

The following details the financial results of discontinued operations:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2016		2016
Net sales	$	1,133.4	$	2,180.8
Cost of sales		845.0		1,655.6
Operating expenses ^(a)		260.9		422.0
Interest and other expense (income), net^(b)		17.6		35.5
Earnings before income taxes		9.9		67.7
Income tax expense		1.2		22.8
Net earnings from discontinued operations	$	8.7	$	44.9

(a)

Includes spinoff transaction costs incurred of $18.4 million and $30.3 million during the three and six month period ended June 30, 2016.

(b)

Includes the related interest expense of the corporate level debt which was retired in connection with the Separation totaling $17.8 million and $35.8 million for the three and six months ended June 30, 2016.

The significant non-cash items and capital expenditures of discontinued operations were as follows:

	Six Months Ended
	June 30,
	2016
Depreciation and amortization	$	108.5
Pension settlement charges		76.5
Impairment charges		1.4
Assumption of warehousing equipment related to customer contract		8.8
Purchase of property, plant and equipment		31.2

In connection with the Separation, the Company entered into transition services agreements with Donnelley Financial and LSC under which the companies will provide one another with certain services to help ensure an orderly transition following the Separation (the “Transition Services Agreement”). The charges for these services are intended to allow the companies, as applicable, to recover the direct and indirect costs incurred in providing such services. The Transition Services Agreement generally provides for a term of services starting at the Separation date and continuing for a period of up to twenty-four months following the Separation. During the three and six months ended June 30, 2017, the Company recognized $2.2 million and $5.0 million, respectively, as a reduction of costs within selling general and administrative expenses within the Condensed Consolidated Statements of Operations from the Transition Services Agreement.

The Company also entered into various commercial agreements which govern sales transactions between the companies. Under these commercial agreements, the Company recognized the following transactions with LSC and Donnelley Financial during the three and six months ended June 30, 2017:

	Three Months Ended		Six Months Ended
	June 30, 2017		June 30, 2017
Net sales to LSC and Donnelley Financial	$	86.2	$	169.1
Purchases from LSC and Donnelley Financial		31.9		69.0

Additionally, the Company had the following balances recorded within the Condensed Consolidated Balance Sheets associated with LSC and Donnelley Financial:

	June 30,		December 31,
	2017^(b)		2016
Accounts receivable	$	17.5	$	78.1
Accounts payable		12.5		62.6
Accrued liabilities ^(a)		—		78.0

(a)

The balance as of December 31, 2016 consisted of the final cash settlement required by a provision in the Separation and Distribution agreement which was paid in April 2017.

(b)

The balance as of June 30, 2017 relates only to Donnelley Financial.

The Company also recognized $75.2 million of net cash inflow from Donnelley Financial and LSC within operating activities in the Condensed Consolidated Statements of Cash Flows during the six months ended June 30, 2017.