rrd-10k_20161231.htm

Indicated by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑

The aggregate market value of the shares of common stock (based on the closing price of these shares on the NASDAQ Stock Exchange—Composite Transactions) on June 30, 2016, the last business day of the registrant’s most recently completed second fiscal quarter, held by nonaffiliates was $1,170,819,591.

Portions of the registrant’s proxy statement related to its annual meeting of stockholders scheduled to be held on May 19, 2017 are incorporated by reference into Part III of this Form 10-K.

R.R. Donnelley & Sons Company (“RR Donnelley,” the “Company,” “we,” “us,” and “our”), a Delaware corporation, helps organizations communicate more effectively by working to create, manage, produce, distribute and process content on behalf of our customers. We assist customers in developing and executing multichannel communication strategies that engage audiences, reduce costs, drive revenues and increase compliance. Our innovative content management offering, production platform, logistics services, supply chain management, outsourcing capabilities and customized consultative expertise assists our customers in the delivery of integrated messages across multiple media to highly targeted audiences at optimal times for customers in virtually every private and public sector. We have strategically located operations that provide local service and responsiveness while leveraging the economic, geographic and technological advantages of a global organization.

Our long-standing customer relationships and comprehensive portfolio of capabilities allow us to focus on the following key strategies:

During the fourth quarter of 2016, management realigned the Company’s reportable segments to reflect the management reporting structure of the remaining businesses after the completion of the spinoff of Donnelley Financial Solutions, Inc. and LSC Communications, Inc. The revised management reporting structure more accurately reflects the manner in which the chief operating decision maker regularly assesses information for decision-making purposes. All prior year amounts have been reclassified to conform to the Company’s current reporting structure.

Our reportable segments and, where applicable, operating segments, their solutions and product and service offerings are summarized below.

The Variable Print segment includes our U.S. short-run and transactional printing operations and includes the following reporting units: commercial and digital print, direct mail, labels, statement printing and Forms. In 2016, the Variable Print segment accounted for 45.6% of our consolidated net sales.

We provide various commercial printing and print-related services. These services consist of traditional print services, including electronic prepress, digital and offset printing, finishing, storage and delivery of high-quality printed documents which are custom manufactured to our customers’ design specifications. Our Print Fulfillment and Distribution solution allows us to combine Just-In-Time and Digital Print-On-Demand product with off-the-shelf inventory through a national platform of networked facilities in quantities and timeframes desired by the end user. Additionally, our product offerings include packaging, structural engineering and prototyping services, as well as in-store marketing, including in-store signage and point-of-purchase displays. We partner with our customers to help them re-imagine their in-store experience through providing creative and design services in order to present innovative, new ideas for complete store design or individual merchandising materials. Commercial and digital print accounted for 52.6% of the Variable Print segment’s net sales for the fiscal year ended December 31, 2016.

We are an industry leader in creating and implementing fully integrated direct mail communications programs. We provide solutions ranging from guidance in overall copyrighting, design and print production to postal optimization strategies. We have a diverse and comprehensive mail production platform with significant digital production capabilities. Our proprietary ProteusJet^SM imaging systems, customized software and marketing strategies enable our customers to communicate to an audience of any size. We believe we are well positioned to meet our direct mail customers’ specific needs by offering cadenced, multiple touch mailings and multi-media communications such as websites, email and mobile contact. Through advanced data analytics, we assist our customers in targeting their customers to deliver the right message at the right time and through the right channel to their intended audience. Direct mail accounted for 16.8% of the Variable Print segment’s net sales for the fiscal year ended December 31, 2016.

We produce custom labels for customers across multiple industries including warehouse and distribution, retail, pharmaceutical, manufacturing and consumer packaging. Our manufacturing capabilities provide a diverse product offering, including distribution and shipping labels, healthcare and durable goods labels, promotional labels and consumer product goods packaging labels. Our network of production facilities enables the optimal combination of regional or national distribution. Labels accounted for 12.7% of the Variable Print segment’s net sales for the fiscal year ended December 31, 2016.

We enable enhanced relationships between our customers and their consumers by creating and managing critical business communications across multiple channels. These essential business communications include consumer billing, financial statements, healthcare communications and insurance documents. We support these communications according to customer preferences allowing customers to benefit from our offerings via hosted managed services or with a fully outsourced solution. The breadth of our capabilities includes design and composition, variable imaging, email, archival, digital mail interaction, and payment services, as well as our innovative RRDigital solution set, which we launched in 2016. Our platform, scale and breadth of offering combined with our technology and innovation provide our customers with low cost solutions that assist them in servicing their clients. Statement printing accounted for 12.1% of the Variable Print segment’s net sales for the fiscal year ended December 31, 2016.

We produce a variety of forms including invoices, order and business forms that support both the private and public sectors. The primary industries we serve are financial, government, retail, healthcare and business services. Forms accounted for 5.8% of the Variable Print segment’s net sales for the fiscal year ended December 31, 2016.

The International segment includes our operations in Asia, Latin America, Europe and Canada, as well as our Global Turnkey Solutions operations and Business Process Outsourcing business. This segment accounted for 29.3% of our consolidated net sales in 2016.

Our Asia reporting unit consists of a strategically integrated network of seven locations, which provides in-box materials, packaging, labels, and export and domestic book production to our major international customers. The Asia reporting unit accounted for 36.4% of the International segment’s net sales for the year ended December 31, 2016.

Our Canada reporting unit provides commercial printing, statement printing, labels, forms, in-store marketing, sourcing and print fulfillment to major companies in the financial, insurance, transportation, retail, education and restaurant verticals across ten integrated locations. The Canada reporting unit accounted for 10.2% of the International segment’s net sales for the fiscal year ended December 31, 2016.

Our Latin America reporting unit has operations in Brazil, Chile, Central America and the Caribbean. We provide highly secure educational testing materials, inserts, books, statements, forms, labels and fulfillment to local and regional customers. The Latin America reporting unit accounted for 8.1% of the International segment’s net sales for the fiscal year ended December 31, 2016.

Our Global Turnkey Solutions operations provide complex supply chain management and outsourcing capabilities, including product configuration, packaging, customized kitting and order fulfillment for companies around the world through its operations in Europe, North America, and Asia. The Global Turnkey Solutions reporting unit accounted for 24.6% of the International segment’s net sales for the fiscal year ended December 31, 2016.

Our Business Process Outsourcing business provides transactional print and outsourcing services including inbound and outbound document processing, creative services, research and analytics, financial management and other services for legal providers, insurance, telecommunications, utilities, retail and financial services companies. The Business Process Outsourcing reporting unit accounted for 20.7% of the International segment’s net sales for the fiscal year ended December 31, 2016.

The Strategic Services Segment accounted for 25.1% of our consolidated net sales in 2016 and includes the following reporting units: Logistics, Sourcing and Digital and Creative Solutions.

RR Donnelley logistics services consist of a portfolio of specialized transportation and distribution services targeting a number of unique industry verticals. Our worldwide business is a leading third party logistics provider that utilizes a leveraged platform and a nationwide sales network to offer customers a full suite of freight services, including truckload, less-than-truckload, intermodal and international freight forwarding. We are a leading international mail and parcel distributor with an extensive 200 country network of postal and foreign distribution partners that we manage to meet the unique requirements of international mailers. Domestically, we are a leading provider of print logistics services in the U.S., with the scale, technology and expertise in USPS® rules and regulations to maximize distribution savings for our mail customers. We are also a leading distributor of retail and newsstand print materials, utilizing a nationwide network of consolidation facilities to provide unique distribution solutions for a number of customers. We offer our print and mail clients access to proprietary technology that is designed to determine the most efficient and cost-effective method of shipping depending on their needs. Our integrated distribution management business, last mile, is an extensive nationwide courier network that offers customized same day and next day delivery solutions with optimized route planning and web-based tracking. We continue to leverage our unique courier capabilities to build a position in the growing last-mile delivery sector. Logistics accounted for 71.2% of the Strategic Services segment’s net sales for the fiscal year ended December 31, 2016.

Our sourcing solutions utilize ISO certified platforms to provide print management solutions including consulting and systems solutions to allow our customers to more efficiently and cost-effectively manage their print needs. We allow our customers to use our proprietary CustomBuy software for increased visibility, control and rationalization of expenditures, and consult our customers on supplier management, vendor consolidation and offshore production, as well as advising on paper management solutions and other cost optimization opportunities. We guide and support our customers with the development and fulfillment of promotional product strategies that meet their desired objectives within budgetary constraints. Sourcing accounted for 20.1% of the Strategic Services segment’s net sales for the year ended December 31, 2016.

The digital and creative solutions reporting unit includes teams of photographers, videographers, web designers, writers, editors, designers and various digital experience experts who assist brands in creating, augmenting and managing content designed to speak directly to their targeted audiences. With our breadth of capabilities, we provide cost effective solutions to bring the creative concepts of our customers and their agencies to life. We assist our customers in facilitating a common creative approach to all of their communications needs, including print and digital advertising, direct marketing and direct mail design, packaging design, marketing and sales collateral and in-store marketing. We also advise on corporate communications and interactive experiences and services. Digital and creative solutions accounted for 8.7% of the Strategic Services segment’s net sales for the year ended December 31, 2016.

Corporate consists of unallocated selling, general and administrative activities and associated expenses including, in part, executive, legal, finance, communications, certain facility costs and last-in-first-out inventory provisions. In addition, certain costs and earnings of employee benefit plans, such as pension and other postretirement benefits plan expense and share-based compensation, are included in Corporate and not allocated to the operating segments. Corporate also manages the Company’s cash pooling structures, which enables participating international locations to draw on our overseas cash resources to meet local liquidity needs.

Financial and other information related to these segments is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Note 20, Segment Information, to the Consolidated Financial Statements and within Note 21, Geographic Area and Products and Services Information, to the Consolidated Financial Statements.

On October 1, 2016, we completed the previously announced separation of our financial communications and data services business (“Donnelley Financial Solutions, Inc.” or “Donnelley Financial”) and the publishing and retail-centric print services and office products business (“LSC Communications, Inc.” or “LSC”) into two separate publicly-traded companies (the “Separation”). We completed the tax free distribution of approximately 26.2 million shares, or 80.75%, of the outstanding common stock of Donnelley Financial and 26.2 million shares, or 80.75%, of the outstanding common stock of LSC, to our stockholders (the “Distribution”). The Distribution was made to our stockholders of record as of the close of business on September 23, 2016, who received one share of Donnelley Financial common stock and one share of LSC common stock for every eight shares of RR Donnelley common stock held as of the record date. As a result of the Distribution, Donnelley Financial and LSC are now independent public companies trading under the symbols “DFIN” and “LKSD”, respectively, on the New York Stock Exchange. Immediately following the Distribution and as of December 31, 2016, we held approximately 6.2 million shares of Donnelley Financial Solutions common stock and approximately 6.2 million shares of LSC common stock. These investments are accounted for as available-for-sale equity securities.

Beginning in the fourth quarter of 2016, the financial results of Donnelley Financial and LSC for periods prior to the Distribution have been reflected in our consolidated financial statements as discontinued operations. Sales from RR Donnelley to Donnelley Financial and LSC previously eliminated in consolidation have been recast and are now shown as external sales of RR Donnelley within the financial results of continuing operations. See Note 2, Discontinued Operations, to the Consolidated Financial Statements for additional information.

On August 4, 2016, we acquired Precision Dialogue, a provider of email marketing, direct mail marketing and other services with operations in the United States.

On April 29, 2015, we sold our 50.1% interest in our Venezuelan operating entity.

On August 11, 2014, our subsidiary, RR Donnelley Argentina S.A. (“RRDA”), filed for bankruptcy liquidation in bankruptcy court in Argentina.

On January 31, 2014, we acquired Consolidated Graphics, Inc., a provider of digital and commercial printing, fulfillment services, print management and proprietary Internet-based technology solutions, with operations in North America, Europe and Asia.

For further information on the above acquisitions and dispositions, see Note 3, Acquisitions and Dispositions, to the Consolidated Financial Statements.

Our customers are in an evolving market. While the market is large and fragmented, there are tremendous changes occurring in how organizations need to create, manage, deliver and measure their communications. Key factors facing our customers include regulatory changes, sensitivity to economic conditions, raw material pricing volatility and USPS actions. However, technological changes, including the electronic distribution of documents and data, online distribution and hosting of media content, and advances in digital printing, print-on-demand and internet technologies, continue to impact the market for some of our products and services, such as statement printing and forms.

We work with our customers to create, manage, deliver and optimize their multi-channel communications strategies by providing innovative solutions to meet increasing customer demands in light of the large and evolving marketplace. One of our competitive strengths is that we offer a wide array of communications products and services, including print and content management, which provide differentiated solutions for our customers. We are also able to manage the storage and distribution of products for our customers by offering warehousing and inventory management solutions that allow customers to store printed materials and to efficiently ship them using our platform. Our logistics business offers our customers access to our proprietary technology that is designed to determine the most efficient and cost-effective method of shipping depending on our customers’ needs. We believe our breadth of offerings provides us with a distinct competitive advantage. We have and will continue to develop and expand our creative and design, content management, digital and print production, supply chain management and distribution services to address our customers’ evolving needs while supporting the strategic objective of becoming a leading global provider of integrated communication products and services.

The print and related services industry, in general, continues to have excess capacity and remains highly competitive and fragmented. According to the December 2015 IBISWorld industry report “Printing in the U.S.,” estimated total printing industry revenue was approximately $85 billion in 2015, and the industry was comprised of approximately 49,000 establishments.

We believe that, across our range of products and services, competition is based primarily on quality and the ability to service the special needs of customers at a competitive price. Therefore, we believe we need to continue to differentiate our product and service offerings and aggressively manage our cost structure to remain competitive.

We also operate in a highly competitive and fragmented market for commercial freight transportation and third-party logistics services. Primary competitors to our services include other national non-asset based third-party logistics companies, as well as regional or niche freight brokerages, asset-based carriers offering brokerage and/or logistics services, wholesale intermodal transportation service providers and rail carriers. In addition, we may from time to time compete against carriers’ internal sales forces or shippers’ internal transportation departments.

We have made targeted acquisitions and investments, such as the acquisition of Consolidated Graphics, Inc., in our existing business to offer customers innovative services and solutions.

Advertising and consumer spending trends affect demand in several of the end-markets we serve. However, due to the breadth of our product and services offerings, we generally have not experienced significant seasonality in our businesses.

The primary raw materials we use in our print businesses are paper and ink. We negotiate with leading suppliers to maximize our purchasing efficiencies. A substantial amount of the paper we use is supplied directly by customers. Variations in the cost and supply of certain paper grades and ink formulations used in the manufacturing process may affect the Company’s consolidated financial results. Paper prices fluctuated during 2016, and volatility in the future is expected. Generally, customers directly absorb the impact of changing prices on customer-supplied paper. With respect to paper we purchased, we have historically passed most changes in price through to our customers. We believe contractual arrangements and industry practice will support our continued ability to pass on any future paper price increases, but there is no assurance that market conditions will continue to enable us to successfully do so. We believe that the paper supply is consolidating, and there may be shortfalls in the future in supplies necessary to meet the demands of the entire marketplace. Higher paper prices and tight paper supplies may have an impact on customers’ demand for printed products. We resell waste paper and other print-related by-products. We also have undertaken various strategic initiatives to mitigate any foreseeable supply disruptions with respect to our ink requirements. We may be impacted by changes in prices for these by-products in the future.

We continue to monitor the impact of changes in the price of crude oil and other energy costs, which impact our ink suppliers, logistics operations and manufacturing costs. Crude oil and energy prices continue to be volatile. We believe our logistics operations will continue to be able to pass a substantial portion of any increases in fuel prices directly to our customers in order to offset the impact of related cost increases. Decreases in fuel prices are also passed on to customers which negatively impact sales. We generally cannot pass on to customers the impact of higher energy prices on our manufacturing costs. We cannot predict sudden changes in energy prices and the impact that possible future changes in energy prices might have upon either future operating costs or customer demand and the related impact either will have on our consolidated annual results of operations, financial position or cash flows.

Our products are distributed to end-users through the U.S. or foreign postal services, through retail channels, electronically or by direct shipment to customer facilities. Through our logistics operations, we manage the distribution of most customer products we print in the U.S. and Canada to maximize efficiency and reduce costs for customers.

As a leading provider of print logistics and among the largest mailers of standard mail in the U.S., we work closely with our customers and the USPS to offer innovative products and mail preparation services to minimize postage costs. While we do not directly absorb the impact of higher postal rates on our customers’ mailings, demand for products distributed through the U.S. or foreign postal services has been negatively impacted by increases in postal rates, as postal costs are a significant component of many customers’ cost structures. Under the 2006 Postal Accountability and Enhancement Act (“PAEA”), it had been anticipated that postage for Market Dominant mail categories would increase annually by an amount equal to or slightly less than the Consumer Price Index (the “CPI”). On January 15, 2015, the USPS filed for a CPI rate increase of approximately 2.0%, which was approved by the Postal Regulatory Commission (the “PRC”) on May 7, 2015, and became effective on May 31, 2015. On April 10, 2016, the USPS removed the exigent surcharge, which was approved in December 2013, resulting in a 4.3% decrease in postage rates for all significant mail categories. The USPS implemented a CPI postage increase on January 22, 2017 of approximately 1.0%. In addition, there is a pending bi-partisan legislative proposal that seeks to stabilize the financial condition of the USPS, which among other things calls for restoring a 2.15% increase (approximately half of the exigent surcharge) on market dominant mail categories. The USPS has temporarily suspended its previously announced plans to restructure its mail delivery network, including the closure of many post office facilities. Additionally, the Postal Regulatory Commission is undertaking a comprehensive review of the PAEA legislation after ten years to determine if it is having the desired effect. The study and their recommendations are due by the end of 2017. The impact of these actions cannot currently be estimated. Mail delivery services through the USPS accounted for approximately 37% of our logistics revenues during the fiscal year ended December 31, 2016.

We have more than 50,000 customers worldwide, including 97% of the Fortune 100, 94% of the Fortune 500 and 87% of the Fortune 1000. Our services enable the world’s largest customers to create, manage and deliver comprehensive and cost-effective multi-channel communications around the world. In connection with the spinoff transactions, we entered into a number of agreements with LSC and Donnelley Financial (which we spun off effective October 1, 2016) with respect to our ongoing commercial relationships. For the year ended December 31, 2016, LSC and Donnelley Financial accounted for 9.4% of total net sales of our Strategic Services segment. For each of the years ended December 31, 2016, 2015 and 2014, no customer accounted for 10% or more of the Company’s consolidated net sales.

We invest in technology, research and development as a key strategy for our business. We believe that investing in new technologies allows us to remain on the forefront of content management and data analytics, while also allowing us to support our customers’ growing utilization of digital and print technologies. In addition, these technologies help expand our capabilities to provide additional services to customers as customers’ needs evolve. We have a research facility in Grand Island, New York, that supports the development and implementation of new technologies to meet customer needs and improve operating efficiencies. We believe that proprietary technology is required where it will provide a competitive advantage or where the desired technology is not readily available in the marketplace, and as such, our proprietary technology portfolio contains an array of applications and technological capabilities which are developed to perform different functions, including digital ink jet printing. Our cost for research and development activities is not material to our consolidated annual results of operations, financial position or cash flows. In addition, while we consider our patent portfolio to be valuable, the Company does not believe that our business is dependent upon any single patent or group of patents. We actively monitor the registrations of our trademark and patent portfolio to ensure that our intellectual property is appropriately protected and maintained.

Our cybersecurity program is designed to meet the needs and expectations of our customers who entrust us with highly sensitive business information. Furthermore, our healthcare and insurance printing businesses are subject to industry-specific data regulations, including the Health Care Insurance Portability and Accountability Act of 1996, which could subject us and our customers to liability should sensitive customer or patient information be publicly disclosed. Our infrastructure and technology, expansive and highly trained global workforce and comprehensive security and compliance program make us qualified to safely process, store and protect customer information to ensure compliance with relevant regulations.

Our infrastructure and technology security capabilities are bolstered by our relationship with a leading data center services provider. Furthermore, our networks are monitored by intrusion detection services around the clock, and our systems and applications are routinely tested for vulnerabilities and are operated under a strict patch management program.

We employ a highly skilled IT workforce to implement our cybersecurity programs and to handle specific security responsibilities. As a result of annual mandatory security awareness training, our IT workforce is qualified to address security and compliance-related issues as they arise. Additionally, all of our IT employees are carefully screened, undergo a thorough background check and are bound by a nondisclosure agreement that details such employee’s security and legal responsibilities with regards to information handling.

The Company believes our security and compliance team diminishes the risk of system compromise and data exposure by rapidly and effectively addressing security incidents as they arise.

It is our policy to conduct our global operations in accordance with all applicable laws, regulations and other requirements. It is not possible to quantify with certainty the impact of potential failures regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future. However, in management’s opinion, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.

As of December 31, 2016, 438 of our U.S. employees were covered by collective bargaining agreements at twelve of our U.S. facilities, representing 2.4% of our U.S. workforce. We have collective bargaining agreements with unionized employees in China,

Canada, Mexico and Europe. We have not experienced a work stoppage during the past five years. Management believes that our relationships with our employees and collective bargaining groups are good.

We maintain an Internet website at www.rrdonnelley.com where the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available without charge, as soon as reasonably practicable following the time they are filed with, or furnished to, the Securities and Exchange Commission (“SEC”). Copies of the materials filed by the Company with the SEC are available at the Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information regarding the operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330. Reports, proxy and information statements and other information that is filed electronically with the SEC are available on the SEC’s website at www.sec.gov.

The Principles of Corporate Governance of our Board of Directors, the charters of the Audit, Human Resources and Corporate Responsibility & Governance, Responsibility & Technology Committees of the Board of Directors and our Principles of Ethical Business Conduct are also available on the Investor Relations portion of www.rrdonnelley.com, and will be provided, free of charge, to any stockholder who requests a copy. References to our website address do not constitute incorporation by reference of the information contained on the website, and the information contained on the website is not part of this document.

This report and any documents incorporated by reference may include forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Statements, including financial disclosure, that are not historical fact are forward-looking statements within the meaning of such regulations as well as the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and 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, or be preceded or followed by, the words “may,” “will,” “should,” “might,” “could,” “would,” “potential,” “possible,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “hope” or similar expressions. We claim the protection of the Safe Harbor for Forward-Looking Statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements.

Forward-looking statements are not guarantees of performance. The factors identified below are believed to be significant factors, but not necessarily all of the significant factors, that could cause actual results to differ materially from those expressed in any forward-looking statement. Unpredictable or unknown factors could also have material effects on the Company.

The following important factors, in addition to those discussed elsewhere in this Annual Report on Form 10-K, could affect the future results of the Company and could cause those results or other outcomes to differ materially from those expressed or implied in its forward-looking statements:

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 this Annual Report on Form 10-K should consider these forward-looking statements only as the Company’s current plans, estimates and beliefs. 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. We undertake no obligation to update or revise any forward-looking statements in this Annual Report on Form 10-K to reflect any new events or any change in conditions or circumstances.

Our consolidated results of operations, financial position and cash flows can be adversely affected by various risks. These risks include the principal factors listed below and the other matters set forth in this Annual Report on Form 10-K. You should carefully consider all of these risks.

Global market and economic conditions, as well as the effects of these conditions on customers’ businesses, could adversely affect the Company.

In general, demand for our products and services is highly correlated with general economic conditions. Because a significant part of our business relies on our customers’ advertising spending, which is driven in part by economic conditions and consumer spending, a prolonged downturn in the global economy and an uncertain economic outlook could further reduce the demand for printing and related services that we provide to these customers. Delays or reductions in customers’ spending would have an adverse effect on demand for our products and services, which could be material, and consequently could negatively impact our results of operations, financial position and cash flow. Economic weakness and constrained advertising spending may result in decreased revenue, operating margin, earnings and growth rates and difficulty in managing inventory levels and collecting accounts receivable.

In addition, customer difficulties could result in increases in bad debt write-offs and allowances for doubtful accounts receivable. We may experience operating margin declines as a result. Economic downturns may also result in restructuring actions and associated expenses and impairment of long-lived assets, including goodwill and other intangibles.

Uncertainty about future economic conditions makes it difficult for us to forecast operating results and to make decisions about future investments. Such declines in demand are difficult to predict and may result in the Company or the industry having increased excess capacity as a result. An increase in excess capacity may result in declines in prices for our products and services. The overall business climate may also be impacted by wars or acts of terrorism. Such acts may have sudden and unpredictable adverse impacts on demand for our products and services.

Our operations are subject to political and regulatory risks in the countries in which we operate.

Our operations could be substantially affected by both domestic and international economic, political or regulatory risk including: general economic and political conditions in the countries in which we operate; unexpected legal, regulatory or tax changes; governmental actions which have the effect of restriction on our business or opportunities or make it more expensive for us to operate in those jurisdictions; and changes in tax laws that could reduce net income due to withholding requirements or the imposition of tariffs or other restrictions.

In addition, potential political and economic uncertainty in our developed markets, including recent outcomes of the United Kingdom referendum to withdraw from the European Union and the U.S. presidential election, or the perception of such uncertainty, has had and may continue to have an adverse effect on global economic conditions and the stability of global financial markets. This may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity and restrict our access to capital, which could negatively impact our results of operations, financial position and cash flow. Our success will depend, in part, on our ability to effectively anticipate and manage these and other risks associated with our domestic and international operations.

Our business is dependent upon brand reputation and the quality of our customer support and services offerings. If we fail to offer effective customer support and services, our brand reputation would be harmed and customers may not use our solutions, resulting in a decline of our net sales.

A high level of customer support and service is critical for the successful marketing and sale of our solutions and the maintenance and enhancement of our brand reputation. If we are unable to provide a level of customer support and service to meet or exceed the expectations of our customers, we could experience a loss of customers and market share and a decline in our brand reputation which may result in reduced customer demand for our solutions. Furthermore, our brand reputation could be impacted by a wide range of factors, some of which are out of our control, including actions of our competitors and third party providers and positive or negative publicity.

During 2016, our five largest customers accounted for less than 10% of our net sales. In addition, we continue to provide products and services, including logistics, pre-media, production and sales services, to LSC and Donnelley Financial and their respective customers. There can be no assurance that our customers, including LSC and Donnelley Financial, will continue to purchase our products in the same mix or quantities or on the same terms as in the past. The loss of, or disruptions related to, significant customers could result in a material reduction in sales or change in the mix of products we sell to significant customers. This could materially and adversely affect our sales, financial condition and results of operations.

Additionally, disputes with significant suppliers, including those related to pricing or performance, could adversely affect our ability to supply products to our customers and could materially and adversely affect our product sales, financial condition and results of operations.

Changes in consumer preferences have reduced, and may continue to reduce, demand for our products in certain markets. In addition, failure to manage changes in our relationships with our significant customers will have an adverse effect on our results of operations.

Many of the end markets in which our customers compete are experiencing changes due to technological progress and changes in consumer preferences. In order to grow and remain competitive, we will need to continue to adapt to future changes in technology, enhance our existing offerings and introduce new offerings to address the changing demands of customers. If we are unable to continue to exploit new and existing technologies to distinguish our products and services from those of our competitors or adapt to new distribution methods, our business may be adversely affected.

Technological developments and changing demands of customers may require additional investment in new equipment and technologies. We must monitor changes in our customers’ markets and develop new solutions to meet customers’ needs. The development of such solutions may be costly and there is no assurance that these solutions will be accepted by customers. If we are unable to adapt to technological changes on a timely basis or at an acceptable cost, customers’ demand for our products and services may be adversely affected.

In addition, electronic delivery of documents and data, including the online distribution and hosting of media content, offer alternatives to traditional delivery of printed documents. Consumers continue to accept electronic substitution in statement printing and forms while online and digital advertising is impacting customers’ printed advertising spends. The extent to which consumers will continue to accept electronic delivery is uncertain and it is difficult to predict future rates of acceptance of these alternatives. Electronic delivery has negatively impacted our products, such as forms and statement printing. To the extent that consumers, customers and regulators continue to accept these alternatives, our products will be adversely affected.

Finally, there can be no assurance that our customers, including LSC and Donnelley Financial (both of which we spun off in October 2016 and who continue to be our customers), will continue to purchase our products in the same mix, quantities or on the same terms as in the past. The loss of or disruptions related to significant customers could result in a material reduction in sales or change in the mix of products we sell to our significant customers. This could materially and adversely affect our product sales, financial condition and results of operations.

Adverse credit market conditions, our operating performance and our creditworthiness may limit our ability to obtain future financing and the cost of any such capital may be higher than in past periods.

Uncertainty and volatility in global financial markets may cause financial institutions to fail, may cause lenders to reduce lending or may cause investors to reinvest in assets that are considered less risky. The failure of a financial institution that supports our existing credit agreement would reduce the size of its committed facility unless a replacement institution was added. Furthermore, we revised our existing financing structure to consummate the spinoff transactions, through refinancing and debt tender and exchange transactions. Any future capital markets transactions will be dependent on market conditions, which may result in receiving financing on terms less favorable to us than our existing financings.

In addition, our access to future financing will depend on a variety of factors such as the general availability of credit, our credit ratings and credit capacity at the time we pursue such financing. Our current corporate credit ratings are below investment grade and, as a result, our borrowing costs may further increase and our ability to borrow may be limited. Our obligations under our current $800.0 million senior secured revolving credit facility (the “Credit Agreement”) which expires September 30, 2021, are guaranteed by material and certain other domestic subsidiaries and are secured by a pledge of the equity interests of certain subsidiaries, including most of our domestic subsidiaries, and a security interest in substantially all of the domestic current assets and mortgages of certain domestic real property of the Company.

The Credit Agreement is subject to a number of covenants, including a maximum Leverage Ratio that, in part, restrict our ability to incur additional indebtedness, create liens, engage in mergers and consolidations, make restricted payments, dispose of certain assets and may also limit the use of proceeds. The Credit Agreement generally allows annual dividend payments of up to $60.0 million in aggregate, though additional dividends may be allowed subject to certain conditions. If adequate capital is not available to us and our internal sources of liquidity prove to be insufficient, or if future financings require more restrictive covenants, such combination of events could adversely affect our ability to (i) acquire new businesses or enter new markets, (ii) service or refinance our existing debt, (iii) pay dividends on common stock, (iv) make necessary capital investments, and (v) make other expenditures necessary for the ongoing conduct of our business.

We may not be able to reduce or extinguish any of our material indebtedness, and as a result we would have increased financial leverage, which could adversely affect our business.

We may not be able to reduce or extinguish any of our material indebtedness. We have substantial indebtedness and if we are unable to reduce this indebtedness, we will continue to have increased financial leverage. Our interest and principal payments on our outstanding indebtedness have increased substantially in relation to our revenues and cash flows. In addition, our ability to make payments on, or repay or refinance, such debt, will depend largely upon our future operating performance.

The indentures governing the notes and debentures we issue do not contain restrictive covenants and we may incur substantially more debt or take other actions, including engaging in mergers and acquisitions, paying dividends and making other distributions to holders of equity securities, and disposing of certain assets, which may adversely affect our ability to satisfy our obligations under the notes and debentures issued under our indentures.

Although the Credit Agreement is subject to a number of negative and financial covenants, including a maximum leverage ratio, and covenants that restrict our ability to incur additional indebtedness, engage in mergers and acquisitions, pay dividends and make other distributions to the holders of our equity securities, and dispose of certain assets, the indentures governing our outstanding notes and debentures do not contain financial or operating covenants or restrictions on the incurrence of indebtedness, the payment of dividends or making other distributions, or the disposition of certain assets. In addition, the limited covenants applicable to the notes and debentures do not require us to achieve or maintain any minimum financial results relating to our financial position or results of operations.

In carrying out our strategy focused on maximizing long-term stockholder value, we may enter into transactions which may increase our financial leverage. Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the indentures governing our notes and debentures could have the effect of diminishing our ability to make payments on those notes and debentures when due, and require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, which would reduce the availability of cash flow to fund our operations, working capital and capital expenditures.

We may be adversely affected by a decline in the availability of raw materials or by fluctuations in the costs of paper, ink, energy and other raw materials.

We are dependent on the availability of paper, ink and other raw materials to support our operations. As such, purchases of paper, ink, energy and other raw materials represent a large portion of our costs. Increases in the costs of these inputs may increase our costs and we may not be able to pass these costs on to customers through higher prices. In addition, we may not be able to resell waste paper and other print-related by-products or may be adversely impacted by decreases in the prices for these by-products. Increases in the cost of materials may adversely impact customers’ demand for our printing and related services. Unforeseen developments in these markets could result in a decrease in the supply of paper, ink or other raw materials and could cause a decline in our revenues.

We may be unable to improve our operating efficiency rapidly enough to meet market conditions.

Because the markets in which we compete are highly competitive, we must continue to improve our operating efficiency in order to maintain or improve our profitability. There is no assurance that we will be able to do so in the future. In addition, the need to reduce ongoing operating costs may result in significant up-front costs to reduce workforce, close or consolidate facilities, or upgrade equipment and technology.

We have in the past acquired, and intend in the future to acquire, other businesses, and we may be unable to successfully integrate the operations of these businesses and may not achieve the cost savings and increased net sales anticipated as a result of these acquisitions.

Achieving the anticipated benefits of acquisitions will depend in part upon our ability to integrate these businesses in an efficient and effective manner. The integration of companies that have previously operated independently may result in significant challenges, and we may be unable to accomplish the integration smoothly or successfully. In particular, the coordination of geographically dispersed organizations with differences in corporate cultures and management philosophies may increase the difficulties of integration. The integration of acquired businesses may also require the dedication of significant management resources, which may temporarily distract management’s attention from our day-to-day operations. In addition, the process of integrating operations may cause an interruption of, or loss of momentum in, the activities of one or more of our businesses and the loss of our key personnel or the acquired businesses. Further, employee uncertainty and lack of focus during the integration process may disrupt our operations or the operations of the acquired businesses. Our strategy is, in part, predicated on our ability to realize cost savings and to increase net sales through the acquisition of businesses that add to the breadth and depth of our products and services. Achieving these cost savings and net sales increases is dependent upon a number of factors, many of which are beyond our control. In particular, we may not be able to realize the benefits of more comprehensive product and service offerings, anticipated integration of sales forces, asset rationalization and systems integration.

The highly competitive market for our products and industry consolidation may continue to create adverse price pressures.

The markets for the majority of our product categories are highly fragmented and we have a large number of competitors. Management believes that excess capacity in our markets has caused downward price pressure and that this trend is likely to continue. In addition, consolidation in the markets in which we compete may increase competitive price pressures due to competitors lowering prices.

We believe that selectively pursuing acquisitions is an important strategy for our business. If our competitors are able to successfully combine with one another or otherwise consolidate, the competitive landscape we face could be significantly altered. Such consolidation could create stronger competitors with greater financial resources and broader manufacturing and distribution capabilities than our own, and, if we are not successful with our own efforts to consolidate or adapt effectively to increased competition, the resulting increase in competitive pressures could negatively impact our results of operations, financial position and cash flow.

The trend of increasing costs to provide health care and other benefits to our employees and retirees may continue.

We provide health care and other benefits to both employees and retirees. For many years, costs for health care have increased more rapidly than general inflation in the U.S. economy. If this trend in health care costs continues, our cost to provide such benefits could increase, adversely impacting our profitability. Changes to health care regulations in the U.S. due to anticipated policy decisions of the new presidential administration may also increase our cost of providing such benefits.

Changes in market conditions or lower returns on assets may increase required pension and other postretirement benefits plan contributions in future periods.

The funded status of our pension and other postretirement benefits plans is dependent upon many factors, including returns on invested assets and the level of certain market interest rates. As experienced in prior years, declines in the market value of the securities held by the plans coupled with low interest rates have substantially reduced, and in the future could further reduce, the funded status of the plans. These reductions have increased the level of expected required pension and other postretirement benefits plan contributions in future years. Market conditions may lead to changes in the discount rates used to value the year-end benefit obligations of the plans, which could partially mitigate or worsen the effects of lower asset returns. If adverse market conditions were to continue for an extended period of time, our costs and required cash contributions associated with pension and other postretirement benefits plans may substantially increase in future periods.

Catastrophic events may damage or destroy our factories, distribution centers or other facilities, which may disrupt our business.

Natural disasters, conflicts, wars, terrorist attacks, fires or other catastrophic events could cause damage or disruption to our factories, distribution centers or other facilities, which may adversely affect our ability to manage logistics, cause delays in the delivery of products and services to our customers, and create inefficiencies in our supply chain. An event of this nature could also prevent us from maintaining ongoing operations and from performing critical business functions. While we maintain backup systems and operate out of multiple facilities to reduce the potentially adverse effect of these types of events, a catastrophic event that results in the destruction of any of our major factories, distribution centers or other facilities could affect our ability to conduct normal business operations, which could negatively impact our results of operations, financial position and cash flow.

We may be more vulnerable to adverse events and trends associated with operations outside the United States.

As a result of the spinoff transactions, our business is less diversified. In addition, we have significant operations outside the United States. Consequently, we may be more exposed to the risks inherent in conducting business outside the United States. Conducting business outside the United States subjects us to a number of additional risks and challenges, including:

These factors, individually or in combination, could impair our ability to effectively deliver our products, result in unexpected and material expenses, or cause an unexpected decline in the demand for our products in certain countries or regions. Specifically with respect to our operations in China, our financial performance may be subject to the following risks, among others: regulation of foreign investment and business activities by the Chinese government, including recent scrutiny of foreign companies, may limit our ability to expand our business in China; uncertainties with respect to the legal system in China may limit the legal protections available to us in China; government restrictions on the remittance of currency out of China and the ability of any subsidiary we may establish in China to pay dividends and make other distributions to us; and potential unfavorable tax consequences as a result of our operations in China. Our failure to manage the risks and challenges associated with our international business and operations could have a material adverse effect on the Company’s consolidated results of operations, financial position and cash flows.

We are exposed to significant risks related to potential adverse changes in currency exchange rates.

We are exposed to market risks resulting from changes in the currency exchange rates of the currencies in the countries in which we do business. Although operating in local currencies may limit the impact of currency rate fluctuations on the operating results of our non-U.S. subsidiaries, fluctuations in such rates may affect the translation of these results into our consolidated financial statements. To the extent borrowings, sales, purchases, revenues and expenses or other transactions are not in the applicable local currency, we may enter into foreign currency spot and forward contracts to hedge the currency risk. We cannot be sure, however, that our efforts at hedging will be successful, and such efforts could, in certain circumstances, lead to losses that are material to our consolidated results of operations, financial position and cash flows.

A decline in expected profitability of the Company or individual reporting units of the Company could result in the impairment of assets, including goodwill, other long-lived assets and deferred tax assets.

We hold material amounts of goodwill, other long-lived assets and deferred tax assets on our balance sheet. A decline in expected profitability, particularly if there is a decline in the global economy, could call into question the recoverability of our related goodwill, other long-lived tangible and intangible assets or deferred tax assets and require the write down or write off these assets or, in the case of deferred tax assets, recognition of a valuation allowance through a charge to income. Such an occurrence has had and could continue to have a material adverse effect on our consolidated results of operations, financial position and cash flows.

Changes in the rules and regulations to which we are subject may increase our costs.

We are subject to numerous rules and regulations, including, but not limited to, product safety, environmental and health and welfare benefit regulations. These rules and regulations may be changed by local, state or federal governments in countries in which we operate. Changes in these regulations may result in a significant increase in our costs to comply. Compliance with changes in rules and regulations could require increases to our workforce, increased cost for compensation and benefits, or investments in new or upgraded equipment. In addition, growing concerns about climate change, including the impact of global warming, may result in new regulations with respect to greenhouse gas emissions (including carbon dioxide) and/or “cap and trade” legislation. Compliance with new rules and regulations or changes in existing rules and regulations could result in additional costs.

Changes in the rules and regulations to which customers are subject may impact demand for our products and services.

Many of our customers are subject to rules and regulations requiring certain printed or electronic communications, governing the form of such communications and protecting the privacy of consumers. For instance, our healthcare and insurance printing businesses are subject to such regulations. Changes in these regulations may impact customers’ business practices and could reduce demand for our products and services. Changes in such regulations could eliminate the need for certain types of communications altogether or such changes may impact the quantity or format of such communications.

Changes in postal rates, regulations and delivery structure may adversely impact demand for our products and services.

Postal costs are a significant component of many of our customers’ cost structure and postal rate changes can influence the number of pieces and types of mailings that our customers mail. On December 24, 2013, the Postal Regulatory Commission (the “PRC”) approved the USPS Board of Governors’ request for an exigent price increase of 4.3%. This exigent rate increase was implemented in addition to a 1.7% rate increase, equal to the CPI, for total price increases of 6.0%, on average, across all mail categories, effective January 26, 2014. On January 15, 2015, the USPS filed for a CPI rate increase of approximately 2.0%, which was approved by the PRC on May 7, 2015, and became effective May 31, 2015. The USPS eliminated the 4.3% exigent rate increase in April 2016. The USPS implemented a CPI postage increase on January 22, 2017 of approximately 1.0%. In addition, the USPS has incurred significant financial losses in recent years and may, as a result, implement significant changes to the breadth or frequency of its mail delivery. The USPS has temporarily suspended its previously announced plans to restructure its mail delivery network, including the closure of many post office facilities. The impact of the USPS’s restructuring plans, many of which require legislative action, cannot currently be estimated. If implemented, such changes could impact our customers’ ability or willingness to communicate by mail. Declines in print volumes mailed would have an adverse effect on our business.

We rely on independent shipping companies to deliver the products we create for our customers, and as part of our logistics business for our customers, changes in our relationships with these companies or an increase in shipping costs could have an adverse impact on our business and results of operations.

We rely upon third party carriers, including FedEx and UPS, for timely delivery of our product shipments. As a result, we are subject to carrier disruptions and increased costs due to factors that are beyond our control, including employee strikes, inclement weather and increased fuel costs. Any failure to deliver products to our customers in a timely and accurate manner may damage our reputation and brand and could cause us to lose customers. If our relationship with any of these third party carriers is terminated or impaired, or if any of these third parties are unable to ship products for us, we would be required to use alternative, and possibly more expensive, carriers for the shipment of products to our customers. We may be unable to engage alternative carriers on a timely basis or

on terms favorable to us, if at all, which could have a material adverse effect on our business, financial condition and results of operations.

Furthermore, shipping costs represent a significant operational expense for us. Changes in shipping terms, or the inability of these third party shippers to perform effectively (whether as a result of mechanical failure, casualty loss, labor stoppage, or any other reason), could have an adverse effect on our business, financial condition and results of operations. Additionally, deterioration of the financial condition of our carriers could have an adverse impact on our shipping costs. Any future increases in shipping rates could have a material adverse effect on our business, financial condition and results of operations, particularly if we are unable to pass on these higher costs to our customers.

Undetected errors or failures found in our products and services may result in loss of or delay in market acceptance of our products and services that could seriously harm our business.

Our products and services may contain undetected errors or scalability limitations at any point, but particularly when first introduced or as new versions are released. We frequently release new versions of our products and different aspects of our platform are in various stages of development. Despite testing by us and by current and potential customers, errors may not be found in new products and services until after commencement of commercial availability or use, resulting in a loss of or a delay in market acceptance, damage to our reputation, customer dissatisfaction and reductions in net sales and margins, any of which could negatively impact our business.

Our services depend on the reliability of computer systems we and our vendors maintain and the ability to implement and maintain information technology and security measures to protect against security breaches and data leakage. Our failure to maintain the integrity of these systems could compromise the confidentiality of certain information provided to us by our customers and affect our ability to retain customers and attract new business.

We depend on our information technology and data processing systems to operate our business, and a significant malfunction or disruption in the operation of our systems, or a security breach or a data leak that compromises the confidential and sensitive information stored in those systems, could disrupt our business and adversely impact our ability to compete. These systems include systems that we own and operate, as well as those systems of our vendors. Such systems are susceptible to malfunctions and interruptions due to equipment damage and power outages and are also susceptible to cybercrime, or threats of intentional disruption, which are increasing in terms of sophistication and frequency.

Maintaining the confidentiality, integrity and availability of our systems, software and solutions is an issue of critical importance for us and for our customers and users who rely on us to protect the confidentiality of certain information they provide us. Many of our customers’ industries are highly regulated and have established standards and requirements for safeguarding the confidentiality, integrity and availability of information relating to their businesses and customers. Disclosure of the information maintained on our systems due to human error, breach of our systems through hacking or cybercrime, a leak of confidential information due to employee misconduct or otherwise could materially damage our reputation, subject us to regulatory risks and cause significant reputational harm for our customers, all of which could have a material adverse effect on our business, financial condition and results of operations.

Our operational and financial profile changed upon the separation of LSC and Donnelley Financial from the Company’s other businesses. As a result, our diversification of revenue sources diminished, and our results of operations, cash flows, working capital and financing requirements may be subject to increased volatility and greater risk as a result of the concentration of our business in the multichannel communications management industry. Further, shares of our common stock represent an investment in a smaller company. These changes may not meet some stockholders’ investment strategies, which could cause investors to sell their shares of our common stock. Excessive selling could cause the relative market price of our common stock to decrease.

Further, the anticipated benefits of the spinoff transactions were based on a number of assumptions, some of which may prove incorrect. Any such incorrect assumptions could adversely affect our business, results of operations or financial condition.

While we believe that the spinoff transactions will result in a number of benefits to us, including, among others, enabling management to better focus on our multichannel integrated communications business, if we fail to achieve some or all of the expected benefits of the transaction, or if those benefits are delayed, our business, results of operations and financial condition could be adversely affected and the value of our stock could be adversely impacted

The price of our common stock may fluctuate significantly with the completion of the spinoffs.

We cannot predict the prices at which our common stock may trade now that the spinoffs are complete or the effect of the spinoffs on the trading prices of our common stock. Similarly, certain stockholders may experience a decrease in the aggregate value of their stock based on share price volatility of all three resulting companies post spin.

We may not realize the benefits from our retained ownership interests in LSC and Donnelley Financial.

As part of the spinoff transactions, we distributed approximately 80.75% of the outstanding shares of common stock of each LSC and Donnelley Financial to our stockholders. After giving effect to these distributions, we retained approximately 19.25% of the outstanding shares of common stock of each of LSC and Donnelley Financial. In connection with the spinoff transactions, we entered into a stockholder and registration rights agreement with each of LSC and Donnelley Financial governing our ownership and potential disposition of the shares of common stock retained in each company. We expect to dispose of any shares of common stock of LSC and Donnelley Financial that we retained within the 12-month period following the initial distribution of shares of common stock of LSC and Donnelley Financial to our stockholders.

As with any investment in a publicly traded company, our retained ownership in each company is subject to risks and uncertainties relating to the businesses of LSC and Donnelley Financial and risks and uncertainties relating to fluctuations in public equity markets generally. In addition, under the stockholders’ and registration rights agreement, we gave a proxy to each company to vote all of our retained shares of common stock in proportion to the votes cast by LSC’s and Donnelley Financial’s other stockholders. Consequently, we do not retain any influence over the management and affairs of each of LSC and Donnelley Financial.

Pursuant to the stockholders’ and registration rights agreement with each company, we may, at our option, dispose of shares of common stock of either company to investment banks in exchange for our outstanding public debt. Any disposition of shares of common stock of LSC or Donnelley Financial held by the Company in the public market, or the perception that such dispositions could occur, could adversely affect prevailing market prices for LSC common stock and Donnelley Financial common stock and thereby adversely affect the value of our retained ownership interests or adversely affect the terms and conditions of such disposition.

Post-spin, we are a smaller company and may experience increased costs resulting from a decrease in purchasing power.

Prior to the completion of the spinoff transactions, we had been able to take advantage of our size and purchasing power in sourcing products and services from third-party vendors. Since the spinoff transactions are complete, we are a smaller company and may not have the same purchasing power that we had before the completion of the spinoff transactions. Although we are seeking to expand our direct purchasing relationships with many of our most important third-party vendors, we may be unable to obtain products and services at prices and on terms as favorable as those available to us prior to completion of the spinoff transactions, which could negatively impact our results of operations, financial positions and cash flow.

We may be unable to hire and retain talented employees, including management, which may be exacerbated by the spinoff transactions.

Our success depends, in part, on our general ability to attract, develop, motivate and retain highly skilled employees. The loss of a significant number of our employees or the inability to attract, hire, develop, train and retain skilled personnel could have a serious negative effect on the Company. Various locations may encounter competition with other manufacturers for skilled labor. Many of these competitors may be able to offer significantly greater compensation and benefits or more attractive lifestyle choices than we offer. In addition, many members of our management team have significant industry experience that is valuable to our competitors. We enter into non-solicitation and, as appropriate, non-competition agreements with certain of our executive officers, prohibiting them contractually from soliciting our customers and employees and from leaving and joining a competitor within a specified period.

Furthermore, as a result of the spinoff transactions, certain members of our senior management team prior to the spinoff, resigned from their roles with the Company to assume positions with either LSC or Donnelley Financial. The loss of members of our senior management team and other key employees due to the spinoff transactions may result in transitional challenges or temporary difficulty in managing our business properly, which could harm business prospects and our consolidated results of operations, financial position and cash flows.

We obtained an opinion from our outside legal counsel substantially to the effect that, among other things, the distributions in connection with the spinoff transactions qualify as tax-free distributions under the U.S. Internal Revenue Code of 1986, as amended (the “Code”). The opinion will not be binding on the IRS or the courts. Additionally, we have received a private letter ruling from the IRS concluding that certain limited aspects of the distributions will not prevent the distributions from satisfying certain requirements for tax-free treatment under the Code. The opinion and the private letter ruling rely on customary factual representations and assumptions, which if incorrect or inaccurate may jeopardize the ability to rely on such opinion and letter ruling.

If either or both of the distributions do not qualify for tax-free treatment for U.S. federal income tax purposes, then, in general, we would be subject to tax as if we had sold the common stock of such spun-off entity in a taxable sale for its fair value. In that case, we expect that RR Donnelley stockholders would be subject to tax as if they had received a distribution equal to the fair value of the spun-off entity’s common stock that was distributed to them, which generally would be treated first as a taxable dividend to the extent of our earnings and profits, then as a non-taxable return of capital to the extent of each holder’s tax basis in its Company common stock, and thereafter as capital gain with respect to any remaining value. We expect that the amount of any such taxes to RR Donnelley stockholders and us would be substantial if this were to occur.

We have no unresolved written comments from the SEC staff regarding our periodic or current reports under the Securities Exchange Act of 1934.

The Company’s corporate office is located in leased office space in Chicago, Illinois. As of December 31, 2016, the Company leased or owned 250 U.S. facilities, some of which had multiple buildings and warehouses, and these U.S. facilities encompassed approximately 18.2 million square feet. The Company leased or owned 96 international facilities, some of which had multiple buildings and warehouses, encompassing approximately 7.3 million square feet in Canada, Latin America, Europe and Asia. Of the Company’s U.S. and international facilities, approximately 10.0 million square feet of space was owned, while the remaining 15.5 million square feet of space was leased.

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 is 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.

For a discussion of certain litigation involving the Company, see Note 11, Commitments and Contingencies, to the Consolidated Financial Statements.

Name and Positions with the Company	Age		Business Experience
Daniel L. Knotts President and Chief Executive Officer		52	Since October 2016, Mr. Knotts has served as the Chief Executive Officer of RR Donnelley Company and a member of our board of directors. Prior to that, Mr. Knotts was the Company’s Chief Operating Officer since 2013. He served as Group President from 2008 until 2012 and, from 2007 until 2008, he served as Chief Operating Officer of the Global Print Solutions business. From 1986 until 2007, Mr. Knotts held positions of increasing responsibility within finance, operations, sales management and business unit leadership at various locations in the United States including serving as Senior Vice President of Operations for the Magazine Business, President of the Specialized Publishing Services business and President of the Magazine, Catalog and Retail businesses.

Thomas M. Carroll III Executive Vice President and Chief Administrative Officer		51	Since October 2016, Mr. Carroll has been the Executive Vice President and Chief Administrative Officer of RR Donnelley. Since 2007, Mr. Carroll has served as our Executive Vice President and Chief Human Resources Officer. In addition, he served as executive lead on the project management of the spinoff transactions. From 1995 until 2007, Mr. Carroll served in various capacities in management and human resources at the Company.

Jeffrey G. Gorski Senior Vice President, Controller and Chief Accounting Officer		42	Since October 2016, Mr. Gorski has served as RR Donnelley’s Senior Vice President, Chief Accounting Officer, and Corporate Controller since January 2013. Prior to this, served as Vice President, Finance from 2011 to 2013. Prior to this, served as Vice President, Assistant Controller from 2007 to 2011. Prior to this, from 2005 until 2007, served in various capacities with RR Donnelley in accounting and operational finance.

John Pecaric Executive Vice President, Chief Commercial Officer and President of International		51	Since October 2016, Mr. Pecaric has been the Executive Vice President of Global Markets for RR Donnelley. Prior to this, Mr. Pecaric served as Group President – International where he led RR Donnelley’s businesses outside the United States since 2014. From 2012 until 2014, Mr. Pecaric was Senior Vice President of Canada, Latin America, Book and Office Products. Prior to that, Mr. Pecaric held various sales, marketing, business development and operations positions dating back to 1985, other than between 2002 through 2004 when he briefly left RR Donnelley.

Terry D. Peterson Executive Vice President and Chief Financial Officer		52	Since October 2016, Mr. Peterson has served as RR Donnelley’s Executive Vice President and Chief Financial Officer. Prior to joining RR Donnelley, Mr. Peterson served as Senior Vice President and Chief Financial Officer of Deluxe Corporation from 2009 to 2016. Prior to that, Mr. Peterson served in various capacities at Deluxe Corporation including Vice President, Investor Relations and Chief Accounting Officer from 2006 to 2009, the Controller and Chief Accounting Officer from 2005 to 2006 and the Director of Internal Audit from 2004 to 2005.

Deborah L. Steiner Executive Vice President, Secretary and Chief Compliance Officer		49	Since October 2016, Ms. Steiner has been the Executive Vice President and General Counsel of RR Donnelley. Prior to this, Ms. Steiner was the Company’s Vice President, Associate General Counsel since April 2012. From 2005 until 2012 when she joined RR Donnelley, Ms. Steiner was Counsel at Latham & Watkins LLP. From 2003 to 2005, Ms. Steiner served as the First Deputy Inspector General and Chief Operating Officer in the Inspector General’s Office for the Illinois Governor and, from 1999 to 2003, as an Assistant United States Attorney for the Northern District of Illinois.

Effective August 22, 2016, RR Donnelley’s common stock is listed and traded on the New York Stock Exchange (NYSE). Prior to that date, the Company’s stock was listed and traded on the NASDAQ Stock Market.

As of February 23, 2017, there were 3,982 stockholders of record of the Company’s common stock. Quarterly closing prices of the Company’s common stock, as reported on the NYSE and the NASDAQ, and dividends paid per share during the years ended December 31, 2016 and 2015, are contained in the chart below:

					Closing Common Stock Prices ⁽³⁾
	Dividends Paid⁽¹⁾⁽²⁾				2016				2015
	2016		2015		High		Low		High		Low
First Quarter	$	0.78	$	0.78	$	27.68	$	20.46	$	32.59	$	25.92
Second Quarter		0.78		0.78		29.47		25.44		33.32		28.85
Third Quarter		0.78		0.78		31.14		25.81		29.80		23.69
Fourth Quarter		0.14		0.78		23.81		15.70		28.51		23.84

The Credit Agreement generally allows annual dividend payments of up to $60.0 million in aggregate, though additional dividends may be allowed subject to certain conditions. For more detail refer to the Credit Agreement and its amendments filed as exhibits to this Annual Report on Form 10-K.

There were no repurchases of equity securities during the three months ended December 31, 2016.

For information regarding equity compensation plans, see Item 12 of Part III of this Annual Report on Form 10-K.

The graph below compares five-year returns of the Company’s common stock with those of the S&P SmallCap 600 and the S&P 1500 Industrials Index. The comparison assumes all dividends have been reinvested, and an initial investment of $100 on December 31, 2011. The returns of each company in the peer group have been weighted to reflect their market capitalizations. The Company's performance through September 30, 2016 has been adjusted for the spinoffs of LSC and Donnelley Financial which occurred on October 1, 2016 and are reflected in the table below as a dividend. Additionally, the Company’s performance has been adjusted for the 1-for-3 reverse stock split for the Company's stock which also occurred on October 1, 2016.

Following the spin-offs of LSC and Donnelley Financial, the Company is a member of the S&P SmallCap 600 which will replace the S&P 500 in this comparison going forward. Further, the Company, with its diverse set of services and customers, believes the S&P 1500 Industrials Index is a more appropriate comparison and will replace the peer group historically used. The peer group used in the performance graph combines two industry groups identified by Value Line Publishing, Inc., the publishing group (including printing companies) and the newspaper group. The Company itself has been excluded, and its contributions to the indices cited have been subtracted out. Changes in the peer group from year to year result from companies being added to or deleted from the Value Line publishing group or newspaper group.

Comparison of Five-Year Cumulative Total Return Among RR Donnelley, S&P 500 Index, S&P SmallCap 600, S&P 1500 Industrials Index and Peer Group*

	Base Period	Fiscal Years Ended December 31,
Company Name/Index	2011	2012		2013		2014		2015		2016
RR Donnelley	100		68.43		166.93		146.91		136.56		108.42
S&P 500 Index	100		116.00		153.57		174.60		177.01		198.18
S&P SmallCap 600	100		116.33		164.38		173.84		170.41		215.67
S&P 1500 Industrials Index	100		116.46		164.43		178.37		173.53		208.94
Peer Group	100		122.83		190.25		213.82		224.78		251.37

	2016			2015			2014			2013		2012
Continuing Operations⁽¹⁾
Net sales	$	6,895.7		$	6,937.3		$	7,172.7		$	6,156.3	$	5,792.7
Net (loss) earnings from continuing operations		(484.9	)		(31.7	)		(40.3	)		169.8		(115.5	)
Net (loss) earnings attributable to RR Donnelley common stockholders per diluted share⁽²⁾		(6.95	)		(0.28	)		(0.66	)		2.78		(1.92	)

Financial Position and Other Data
Total assets⁽³⁾		4,284.7			7,279.3			7,608.8			7,205.1		7,240.4
Long-term debt⁽³⁾		2,379.2			3,188.3			3,398.6			3,553.9		3,397.9
Cash dividends per common share⁽²⁾		2.48			3.12			3.12			3.12		3.12

	2016			2015			2014			2013			2012
Restructuring, impairment and other charges - net	$	584.3		$	62.7		$	72.3		$	46.3		$	162.4
Acquisition-related expenses		2.7			0.5			7.0			4.8			0.8
Spinoff-related transaction expenses		8.0			—			—			—			—
Gain from the sale of certain of the Company’s affordable housing investments		(0.1	)		(3.9	)		—			—			—
Pension settlement charges		21.1			—			—			—			—
OPEB curtailment gain		(19.5	)		—			—			—			—
Net (gain) loss on disposals of businesses		(11.9	)		—			(10.4	)		17.9			—
Loss on Venezuela currency remeasurement		—			30.3			18.4			3.2			—
Loss primarily related to the disposal of the Venezuelan operating entity		—			15.7			—			—			—
Loss from the impairment of the Company’s investment in the Brazilian operations of Courier		—			2.8			—			—			—
Loss from the impairment of an equity investment		1.4			1.3			1.3			3.0			0.1
Loss on debt extinguishment		—			—			77.1			81.9			16.1
Loss on bankruptcy liquidation of RRDA		—			—			16.4			—			—
Purchase accounting inventory adjustments		—			—			12.1			—			—
Total charges before taxes	$	586.0		$	109.4		$	194.2		$	157.1		$	179.4
Total after-tax impact of the above charges, excluding the impact of noncontrolling interests		534.9			87.9			138.3			106.5			122.2
Tax benefit related to the decline in value of an entity within the Strategic Services segment		—			—			(15.2	)		—			—
Tax benefit for previously unrecognized tax benefits related to the resolution of certain US federal uncertain tax positions		—			—			—			(7.2	)		(26.1	)
Valuation allowance provision on certain deferred tax assets in Latin America		—			—			—			—			32.7
Deferred income tax benefit related to investment in LSC		(0.4	)		—			—			—			—
Tax benefit related to the decline in value and reorganization of certain entities within the International segment		—			—			—			—			(22.4	)
Tax provision related to certain foreign earnings no longer considered to be permanently reinvested		—			—			—			—			11.0
Total charges, net of taxes	$	534.5		$	87.9		$	123.1		$	99.3		$	117.4

The following discussion of RR Donnelley’s financial condition and results of operations should be read together with the consolidated financial statements and notes to those statements included in Item 15 of Part IV of this Annual Report on Form 10-K.

On October 1, 2016, the Company successfully completed the spinoff transactions of LSC and Donnelley Financial into two independent public companies as described in more detail in Item 1, Business –Spinoff Transactions, of Part I of this Annual Report on Form 10-K. The financial results of Donnelley Financial and LSC for periods prior to the Distribution have been reflected within the disclosures of this Management’s Discussion and Analysis of Financial Condition and Results of Operations as discontinued operations. Additionally, sales from RR Donnelley to Donnelley Financial and LSC previously eliminated in consolidation have been recast and are now shown as external sales of RR Donnelley within the financial results of continuing operations. See Note 2, Discontinued Operations, to the Consolidated Financial Statements for additional information.

For a description of the Company’s business, segments and product and service offerings, see Item 1, Business, of Part I of this Annual Report on Form 10-K.

The Company separately reports its net sales, related costs of sales and gross profit for its product and service offerings. The Company’s product offerings primarily consist of commercial and digital print, statement printing, direct mail, labels, packaging, forms, magazines, catalogs, retail inserts, books, manuals and other related products procured through the Company’s print management offering. The Company’s service offerings primarily consist of logistics, certain business outsourcing services and digital and creative solutions.

Net sales decreased by $41.6 million, or 0.6%, in 2016 compared to 2015 including a $71.3 million, or 1.0%, decrease due to changes in foreign exchange rates. After including the impact of changes in foreign exchange rates, the increases in net sales was driven by higher volume in the Strategic Services segment partially offset by volume declines and price pressures in the Variable Print and International segments.

The Company continues to take actions across all platforms to reduce its cost structure and enhance productivity. During the year ended December 31, 2016, the Company realized cost savings from restructuring activities, including the reorganization of administrative and support functions across all segments as well as continuing facility consolidations and reorganizations across platforms.

Net cash provided by operating activities for the year ended December 31, 2016 was $125.2 million as compared to $652.0 million for the year ended December 31, 2015. The decrease reflected the spinoff of LSC and Donnelley Financial, spinoff transaction costs and legal expenses, partially offset by lower incentive compensation and tax payments and lower pension and other postretirement benefit plan contributions.

Immediately following the Distribution on October 1, 2016, the Company affected a one-for-three reverse stock split for RR Donnelley common stock (the “Reverse Stock Split”). The Reverse Stock Split was approved by the Company’s Board of Directors on September 14, 2016 and previously approved by the Company’s stockholders at the annual meeting on May 19, 2016. All references in these consolidated financial statements to the number of shares of common stock and per share amounts have been retroactively adjusted to give effect to the Reverse Stock Split.

The changes in the Company’s income (loss) from operations, operating margin, net loss attributable to RR Donnelley common stockholders and net loss attributable to RR Donnelley common stockholders per diluted share for the year ended December 31, 2016, from the year ended December 31, 2015, were due to the following:

	Income (loss) from Operations			Operating Margin			Net Loss From Continuing Operations Attributable to RR Donnelley Common Stockholders			Net Loss Attributable to RR Donnelley Stockholders Per Diluted Share
	(in millions, except margin and per share data)
For the year ended December 31, 2015	$	237.3			3.4	%	$	(31.7	)	$	(0.28	)
2016 restructuring, impairment and other charges - net		(584.3	)		(8.5	%)		(538.1	)		(7.68	)
2015 restructuring, impairment and other charges - net		62.7			0.9	%		50.5			0.74
Spinoff-related transaction expenses		(8.0	)		(0.1	%)		(4.9	)		(0.07	)
Acquisition-related expenses		(2.2	)		―	%		(1.4	)		(0.02	)
Pension settlement charges		(21.1	)		(0.3	%)		(12.9	)		(0.18	)
OPEB curtailment gain		19.5			0.3	%		12.0			0.17
Net gain/loss on disposals of businesses		11.9			0.2	%		27.8			0.40
Venezuela currency remeasurement		—			―	%		17.0			0.25
Net loss on investments		—			―	%		0.4			0.01
Income tax adjustment		—			―	%		0.4			0.01
Operations		(16.4	)		(0.3	%)		(4.0	)		(0.30	)
For the year ended December 31, 2016	$	(300.6	)		(4.4	%)	$	(484.9	)	$	(6.95	)

2016 restructuring, impairment and other charges - net: included pre-tax charges of $527.8 million for the impairment of goodwill in the commercial and digital print and statement printing reporting units within the Variable Print segment; $29.7 million related to the impairment of intangible assets in the commercial and digital print reporting unit within the Variable Print segment; $21.9 million for employee termination costs; $2.3 million of other charges; $3.5 million of lease termination and other restructuring costs; and $0.9 million net gain on the disposal of previously impaired other long-lived assets. See Note 4, Restructuring, Impairment and Other Charges, to the Consolidated Financial Statements for further discussion.

2015 restructuring, impairment and other charges - net: included pre-tax charges of $22.4 million for employee termination costs; $18.0 million for the impairment of goodwill in the former Europe and Latin America reporting units, respectively, within the International segment; $9.2 million of lease termination and other restructuring costs; $11.9 million for the impairment of intangible assets, substantially all related to acquired customer relationship intangible assets; $2.2 million of other charges related to multi-employer pension plan withdrawal obligations; and $1.0 million net gain on disposal of previously impaired other long-lived assets, primarily for buildings and machinery and equipment associated with facility closures. See Note 4, Restructuring, Impairment and Other Charges, to the Consolidated Financial Statements for further discussion.

Spinoff-related transaction expenses: included pre-tax charges of $8.0 million ($4.9 million after-tax) related to consulting and other expenses for the year ended December 31, 2016 associated with the spinoff transactions.

Acquisition-related expenses: included pre-tax charges of $2.7 million ($1.8 million after-tax) related to legal, accounting and other expenses for the year ended December 31, 2016 associated with completed or contemplated acquisitions. For the year ended December 31, 2015, these pre-tax charges were $0.5 million ($0.4 million after-tax).

Pension settlement charges: included pre-tax charges of $21.1 million ($12.9 million after-tax) for the year ended December 31, 2016 related to lump-sum pension settlement payments.

Other postretirement benefit plan obligation (OPEB) curtailment gain: included a pre-tax gain of $19.5 million ($12.0 million after-tax) as a result of curtailments of the Company’s OPEB plans during the year ended December 31, 2016.

Net gain/loss on disposals of businesses: included a pre-tax net gain of $11.9 million ($12.1 million after-tax) for the year ended December 31, 2016, related to the disposals of certain immaterial businesses in the International segment. For the year ended December 31, 2015, these pre-tax charges included a loss of $15.7 million ($15.7 million after-tax) primarily related to the disposal of the Venezuelan operating entity in the International segment.

Venezuela currency remeasurement: currency remeasurement in Venezuela and the related impact of the devaluation resulted in a pre-tax loss of $30.3 million ($27.5 million after-tax) for the year ended December 31, 2015 of which $10.5 million was included in loss attributable to noncontrolling interests.

Net loss on investments: included a pre-tax loss of $1.4 million ($1.4 million after-tax) resulting from the impairment of an equity investment and a pre-tax gain of $0.1 million ($0.1 million after-tax) resulting from the sale of one of the Company’s affordable housing investments during the year ended December 31, 2016. The year ended December 31, 2015 included a pre-tax gain of $3.9 million ($2.4 million after-tax) resulting from the sale of one of the Company’s affordable housing investments, a pre-tax loss of $2.8 million ($2.8 million after-tax) resulting from the impairment of the Company’s investment in the Brazilian operations of Courier and a pre-tax loss of $1.3 million ($1.3 million after-tax) for the impairment of an equity investment.

Income tax adjustment: included the recognition of a $0.4 million deferred income tax benefit related to the Company’s investment in LSC.

Operations: reflected volume declines in the Variable Print segment, price pressures and wage and other inflation in the International segment, partially offset by lower incentive compensation expense, lower depreciation and amortization expense and cost savings associated with the reorganization of certain operations.

RR Donnelley works with its customers to create, manage, deliver and optimize their multichannel communications strategies. The Company has and will continue to develop its creative and design, content management, digital and print production, supply chain management and distribution services to address its customers’ evolving needs.

The Company’s global platform provides differentiated solutions for its customers through its broad range of complementary communications services, strong logistics capabilities, and innovative leadership in both conventional print and digital technologies. This platform has enabled RR Donnelley to develop strong customer relationships, and the Company is focused on expanding these relationships to a broader range of its offerings. The flexibility of our platforms enhances the value the Company delivers to its customers and the Company intends to expand its capabilities in order to make it easier for customers to manage their full range of communication needs.

Management believes productivity improvement and cost reductions are critical to the Company’s competitiveness. The Company continues to implement strategic initiatives across all platforms to reduce its overall cost structure and enhance productivity, including restructuring, consolidation, reorganization and integration of operations and streamlining of administrative and support activities.

The Company seeks to deploy its capital using a balanced approach in order to ensure financial flexibility and provide returns to stockholders. Priorities for capital deployment, over time, include principal and interest payments on debt obligations, distributions to stockholders, targeted acquisitions and capital expenditures. The Company believes that a strong financial condition is important to customers focused on establishing or growing long-term relationships. The Company also expects to make targeted acquisitions that extend its capabilities, drive cost savings and reduce future capital spending needs.

Management uses several key indicators to gauge progress toward achieving these objectives. These indicators include organic sales growth, operating margins, cash flow from operations and capital expenditures. The Company targets long-term net sales growth, while managing operating margins by achieving productivity improvements that offset the impact of price declines and cost inflation. Cash flows from operations are targeted to be stable over time, but in any given year can be significantly impacted by the timing of non-recurring or infrequent receipts and expenditures, the level of required pension and other postretirement benefits plan contributions and the impact of working capital management efforts.

The Company faces many challenges and risks as a result of competing in highly competitive global markets. Refer to Item 1A, Risk Factors, of Part I of this Annual Report on Form 10-K for further discussion.

In 2017 the Company expects net sales to range from a slight decrease to a slight increase as compared to 2016 driven by organic growth across certain product and service offerings primarily in the Strategic Services segment due to incremental revenues from the Commercial Agreements entered into in connection with the spinoff. Organic net sales growth is also expected in the International segment and from Precision Dialogue, which we acquired in 2016, that is reported within the Strategic Services and Variable Print segments. These increases are expected to partially offset by the anticipated continuing volume declines in the Variable Print segment and price pressures in most parts of the business. The highly competitive market conditions and unused industry capacity will continue to put price pressure on both transactional work and contract renewals across all segments. The Company’s outlook assumes that the U.S. economy will grow modestly in 2017, with a decline in growth expected in developing countries. The Company will continue to leverage its customer relationships in order to provide a larger share of its customers’ communications needs. In addition, the Company expects to continue cost control and productivity initiatives, including selected facility consolidations.

The Company initiated several restructuring actions in 2016 and 2015 to further reduce the Company’s overall cost structure. These restructuring actions included the closures of two manufacturing facilities during 2016, as well as reorganization of certain operations. These and future cost reduction actions are expected to have a positive impact on operating earnings in 2017 and in future years. In addition, the Company expects to identify other cost reduction opportunities and possibly take further actions in 2017, which may result in significant additional restructuring charges. These restructuring actions will be funded by cash generated from operations and cash on hand or, if necessary, by utilizing the Company’s credit facilities.

Cash flows from operations in 2017 are expected to increase significantly versus 2016 as lower operating income due to the spinoff of LSC and Donnelley will be more than offset by lower payments for taxes, interest and spinoff transaction costs as well as targeted working capital improvements. The Company expects capital expenditures to be in the range of $100.0 million to $115.0 million in 2017.

The Company’s pension and OPEB plans were underfunded by $99.3 million and $134.7 million, respectively, as of December 31, 2016, as reported on the Company’s Consolidated Balance Sheets and further described in Note 12, Retirement Plans, to the Consolidated Financial Statements. Governmental regulations for measuring pension plan funded status differ from those required under accounting principles generally accepted in the United States of America (“GAAP”) for financial statement preparation. Based on the plans’ regulatory funded status, required contributions in 2017 under all pension and other postretirement benefits plans is expected to be approximately $17.0 million.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s most critical accounting policies are those that are most important to the portrayal of its financial condition and results of operations, and which require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. The Company has identified the following as its most critical accounting policies and judgments. Although management believes that its estimates and assumptions are reasonable, they are based upon information available when they are made, and therefore, actual results may differ from these estimates under different assumptions or conditions.

The Company recognizes revenue for the majority of its products upon the transfer of title and risk of ownership, which is generally upon shipment to the customer. Because substantially all of the Company’s products are customized, product returns are not significant; however, the Company accrues for the estimated amount of customer credits at the time of sale. Revenue from services is recognized as services are performed. Refer to Note 1, Basis of Presentation and Summary of Significant Accounting Policies, to the Consolidated Financial Statements for further discussion.

Certain revenues earned by the Company require significant judgment to determine if revenue should be recorded gross, as a principal, or net of related costs, as an agent. Billings for third-party shipping and handling costs as well as certain postage costs, primarily in the Company’s logistics operations, and out-of-pocket expenses are recorded gross. In the Company’s Global Turnkey Solutions and Sourcing operations, each contract is evaluated using various criteria to determine if revenue for components and other materials should be recognized on a gross or net basis. In general, these revenues are recognized on a gross basis if the Company has control over selecting vendors and pricing, is the primary obligor in the arrangement and bears credit risk and the risk of loss for inventory in its possession. Revenue from contracts that do not meet these criteria is recognized on a net basis. Many of the Company’s operations process materials, primarily paper, that may be supplied directly by customers or may be purchased by the Company and sold to customers. No revenue is recognized for customer-supplied paper, but revenues for Company-supplied paper are recognized on a gross basis. As a result, the Company’s reported sales and margins may be impacted by the mix of customer-supplied paper and Company-supplied paper.

The Company’s methodology for allocating the purchase price of acquisitions is based on established valuation techniques that reflect the consideration of a number of factors, including valuations performed by third-party appraisers when appropriate. Goodwill is measured as the excess of the cost of an acquired entity over the fair value assigned to identifiable assets acquired and liabilities assumed. Based on its current organization structure, the Company has identified fourteen reporting units for which cash flows are determinable and to which goodwill may be allocated. Goodwill is either assigned to a specific reporting unit or allocated between reporting units based on the relative excess fair value of each reporting unit.

As a result of the Separation, goodwill of approximately $657.9 million was distributed with LSC and Donnelley Financial. The goodwill distributed consisted of substantially all of the goodwill of the former Publishing and Retail segment and certain portions of the goodwill of the Strategic Services segment including the entire goodwill of the former financial reporting unit and a portion of each of the digital and creative solutions and logistics reporting units. The portion of the digital and creative solutions’ and logistics’ reporting units goodwill distributed was determined based upon the relative fair value as of October 1, 2016 of the businesses being disposed of in comparison to the overall fair value of the reporting unit as a whole. This resulted in the allocation of $25.5 million, or all, of the goodwill of the digital and creative solutions reporting unit and $104.2 million of the logistics reporting unit to the LSC disposal group.

The Company performs its goodwill impairment tests annually as of October 31, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company also performs an interim review for indicators of impairment each quarter to assess whether an interim impairment review is required for any reporting unit. As part of its interim reviews, management analyzes potential changes in the value of individual reporting units based on each reporting unit’s operating results for the period compared to expected results as of the prior year’s annual impairment test. In addition, management considers how other key assumptions, including discount rates and expected long-term growth rates, used in the last annual impairment test, could be impacted by changes in market conditions and economic events. Based on the interim assessments, management concluded that no events or changes in circumstances indicated that it was more likely than not that the fair value for any reporting unit had declined below its carrying value.

Due to the change in the Company’s reporting structure, $21.3 million of goodwill from the acquisition of Precision Dialogue was allocated to the digital and creative solutions group. As of October 31, 2016, eight reporting units had goodwill. The forms, sourcing, business process outsourcing, Latin America and Canada reporting units had no goodwill as of October 31, 2016. The reporting units with goodwill were reviewed for impairment using either a qualitative or quantitative assessment.

The Company performed a qualitative assessment for the Labels reporting unit to determine whether it was more likely than not that the fair value of the reporting unit was less than its carrying value. In performing this analysis, the Company considered various factors, including the effect of market or industry changes and the reporting unit’s actual results compared to projected results. In addition, management considered how other key assumptions used in the October 31, 2015 annual goodwill impairment test could be impacted by changes in market conditions and economic events.

As part of the qualitative review of impairment, management analyzed the potential changes in fair value of the Labels reporting unit based on its operating results for the ten months ended October 31, 2016 compared to expected results. As of October 31, 2015, the estimated fair value of the Labels reporting unit exceeded its carrying value by approximately 296.6%, according to a valuation performed by a third-party appraisal firm.

Based on its qualitative assessment, management concluded that as of October 31, 2016, it was more likely than not that the fair values of the Labels reporting unit was greater than its carrying values. The goodwill balance of the Labels reporting unit was $7.0 million as of October 31, 2016.

For the remaining seven reporting units with goodwill, a two-step method was used for determining goodwill impairment. In the first step (“Step One”), the Company compared the estimated fair value of each reporting unit to its carrying value, including goodwill. If the carrying value of a reporting unit exceeded the estimated fair value, the second step (“Step Two”) is completed to determine the amount of the impairment charge. Step Two requires the allocation of the estimated fair value of the reporting unit to the assets, including any unrecognized intangible assets, and liabilities in a hypothetical purchase price allocation. Any remaining unallocated fair value represents the implied fair value of goodwill, which is compared to the corresponding carrying value of goodwill to compute the goodwill impairment charge. The results of Step One of the goodwill impairment test as of October 31, 2016, indicated that the estimated fair values for five of the seven reporting units exceeded their respective carrying values. Therefore, the Company did not perform Step Two for these five reporting units. The Company did perform Step Two for the commercial and digital print and statement printing reporting units.

As part of its impairment test for these reporting units, the Company engaged a third-party appraisal firm to assist in the Company’s determination of the estimated fair values. This determination included estimating the fair value of each reporting unit using both the income and market approaches. The income approach requires management to estimate a number of factors for each reporting unit, including projected future operating results, economic projections, anticipated future cash flows, discount rates and the allocation of shared or corporate items. The market approach estimates fair value using comparable marketplace fair value data from within a comparable industry grouping. The Company weighted both the income and market approach equally to estimate the concluded fair value of each reporting unit.

The determination of fair value in Step One and the allocation of that value to individual assets and liabilities in Step Two, if necessary, requires the Company to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to: the selection of appropriate peer group companies; control premiums appropriate for acquisitions in the industries in which the Company competes; the discount rate; terminal growth rates; and forecasts of revenue, operating income, depreciation and amortization, restructuring charges and capital expenditures. The allocation of fair value under Step Two requires several analyses to determine the fair value of assets and liabilities including, among others, trade names, customer relationships, and property, plant and equipment.

As a result of the 2016 annual goodwill impairment test, the Company recognized non-cash charges of $416.2 million and $111.6 million during the period ended December 31, 2016 for the impairment of goodwill in the commercial and digital print and statement printing reporting units, respectively, which are included within the Variable Print segment. The goodwill impairment charges in the commercial and digital print and statement printing reporting units resulted from reductions in the estimated fair value of these reporting unit based on lower expectations for future revenue, profitability and cash flows as compared to the expectations of the October 31, 2015 annual goodwill impairment test. The lower expectations for commercial and digital print were driven by reduced demand for commercial print along with price pressures driven by excess capacity in the industry. The lower expectations for statement printing were due to lower demand for printed statements largely due to the impact of electronic substitution and price pressures driven by excess capacity in the industry. As of December 31, 2016, the commercial and digital print reporting unit had no remaining goodwill and the statement printing reporting unit had $15.2 million of goodwill remaining. There were no other goodwill impairment charges as the estimated fair values of remaining reporting units exceeded their respective carrying values.

Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting units, the amount of the goodwill impairment charge, or both. Future declines in the overall market value of the Company’s equity and debt securities may also result in a conclusion that the fair value of one or more reporting units has declined below its carrying value.

One measure of the sensitivity of the amount of goodwill impairment charges to key assumptions is the amount by which each reporting unit “passed” (fair value exceeds the carrying value) or “failed” (the carrying value exceeds fair value) Step One of the goodwill impairment test. Five reporting units passed Step One, with fair values that exceeded the carrying values by between 30% and 87% of their respective estimated fair values. Relatively small changes in the Company’s key assumptions would not have resulted in any reporting units failing Step One.

Generally, changes in estimates of expected future cash flows would have a similar effect on the estimated fair value of the reporting unit. That is, a 1.0% decrease in estimated annual future cash flows would decrease the estimated fair value of the reporting unit by approximately 1.0%. The estimated long-term net sales growth rate can have a significant impact on the estimated future cash flows, and therefore, the fair value of each reporting unit. A 1.0% decrease in the long-term net sales growth rate would have resulted in no reporting units failing Step One of the goodwill impairment test. Of the other key assumptions that impact the estimated fair values, most reporting units have the greatest sensitivity to changes in the estimated discount rate. The estimated discount rates for the reporting units with operations primarily located in the U.S. were 9.0% and 9.5% as of October 31, 2016. The estimated discount rate for the reporting unit with operations primarily in foreign locations was 11.5%. A 1.0% increase in estimated discount rates would have resulted in no reporting units failing Step One. The Company believes that its estimates of future cash flows and discount rates are reasonable, but future changes in the underlying assumptions could differ due to the inherent uncertainty in making such estimates. Additionally, further price deterioration or lower volume could have a significant impact on the fair values of the reporting units.

The Company evaluates the recoverability of other long-lived assets, including property, plant and equipment and certain identifiable intangible assets, whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Factors which could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the assets or the strategy for the overall business, a significant decrease in the market value of the assets or significant negative industry or economic trends. When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the indicators, the assets are assessed for impairment based on the estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the carrying value of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying value over its fair value. During the year ended December 31, 2016, the Company recognized non-cash impairment charges of $29.7 million related to the impairment of certain acquired customer relationship intangible assets in the commercial and digital print reporting unit within the Variable Print segment. The impairment of the customer relationship intangible assets resulted from lower expectations of future revenue to be derived from those relationships. In addition, the Company recognized a net gain of $0.6 million during the year ended December 31, 2016 primarily related to gains on the sale of previously impaired assets, partially offset by impairments of machinery and equipment associated with facility closures.

The Company records annual income and expense amounts relating to its pension and other postretirement benefits plans based on calculations which include various actuarial assumptions including discount rates, expected long-term rates of return, turnover rates, health care cost trend rates and compensation increases. The Company reviews its actuarial assumptions on an annual basis as of December 31 (or more frequently if a significant event requiring remeasurement occurs) and modifies the assumptions based on current rates and trends when it is appropriate to do so. The effects of modifications are recognized immediately on the Consolidated Balance Sheet, but are generally amortized into operating earnings over future periods, with the deferred amount recorded in accumulated other comprehensive income (loss). The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience, market conditions and input from its actuaries and investment advisors. The discount rates for pension benefits at December 31, 2016 and 2015 were 3.8% and 4.3%, respectively. The discount rates for other postretirement benefits plans at December 31, 2016 and 2015 were 4.0% and 4.2%, respectively.

As of December 31, 2015, the Company changed the method used to estimate the interest cost components of net pension and other postretirement benefits plan expense for its defined benefit pension and other postretirement benefit plans. Historically, the interest cost components were estimated using a single weighted-average discount rate derived from the yield curve used to measure the projected benefit obligation at the beginning of the period. The Company has elected to use a full yield curve approach in the estimation of these interest components of net pension and other postretirement benefits plan expense by applying the specific spot rates along the yield curve used in the determination of the projected benefit obligation to the relevant projected cash flows. The Company made this change to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of interest costs. This change does not affect the measurement and calculation of the Company’s total benefit obligations. The Company has accounted for this change as a change in estimate and accordingly has accounted for it prospectively starting in the first quarter of 2016.

A one-percentage point change in the discount rates at December 31, 2016 would have the following effects on the accumulated benefit obligation and projected benefit obligation:

The Company’s U.S. pension plans are frozen and the Company has transitioned to a risk management approach for its U.S. pension plan assets. The overall investment objective of this approach is to further reduce the risk of significant decreases in the plan’s funded status by allocating a larger portion of the plan’s assets to investments expected to hedge the impact of interest rate risks on the plan’s obligation. Over time, the target asset allocation percentage for the pension plan is expected to decrease for equity and other “return seeking” investments and increase for fixed income and other “hedging” investments. The assumed long-term rate of return for plan assets, which is determined annually, is likely to decrease as the asset allocation shifts over time.

The expected long-term rate of return for plan assets is based upon many factors including expected asset allocations, historical asset returns, current and expected future market conditions and risk. In addition, the Company considered the impact of the current interest rate environment on the expected long-term rate of return for certain asset classes, particularly fixed income. The target asset allocation percentage for the primary U.S. pension plan was approximately 55.0% for return seeking investments and approximately 45.0% for hedging investments. The expected long-term rate of return on plan assets assumption used to calculate net pension and other postretirement benefits plan expense in 2016 was 7.25% for both of the Company’s major U.S. pension and other postretirement benefits plans. The expected long-term rate of return on plan assets assumption that will be used to calculate net pension and other postretirement benefits plan expense in 2017 is 6.75% for both of the Company’s major U.S. pension and other postretirement benefits plans.

A 0.25% change in the expected long-term rate of return on plan assets at December 31, 2016 would have the following effects on 2017 pension and other postretirement benefit plan (income)/expense:

The Company also maintains several pension plans in international locations. The expected returns on plan assets and discount rates for those plans are determined based on each plan’s investment approach, local interest rates and plan participant profiles.

Significant judgment is required in determining the provision for income taxes and related accruals, deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. Additionally, the Company’s tax returns are subject to audit by various U.S. and foreign tax authorities. The Company recognizes a tax position in its financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. This recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Although management believes that its estimates are reasonable, the final outcome of uncertain tax positions may be materially different from that which is reflected in the Company’s historical financial statements.

The Company has recorded deferred tax assets related to future deductible items, including domestic and foreign tax loss and credit carryforwards. The Company evaluates these deferred tax assets by tax jurisdiction. The utilization of these tax assets is limited by the amount of taxable income expected to be generated within the allowable carryforward period and other factors. Accordingly, management has provided a valuation allowance to reduce certain of these deferred tax assets when management has concluded that, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be fully realized. If actual results differ from these estimates, or the estimates are adjusted in future periods, adjustments to the valuation allowance might need to be recorded. As of December 31, 2016 and 2015, valuation allowances of $154.1 million and $130.8 million, respectively, were recorded in the Company’s Consolidated Balance Sheets.

Deferred U.S. income taxes and foreign taxes are not provided on the excess of the investment value for financial reporting over the tax basis of investments in those foreign subsidiaries for which such excess is considered to be permanently reinvested in those operations. The Company has recognized deferred tax liabilities of $6.7 million as of December 31, 2016 related to local taxes on certain foreign earnings that are not considered to be permanently reinvested. Management regularly evaluates whether foreign earnings are expected to be permanently reinvested. This evaluation requires judgment about the future operating and liquidity needs of the Company’s foreign subsidiaries. Changes in economic and business conditions, foreign or U.S. tax laws, or the Company’s financial situation could result in changes to these judgments and the need to record additional tax liabilities.

The Company is subject to lawsuits, investigations and other claims related to environmental, employment, commercial and other matters, as well as preference claims related to amounts received from customers and others prior to their seeking bankruptcy protection. Periodically, the Company reviews the status of each significant matter and assesses potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the related liability is estimable, the Company accrues a liability for the estimated loss. Because of uncertainties related to these matters, accruals are based on the best information available at the time. As additional information becomes available, the Company reassesses the related potential liability and may revise its estimates.

With respect to claims made under the Company’s third-party insurance for workers’ compensation, automobile and general liability, the Company is responsible for the payment of claims below and above insured limits, and consulting actuaries are utilized to assist the Company in estimating the obligation associated with any such incurred losses, which are recorded in accrued and other non-current liabilities. Historical loss development factors for both the Company and the industry are utilized to project the future development of such incurred losses, and these amounts are adjusted based upon actual claims experience and settlements. If actual experience of claims development is significantly different from these estimates, an adjustment in future periods may be required. Expected recoveries of such losses are recorded in other current and other non-current assets.

The Company records restructuring charges when liabilities are incurred as part of a plan approved by management with the appropriate level of authority for the elimination of duplicative functions, the closure of facilities, or the exit of a line of business, generally in order to reduce the Company’s overall cost structure. Total restructuring charges were $25.4 million for the year ended December 31, 2016. The restructuring liabilities might change in future periods based on several factors that could differ from original estimates and assumptions. These include, but are not limited to, contract settlements on terms different than originally expected, ability to sublease properties based on market conditions at rates or on timelines different than originally estimated or changes to original plans as a result of acquisitions. Such changes might result in reversals of or additions to restructuring charges that could affect amounts reported in the Consolidated Statements of Operations of future periods.

The Company maintains an allowance for doubtful accounts receivable, which is reviewed for estimated losses resulting from the inability of its customers to make required payments for products and services. Specific customer provisions are made when a review of significant outstanding amounts, utilizing information about customer creditworthiness and current economic trends, indicates that collection is doubtful. In addition, provisions are made at differing rates, based upon the age of the receivable and the Company’s past collection experience. The allowance for doubtful accounts receivable was $35.9 million and $26.0 million at December 31, 2016 and 2015, respectively. The Company’s estimates of the recoverability of accounts receivable could change, and additional changes to the allowance could be necessary in the future, if any major customer’s creditworthiness deteriorates or actual defaults are higher than the Company’s historical experience.

The amount of expense recognized for share-based awards is determined by the Company’s estimates of several factors, including expected performance compared to target for performance share units, future forfeitures of awards, expected volatility of the Company’s stock and the average life of options prior to expiration. The total compensation expense within the results of continuing operations related to all share-based compensation plans was $7.4 million for the year ended December 31, 2016. See Note 18, Stock and Incentive Programs for Employees, to the Consolidated Financial Statements for further discussion.

Other than non-cancelable operating lease commitments, the Company does not have off-balance sheet arrangements, financings or special purpose entities.

In the financial review that follows, the Company discusses its consolidated results of operations, financial position, cash flows and certain other information. This discussion should be read in conjunction with the Company’s Consolidated Financial Statements and related notes that begin on page F-1.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2016 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 2015

The following table shows the results of operations for continuing operations for the years ended December 31, 2016 and 2015, which reflects the results of acquired businesses from the relevant acquisition dates:

	2016			2015		$ Change			% Change
	(in millions, except percentages)
Products net sales	$	5,288.1		$	5,312.1	$	(24.0	)		(0.5	%)
Services net sales		1,607.6			1,625.2		(17.6	)		(1.1	%)
Total net sales		6,895.7			6,937.3		(41.6	)		(0.6	%)
Products cost of sales (exclusive of depreciation and amortization)		4,164.4			4,178.9		(14.5	)		(0.3	%)
Services cost of sales (exclusive of depreciation and amortization)		1,354.5			1,353.3		1.2			0.1	%
Total cost of sales		5,518.9			5,532.2		(13.3	)		(0.2	%)
Products gross profit		1,123.7			1,133.2		(9.5	)		(0.8	%)
Services gross profit		253.1			271.9		(18.8	)		(6.9	%)
Total gross profit		1,376.8			1,405.1		(28.3	)		(2.0	%)
Selling, general and administrative expenses (exclusive of depreciation and amortization)		900.8			872.6		28.2			3.2	%
Restructuring, impairment and other charges-net		584.3			62.7		521.6			831.9	%
Depreciation and amortization		204.2			232.5		(28.3	)		(12.2	%)
Other operating income		(11.9	)		—		(11.9	)		100.0	%
Income (loss) from operations	$	(300.6	)	$	237.3	$	(537.9	)		(226.7	%)

Net sales of products for the year ended December 31, 2016 decreased $24.0 million, or 0.5%, to $5,288.1 million compared to the same period in 2015, including a $53.6 million, or 1.0% decrease due to changes in foreign exchange rates. After including the impact of changes in foreign exchange rates, net sales of products increased slightly due to higher volume in the Strategic Services segment, mostly offset by price pressures and lower volume in the Variable Print segment.

Net sales from services for the year ended December 31, 2016 decreased $17.6 million, or 1.1%, to $1,607.6 million versus the same period in 2015, including a $17.7 million, or 1.1%, decrease due to changes in foreign exchange rates. After including the impact from foreign exchange rates, net sales from services was essentially unchanged as higher volume in the Strategic Services segment was mostly offset by lower volume in the International segment.

Products cost of sales decreased $14.5 million, or 0.3%, for the year ended December 31, 2016 versus the same period in the prior year. Products cost of sales decreased primarily due to lower volume in the Variable Print segment and cost controls, partially offset by higher volume in the Strategic Services segment and wage and other inflation in the International segment. As a percent of sales, products cost of sales increased 0.1% to 78.8% due to higher volume in the Strategic Services segment and wage and other inflation in the International segment.

Services cost of sales increased $1.2 million, or 1.0% as a percentage of net sales from services for the year ended December 31, 2016 versus the same period in the prior year. Services cost of sales increased primarily due to higher volume in the Strategic Services segment driven by unfavorable mix in the logistics reporting unit, partially offset by lower volume in the International segment and cost control initiatives.

Products gross profit decreased $9.5 million to $1,123.7 million for the year ended December 31, 2016 compared to the same period in 2015 primarily due to volume declines in the Variable Print segment, price pressures and wage and other inflation in the International segment, partially offset by cost control initiatives. Products gross margin decreased slightly from 21.3% in 2015 to 21.2% in 2016.

Services gross profit decreased $18.8 million to $253.1 million for the year ended December 31, 2016 versus the same period in 2015 due to lower volume in the International segment and unfavorable mix in the Strategic Services segment. Services gross margin decreased from 16.7% to 15.7%, reflecting an unfavorable mix in the Strategic Services segment.

Selling, general and administrative expenses increased $28.2 million to $900.8 million, or 0.5% as a percentage of net sales, for the year ended December 31, 2016 versus the same period in 2015 due to pension settlement charges of $21.1 million, spinoff-related transaction expenses, an increase in legal expenses and higher acquisition-related expenses, partially offset by OPEB curtailment gain of $19.5 million and cost control initiatives.

For the year ended December 31, 2016, the Company recorded net restructuring, impairment and other charges of $584.3 million compared to $62.7 million in the same period in 2015. In 2016, these charges included charges of $21.9 million for employee termination costs, $2.3 million of other charges, $527.8 million for the impairment of goodwill in the commercial and digital print and statement printing reporting units within the Variable Print segment, $29.7 million for the impairment of customer relationships within the Commercial and Digital Print reporting unit within the Variable Print segment, $3.5 million of lease termination and other restructuring costs and gains of $0.9 million related to the sale of previously impaired other long-lived assets. In 2015, these charges included charges of $22.4 million for employee termination costs, $18.0 million for the impairment of goodwill in the Latin America and former Europe reporting units, respectively, within the International segment, $9.2 million of lease termination and other restructuring costs, $11.9 million for the impairment of intangible assets, $2.2 million of other charges related to multi-employer pension plan withdrawal obligations and $1.0 million net gain on disposal of previously impaired other long-lived assets. See Note 4, Restructuring, Impairment and Other Charges, to the Consolidated Financial Statements for further discussion.

Depreciation and amortization decreased $28.3 million to $204.2 million for the year ended December 31, 2016 compared to the same period in 2015 due to lower capital spending in recent years compared to historical levels. Depreciation and amortization included $33.7 million and $46.2 million of amortization of other intangible assets related to customer relationships, trade names, trademarks, licenses and agreements for the years ended December 31, 2016 and 2015, respectively.

For the year ended December 31, 2016, other operating income was $11.9 million, which related to the net gain on the sales of entities in the International segment.

A loss from operations of $300.6 million for the year ended December 31, 2016 represented a decline of $537.9 million, or 226.7%, compared to the year ended December 31, 2015. The decrease was due to the higher restructuring, impairment and other charges, increased selling, general and administrative expenses and a decline in products and services gross margin, partially offset by lower depreciation and amortization expense.

Net interest expense decreased by $5.4 million for the year ended December 31, 2016 versus the same period in 2015, primarily due to a decrease in average outstanding debt.

Net investment and other (income) expense for the year ended December 31, 2016 was income of $2.1 million as compared to expense of $43.9 million for the year ended December 31, 2015. For the year ended December 31, 2016, the Company had income from investments and dividends partially offset by an impairment charge of $1.4 million related to an equity investment. For the year ended December 31, 2015, the Company recorded a loss of $30.3 million related to the currency remeasurement in Venezuela and the related impact of the devaluation and a $15.7 million net loss on the sale of its Venezuelan operating entity.

The effective income tax rate for the year ended December 31, 2016 was 2.5% compared to (196.3%) in the same period in 2015. The income tax benefit for the period ended December 31, 2016 reflects the impact of the non-deductible goodwill impairment charges. The tax rate in 2015 reflects a lower tax benefit than the statutory rate on the Venezuelan currency devaluation, the impact of the non-deductible goodwill impairment charges and the loss on the sale of the Company’s Venezuelan operating entity.

The income (loss) attributable to noncontrolling interests was income of $1.3 million for the year ended December 31, 2016 versus a loss of $12.7 million for the year ended December 31, 2015. For the year ended December 31, 2015, the Venezuelan currency remeasurement, net of foreign exchange gains, resulted in losses attributable to noncontrolling interests of $10.5 million.

Net loss from continuing operations, excluding the impact from non-controlling interests, attributable to RR Donnelley common stockholders for the year ended December 31, 2016 was $486.2 million, or $6.95 per diluted share, compared to $19.0 million, or $0.28 per diluted share, for the year ended December 31, 2015.

Net (loss) earnings from discontinued operations was a loss of $9.7 million and earnings of $170.1 million for the years ended December 31, 2016 and 2015, respectively.

The following tables summarize net sales, income (loss) from operations and certain items impacting comparability within each of the operating segments and Corporate. The descriptions of the reporting units generally reflect the primary products or services provided by each reporting unit. Included in these net sales amounts are sales of other products or services that may be produced within a reporting unit to meet customer needs and improve operating efficiency.

Delaware		36-1004130
(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)

	Title of each Class				Name of each exchange on which registered
Common Stock (Par Value $0.01)				New York Stock Exchange

Large accelerated filer ☑		Accelerated filer ☐		Non-accelerated filer ☐		Smaller reporting company ☐
				(Do not check if a smaller reporting company)

	Form 10-K Item No.	Name of Item	Page
Part I
	Item 1.	Business		3
	Item 1A.	Risk Factors		10
	Item 1B.	Unresolved Staff Comments		18
	Item 2.	Properties		18
	Item 3.	Legal Proceedings		18
	Item 4.	Mine Safety Disclosures		18
		Executive Officers of R.R. Donnelley & Sons Company		19
Part II
	Item 5.	Market for R.R. Donnelley & Sons Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		20
	Item 6.	Selected Financial Data		23
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		50
	Item 8.	Financial Statements and Supplementary Data		50
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		51
	Item 9A.	Controls and Procedures		51
	Item 9B.	Other Information		53
Part III
	Item 10.	Directors and Executive Officers of R.R. Donnelley & Sons Company and Corporate Governance		53
	Item 11.	Executive Compensation		53
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		53
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		54
	Item 14.	Principal Accounting Fees and Services		54
Part IV
	Item 15.	Exhibits, Financial Statement Schedules		54
		Signatures		55

A.H. Belo Corp.		S&P Global^(b)
American Greetings^(a)		Media General Inc.
Deluxe Corp.		Meredith Corp.
Scripps (E.W.) Co.		New York Times Co.
Gannett Co.		Scholastic Corp.
Graham Holdings Co.		John Wiley & Sons Co.
Journal Communications Inc. ^(c)

	1.0% Increase			1.0% Decrease
	(in millions)
Accumulated benefit obligation	$	(123.0	)	$	150.7
Projected benefit obligation		(124.5	)		152.5

	0.25% Increase			0.25% Decrease
	(in millions)
2017
U.S. pension plans	$	(1.2	)	$	1.2
Other postretirement benefit plans		(0.5	)		0.5