LSC Communications, Inc. (NYSE: LKSD) today reported
financial results for the fourth quarter of 2018.
Highlights:
- Net sales of $939 million compared to
$999 million in the fourth quarter of 2017
- Organic net sales decrease of 3.2% from
the fourth quarter of 2017
- GAAP net loss of $16 million, or $0.47
per diluted share, compared to a net loss of $58 million, or $1.68
per diluted share in the fourth quarter of 2017
- Non-GAAP net income of $4 million, or
$0.12 per diluted share, compared to non-GAAP net income of $17
million, or $0.50 per diluted share in the fourth quarter of
2017
- Non-GAAP adjusted EBITDA of $56
million, or 6.0% of net sales, compared to $85 million, or 8.5% of
net sales, in the fourth quarter of 2017
- Net cash provided by operating
activities of $188 million compared to $147 million in the fourth
quarter of 2017
- Non-GAAP free cash flow of $177 million
compared to $138 million in the fourth quarter of 2017
- Company completes significant pension
risk transfer transaction in the first quarter of 2019
“We are very pleased with our free cash flow generation in the
fourth quarter, despite continued challenging industry conditions,”
said Thomas J. Quinlan III, LSC Communications’ Chairman, President
and Chief Executive Officer. “As we enter 2019, we continue to
focus on providing innovative customer solutions and ways to better
reduce costs and improve productivity resulting in increased
earnings. We continue to expect to close on the merger with
Quad/Graphics in mid-2019.”
Net Sales
Fourth quarter net sales were $939 million, down $60 million, or
5.9%, from the fourth quarter of 2017. After adjusting for
acquisitions, divestitures, changes in foreign exchange rates,
pass-through paper sales and the adoption of new revenue
recognition standards, organic net sales decreased 3.2% from the
fourth quarter of 2017. The decrease in organic net sales was
largely due to lower volume in Magazine, Catalogs & Logistics
and Office Products partially offset by volume growth in Book and
price increases in Office Products.
GAAP Net Loss
The fourth quarter 2018 net loss was $16 million, or $0.47 per
diluted share, compared to a net loss of $58 million, or $1.68 per
diluted share, in the fourth quarter of 2017. The fourth quarter
2018 net loss included after-tax charges of $20 million and the
fourth quarter 2017 net loss included after-tax charges of $75
million, both of which are excluded from the presentation of
non-GAAP net income. Additional details regarding the amount and
nature of these adjustments and other items are included in the
attached schedules.
Non-GAAP Adjusted EBITDA and Non-GAAP Net Income
Non-GAAP adjusted EBITDA in the fourth quarter of 2018 was $56
million, or 6.0% of net sales, compared to $85 million, or 8.5% of
net sales, in the fourth quarter of 2017. The decrease in non-GAAP
adjusted EBITDA was primarily due to volume declines, unfavorable
product mix and the sale of our European printing business.
Non-GAAP adjusted EBITDA margin in the quarter was 250 basis points
lower than the fourth quarter of last year including the negative
impact of higher paper sales, that are essentially a pass-through
cost.
Non-GAAP net income totaled $4 million, or $0.12 per diluted
share, in the fourth quarter of 2018 compared to non-GAAP net
income of $17 million, or $0.50 per diluted share in the fourth
quarter of 2017. Reconciliations of net loss to non-GAAP adjusted
EBITDA and non-GAAP net income are presented in the attached
schedules.
Segment Results
The Company reports its results using the following segments (1)
Magazines, Catalogs and Logistics, (2) Book, (3) Office Products,
and (4) other, which includes its Mexico operations, Directory,
Print Management and Europe.
Magazines, Catalogs and Logistics
Fourth quarter net sales in Magazines, Catalogs and Logistics
were $476 million, a decrease of 1.6%, from the fourth quarter of
2017. After adjusting for acquisitions, divestitures, changes in
foreign exchange rates, pass-through paper sales, and the adoption
of new revenue recognition standards, organic net sales decreased
6.9% from the fourth quarter of 2017. This organic decline reflects
ongoing volume declines and price pressure.
Magazines, Catalogs and Logistics GAAP net loss from operations
was $12 million, compared to a net loss from operations of $22
million in the fourth quarter of 2017. Segment non-GAAP adjusted
EBITDA in the fourth quarter was $13 million and non-GAAP adjusted
EBITDA margin was 2.7%. The non-GAAP adjusted EBITDA margin
decreased 330 basis points compared with the fourth quarter of
2017, including the negative impact of higher pass through paper
sales. The remaining margin decline reflects the negative impact on
productivity of workforce availability and turnover, and increased
wages and benefit costs, as well as lower volume. These pressures
on margins were partially offset by cost reduction initiatives.
Book
Fourth quarter net sales in Book were $258 million, an increase
of 5.1%, from the fourth quarter of 2017. After adjusting for
pass-through paper sales and the adoption of new revenue
recognition standards, organic net sales increased 1.5% from the
fourth quarter of 2017. The organic net sales increase was
primarily driven by education book volume.
Book GAAP income from operations was $9 million, compared to
income from operations of $9 million in the fourth quarter of 2017.
Segment non-GAAP adjusted EBITDA in the quarter was $23 million and
non-GAAP adjusted EBITDA margin was 8.9%. The non-GAAP adjusted
EBITDA margin decreased 380 bps compared with the fourth quarter of
2017, primarily due to the impacts of tight labor market conditions
and the resulting negative impact on productivity and wage rates,
the unfavorable impact related to a gain on the sale of a facility
in the fourth quarter of 2017, as well as the negative impact of
higher pass through paper sales. These pressures on margins were
partially offset by cost reduction initiatives.
Office Products
Fourth quarter net sales in Office Products were $140 million, a
decrease of 1.6% from the fourth quarter of 2017. After adjusting
for acquisitions, changes in foreign exchange rates and the
adoption of new revenue recognition standards, organic net sales
decreased 5.9% from the fourth quarter of 2017. The organic sales
decline was primarily related to lower volume in filing and
note-taking products partially offset by the impact of price
increases implemented earlier in the year to address higher costs
for materials and freight.
Office Products income from operations was $10 million compared
to $10 million in the fourth quarter of 2017. Non-GAAP adjusted
EBITDA in the Office Products segment was $16 million for the
quarter, a decrease of $2 million compared to last year’s fourth
quarter. Non-GAAP adjusted EBITDA margin decreased 120 bps to 11.4%
due to an unfavorable mix of branded versus private label sales and
increased labor costs partially offset by synergies associated with
the acquisition of Quality Park and the impact of the price
increases implemented earlier in 2018.
Pension Transaction
In January 2019, the Company’s U.S. qualified pension plan used
pension trust assets to purchase a group annuity contract from an
insurance company for approximately $466 million. The contract
transferred approximately $477 million of outstanding defined
benefit pension obligations related to approximately 8,500 U.S.
retirees and beneficiaries to an insurance company. As a result of
this transaction, the insurance company is now required to pay and
administer the retirement benefits owed to these retirees and
beneficiaries. This transaction continues the Company’s pension
de-risking strategy and does not have an impact on the amount,
timing, or form of the monthly retirement benefit payments to the
covered retirees and beneficiaries. Additionally, this transaction
did not impact the Company’s earnings or cash flows in 2018.
In the first quarter of 2019, the pension transaction will
result in a non-cash pre-tax pension settlement charge of
approximately $130 million to $140 million, which will be excluded
from the Company’s non-GAAP results. In 2019, the Company expects
annual non-cash net pension income to decrease by approximately $13
million, to $35 million, due to the reduction in pension trust
assets related to the transaction combined with a lower expected
return on plan assets due to a change in asset allocation as part
of the de-risking strategy. The Company’s calculation of non-GAAP
adjusted EBITDA includes pension income as a component of non-GAAP
adjusted EBITDA, which is factored into the 2019 Guidance discussed
below. There are no required contributions to the Company’s U.S.
qualified pension plan in 2019. The Company expects to make
approximately $6 million of pension contributions in 2019,
primarily for the non-qualified pension plan.
2019 Guidance
The Company provides the following guidance for 2019 that
reflects a full year impact for the acquisition of the Print
logistics business, and the dispositions of the European printing
business and retail inserts business as well as the impact of lower
pension income discussed above. This guidance does not include any
impact related to the previously announced merger with
Quad/Graphics.
Guidance
2018
Actuals
Net sales $3.55 to $3.65 billion $3.83 billion Non-GAAP adjusted
EBITDA $250 to $290 million $276 million Net pension income $35
million $48 million Non-GAAP adjusted EBITDA excluding net pension
income $215 to $255 million $228 million Depreciation and
amortization $115 to $125 million $138 million Interest expense $75
to $79 million $80 million Non-GAAP effective tax rate 27% to 31%
27.1% Capital expenditures $75 to $85 million $63 million Free cash
flow (1) $60 to $100 million
$99 million
Diluted share count 34 to 35 million 34.1 million
(1) Free cash flow is defined as net cash
provided by operating activities less capital expenditures.
Certain components of the guidance given in the table above are
provided on a non-GAAP basis only, without providing a
reconciliation to guidance provided on a GAAP basis. Information is
presented in this manner, consistent with SEC rules,
because the preparation of such a reconciliation could not be
accomplished without "unreasonable efforts." The Company does not
have access to certain information that would be necessary to
provide such a reconciliation, including non-recurring items that
are not indicative of the Company's ongoing operations. Such items
include, but are not limited to, restructuring charges, impairment
charges, pension settlement charges, acquisition-related expenses,
gains or losses on investments and business disposals, losses on
debt extinguishment, merger-related expenses and other similar
gains or losses not reflective of the Company's ongoing operations.
The Company does not believe that excluding such items is likely to
be significant to an assessment of the Company's ongoing
operations, given that such excluded items are not indicators of
business performance.
Investor Conference Call
Due to the pending merger with Quad/Graphics, the Company will
not host a conference call to review the fourth-quarter and
full-year 2018 financial results.
About LSC Communications
With a rich history of industry experience, innovative solutions
and service reliability, LSC Communications (NYSE: LKSD) is a
global leader in print and digital media solutions. Our traditional
and digital print-related services and office products serve the
needs of publishers, merchandisers and retailers around the world.
With advanced technology and a consultative approach, our supply
chain solutions meet the needs of each business by getting their
content into the right hands as efficiently as possible.
For more information about LSC Communications,
visit www.lsccom.com.
Use of non-GAAP Information
This news release contains certain non-GAAP measures. The
Company believes that these non-GAAP measures, such as non-GAAP
adjusted EBITDA, non-GAAP adjusted EBITDA margin, non-GAAP net
income/loss and free cash flow, when presented in conjunction with
comparable GAAP measures, provide useful information about the
Company’s operating results and liquidity and enhance the overall
ability to assess the Company’s financial performance. The Company
uses these measures, together with other measures of performance
under GAAP, to compare the relative performance of operations in
planning, budgeting and reviewing the performance of its business.
Non-GAAP adjusted EBITDA, non-GAAP adjusted EBITDA margin, non-GAAP
net income/loss and free cash flow allow investors to make a more
meaningful comparison between the Company’s core business operating
results over different periods of time. The Company believes that
non-GAAP adjusted EBITDA, non-GAAP adjusted EBITDA margin, non-GAAP
net income/loss and free cash flow, when viewed with the Company’s
results under GAAP and the accompanying reconciliations, provides
useful information about the Company’s business without regard to
potential distortions. By eliminating potential differences in
results of operations between periods caused by factors such as
depreciation and amortization methods, historic cost and age of
assets, financing and capital structures, taxation positions or
regimes, restructuring, impairment and other charges and gain or
loss on certain equity investments and asset sales, the Company
believes that non-GAAP adjusted EBITDA, non-GAAP adjusted EBITDA
margin and non-GAAP net income/loss can provide useful additional
basis for comparing the current performance of the underlying
operations being evaluated. By adjusting for the level of capital
investment in operations, the Company believes that free cash flow
can provide useful additional basis for understanding the Company’s
ability to generate cash after capital investment and provides a
comparison to peers with differing capital intensity.
Forward Looking Statements
This news release contains forward-looking statements within the
meaning of federal securities laws regarding the Company. These
forward-looking statements relate to, among other things, the
proposed transaction between the Company and Quad/Graphics and
include expectations, estimates and projections concerning the
business and operations, strategic initiatives and value creation
plans of the Company. In accordance with “safe harbor” provisions
of the Private Securities Litigation Reform Act of 1995, these
statements may include, or be preceded or followed by, the words
“anticipates,” “estimates,” “expects,” “projects,” “forecasts,”
“intends,” “plans,” “continues,” “believes,” “may,” “will,” “goals”
or variations of such words and similar expressions. Examples of
forward-looking statements include, but are not limited to,
statements, beliefs and expectations regarding our business
strategies, market potential, future financial performance,
dividends, costs to be incurred in connection with the separation,
results of pending legal matters, our goodwill and other intangible
assets, price volatility and cost environment, our liquidity, our
funding sources, expected pension contributions, capital
expenditures and funding, our financial covenants, repayments of
debt, off-balance sheet arrangements and contractual obligations,
our accounting policies, general views about future operating
results and other events or developments that we expect or
anticipate will occur in the future. These forward-looking
statements are subject to a number of important factors, including
those factors disclosed in “Item 1A Risk Factors” in Part I in the
Company’s annual report on Form 10-K for the year ended December
31, 2018, as filed with the SEC on February 19, 2019, that could
cause our actual results to differ materially from those indicated
in any such forward-looking statements. Additional factors include,
but are not limited to: (1) the ability to complete the proposed
transaction between the Company and Quad/Graphics on the
anticipated terms and timetable; (2) the ability to obtain approval
by the stockholders of the Company and shareholders of
Quad/Graphics related to the proposed transaction and the ability
to satisfy various other conditions to the closing of the proposed
transaction contemplated by the merger agreement; (3) the ability
to obtain governmental approvals of the proposed transaction on the
proposed terms and schedule, and any conditions imposed on the
combined entities in connection with consummation of the proposed
transaction; (4) the risk that the cost savings and any other
synergies from the proposed transaction may not be fully realized
or may take longer to realize than expected; (5) disruption from
the proposed transaction making it more difficult to maintain
relationships with customers, employees or suppliers; (6) the
competitive market for our products and industry fragmentation
affecting our prices; (7) inability to improve operating efficiency
to meet changing market conditions; (8) changes in technology,
including electronic substitution and migration of paper based
documents to digital data formats; (9) the volatility and
disruption of the capital and credit markets, and adverse changes
in the global economy; (10) the effects of global market and
economic conditions on our customers; (11) the effect of economic
weakness and constrained advertising; (12) uncertainty about future
economic conditions; (13) increased competition as a result of
consolidation among our competitors; (14) our ability to
successfully integrate recent and future acquisitions; (15) factors
that affect customer demand, including changes in postal rates,
postal regulations, delivery systems and service levels, changes in
advertising markets and customers’ budgetary constraints; (16)
vulnerability to adverse events as a result of becoming a
stand-alone company after separation from R. R. Donnelley &
Sons Company (“RRD”), including the inability to obtain as
favorable of terms from third-party vendors; (17) our ability to
access debt and the capital markets due to adverse credit market
conditions; (18) the effects of seasonality on our core businesses;
(19) the effects of increases in capital expenditures; (20) changes
in the availability or costs of key materials (such as paper, ink,
energy, and other raw materials) or in prices received for the sale
of by-products; (21) performance issues with key suppliers; (22)
our ability to maintain our brands and reputation; (23) the
retention of existing, and continued attraction of additional
customers and key employees, including management; (24) the effect
of economic and political conditions on a regional, national or
international basis; (25) the effects of operating in international
markets, including fluctuations in currency exchange rates; (26)
changes in environmental laws and regulations affecting our
business; (27) the ability to gain customer acceptance of our new
products and technologies; (28) the effect of a material breach of
or disruption to the security of any of our or our vendors’
systems; (29) the failure to properly use and protect customer and
employee information and data; (30) the effect of increased costs
of providing health care and other benefits to our employees; (31)
the effect of catastrophic events; (32) potential tax liability of
the separation; (33) the impact of the U.S. Tax Cuts and Jobs Act
(“Tax Act”); (34) lack of history as an operating company and costs
and other issues associated with being an independent company; (35)
failure to achieve certain intended benefits of the separation;
(36) failure of RRD or Donnelley Financial Solutions, Inc. to
satisfy their respective obligations under agreements entered into
in connection with the separation; (37) increases in requirements
to fund or pay withdrawal costs or required contributions related
to the Company’s pension plans and (38) the factors set forth in
“Item 1A Risk Factors” in Part I in the Company’s annual report on
Form 10-K for the year ended December 31, 2018, as filed with the
SEC on February 19, 2019. We have based our forward-looking
statements on our current expectations, estimates and projections
about our industry. We caution that these statements are not
guarantees of future performance and you should not rely unduly on
them, as they involve risks, uncertainties, and assumptions that we
cannot predict. In addition, we have based many of these
forward-looking statements on assumptions about future events that
may prove to be inaccurate. While our management considers these
assumptions to be reasonable, they are inherently subject to
significant business, economic, competitive, regulatory and other
risks, contingencies and uncertainties, most of which are difficult
to predict and many of which are beyond our control. Accordingly,
our actual results may differ materially from the future
performance that we have expressed or forecast in our
forward-looking statements. We undertake no obligation to update
any forward-looking statements except to the extent required by
applicable law.
No Offer or Solicitation
This news release relates to a proposed business combination
between Quad/Graphics and the Company. This news release is for
informational purposes only and is neither an offer to purchase,
nor a solicitation of an offer to sell, any securities or the
solicitation of any vote in any jurisdiction pursuant to the
proposed transactions or otherwise, nor shall there be any sale,
issuance or transfer or securities in any jurisdiction in
contravention of applicable law. No offer of securities shall be
made except by means of a prospectus meeting the requirements of
Section 10 of the Securities Act of 1933, as amended.
Additional Information and Where to Find It
In connection with the proposed transaction, an amendment to the
registration statement on Form S-4 was filed with the SEC by
Quad/Graphics on January 15, 2019. This registration statement
became effective on February 4, 2019. INVESTORS AND SECURITY
HOLDERS ARE ENCOURAGED TO READ THE REGISTRATION STATEMENT AND ANY
OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE
DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS INCLUDED AS PART OF THE
REGISTRATION STATEMENT BECAUSE THEY CONTAIN IMPORTANT INFORMATION
ABOUT THE PROPOSED TRANSACTION. The definitive joint proxy
statement/prospectus was mailed to stockholders of the Company on
January 22, 2019. Investors and security holders will be able to
obtain the documents free of charge at the SEC’s website,
www.sec.gov, from the Company at its website, www.lsccom.com, or by
contacting the Company’s Investor Relations at
investor.relations@lsccom.com or (773) 272-9275.
Participants in the Solicitation Relating to the
Merger
Quad/Graphics and the Company and their respective directors and
executive officers and other members of management and employees
may be deemed to be participants in the solicitation of proxies in
respect of the proposed transaction. Information concerning the
Company’s participants is set forth in the proxy statement, filed
April 10, 2018, for the Company’s 2018 annual meeting of
stockholders as filed with the SEC on Schedule 14A. Additional
information regarding the interests of such participants in the
solicitation of proxies in respect of the proposed transaction is
contained in the registration statement and definitive joint proxy
statement/prospectus and other relevant materials to be filed with
the SEC when they become available.
LSC Communications, Inc. Consolidated Balance Sheets As of
December 31, 2018 and December 31, 2017 (in millions, except share
and per share data) (UNAUDITED)
December 31, 2018 December 31, 2017
Assets
Cash and cash equivalents $ 21 $ 34 Receivables, less
allowances for doubtful accounts of $14 in 2018 (2017 - $11) 617
727 Inventories 197 238 Income tax receivable 4 16 Prepaid expenses
and other current assets 28 31
Total Current Assets
867
1,046 Property, plant and equipment - net 508 576
Goodwill 103 82 Other intangible assets - net 156 160 Deferred
income taxes 27 51 Other noncurrent assets 93
99
Total Assets $
1,754 $ 2,014
Liabilities
Accounts payable $ 372 $ 406 Accrued liabilities 199 239
Short-term and current portion of long-term debt 108
123 Total Current Liabilities
679 768 Long-term debt
659 699 Pension liabilities 132 182 Restructuring and
multi-employer pension liabilities 45 49 Other noncurrent
liabilities 61 68
Total Liabilities 1,576
1,766 Commitments and Contingencies
Equity
Common stock, $0.01 par value Authorized: 65,000,000 shares;
Issued: 35,029,565 shares in 2018 (2017: 34,610,931) — — Additional
paid-in capital 828 816 Accumulated deficit (42 ) (90 ) Accumulated
other comprehensive loss (584 ) (476 ) Treasury stock, at cost:
1,888,205 shares in 2018 (2017: 100,256) (24 )
(2 )
Total Equity 178
248 Total Liabilities and Equity
$ 1,754 $ 2,014
LSC Communications, Inc. Consolidated Statements of
Operations For the Three and Twelve Months Ended December 31, 2018
and 2017 (in millions, except per share data) (UNAUDITED)
For the Three Months
Ended December 31,
For the Year Ended
December 31,
2018 2017
2018
2017
Net sales $ 939 $
999 $ 3,826 $
3,603 Cost of sales (1) 815 851 3,283 3,026
Selling, general and administrative expenses (SG&A) (1) 86 79
328 307 Restructuring, impairment and other charges - net 17 42 35
129 Depreciation and amortization 32
42 138 160
(Loss) income from operations (11
) (15 ) 42
(19 ) Interest expense-net 21 20
80 72 Investment and other (income)-net (13 ) (13 ) (48 ) (47 )
(Loss)
income before income taxes (19 )
(22 ) 10
(44 ) Income tax (benefit) expense (3 )
36 33 13
Net (loss) $ (16 )
$ (58 ) $ (23 )
$ (57 ) Net (loss) per common
share: Basic net (loss) per share $ (0.47 ) $ (1.68 ) $ (0.67 )
$ (1.69 ) Diluted net (loss) per share $ (0.47 ) $ (1.68 ) $ (0.67
) $ (1.69 )
Weighted-average number of common shares
outstanding: Basic 33.3 34.6 33.8 33.8 Diluted 33.3 34.6 33.8
33.8
Additional information: Gross margin (1) 13.2 %
14.8 % 14.2 % 16.0 % SG&A as a % of net sales (1) 9.2 % 7.9 %
8.6 % 8.5 % Operating margin nm nm 1.1 % nm Effective tax rate 15.9
% (169.9 %) 319.4 % (30.5 %) (1) Exclusive of depreciation
and amortization
LSC Communications, Inc. Reconciliation of
GAAP Net (Loss) Income to Non-GAAP Adjusted EBITDA For the Three
and Twelve Months Ended December 31, 2018 and 2017 (in millions)
(UNAUDITED)
For the Twelve
Months Ended
For the Three Months Ended
December 31,
2018
December 31,
2018
September 30,
2018
June 30,
2018
March 31,
2018
GAAP net (loss) income $ (23
) $ (16 ) $
(4 ) $ 8 $
(11 ) Adjustments: Restructuring,
impairment and other charges - net (1) 35 17 1 11 6 Acquisition,
merger and disposition-related expenses (2) 10 6 2 1 1 Purchase
accounting adjustments (3) 3 (1 ) 1 — 3 Depreciation and
amortization 138 32 34 34 38 Interest expense - net 80 21 21 18 20
Income tax expense (benefit) (4) 33 (3 )
35 5 (4 )
Total Non-GAAP adjustments 299 72 94 69 64
Non-GAAP
adjusted EBITDA $ 276 $ 56
$ 90 $ 77
$ 53 Net sales $ 3,826 $
939 $ 1,015 $ 943 $ 929 Non-GAAP adjusted EBITDA margin % 7.2 % 6.0
% 8.9 % 8.2 % 5.7 %
For the Twelve
Months Ended
For the Three Months Ended
December 31,
2017
December 31,
2017
September 30,
2017
June 30,
2017
March 31,
2017
GAAP net (loss) income $ (57
) $ (58 ) $
(3 ) $ 5 $
(1 ) Adjustments: Restructuring,
impairment and other charges - net (1) 129 42 60 21 6 Acquisition,
merger and disposition-related expenses (2) 5 2 2 1 —
Separation-related expenses (5) 4 — 1 2 1 Loss on debt
extinguishment (6) 3 3 — — — Purchase accounting adjustments (3) (1
) (2 ) 1 — — Depreciation and amortization 160 42 39 39 40 Interest
expense - net 72 20 19 16 17 Income tax expense (benefit) 13
36 (23 ) (2 )
2 Total Non-GAAP adjustments 385 143 99 77 66
Non-GAAP adjusted EBITDA $ 328
$ 85 $ 96
$ 82 $ 65
Net sales $ 3,603 $ 999 $ 935 $ 848 $ 821 Non-GAAP adjusted EBITDA
margin % 9.1 % 8.5 % 10.3 % 9.7 % 7.9 % (1) Restructuring,
impairment and other charges-net: Restructuring charges for
employee termination costs, lease terminations, other costs, and
multiemployer pension plan withdrawal obligations, and impairment
charges for goodwill, intangible assets and other long-lived
assets. Refer to the Reconciliation of GAAP to Non-GAAP Measures
schedules for more information . (2) Acquisition, merger and
disposition-related expenses: Legal, accounting and other expenses
associated with completed and contemplated acquisitions and
dispositions; and costs associated with the agreement and plan of
merger between the Company, Quad/Graphics, Inc. and QLC Merger Sub,
Inc. (the "merger"). (3) Purchase accounting adjustments: Purchase
accounting inventory step-up adjustments and any gains associated
with acquisitions. (4) Income tax expense (benefit): The twelve
months ended December 31, 2018 included a $25 million non-cash
provision primarily for the write-off of a deferred tax asset
associated with the Company's disposition of its European printing
business on September 28, 2018. (5) Separation-related expenses:
One-time transaction expenses associated with becoming a standalone
company. (6) Loss on debt extinguishment: Loss related to a partial
debt extinguishment.
LSC Communications, Inc. Reconciliation
of GAAP to Non-GAAP Measures For the Three Months Ended December
31, 2018 and 2017 (in millions, except per share data) (UNAUDITED)
For the Three Months Ended December 31,
2018 For the Three Months Ended December 31, 2017
Net (loss) income
Net (loss) income
per diluted share
Net (loss) income Net (loss) income
per diluted share
GAAP basis measures $ (16 )
$ (0.47 ) $ (58
) $ (1.68 )
Non-GAAP adjustments: Restructuring, impairment and other
charges - net (1) 14 0.40 50 1.47 Separation-related expenses — — —
0.02 Acquisition, merger and disposition-related expenses (2) 5
0.15 1 0.03 Purchase accounting adjustments (3) (1 ) (0.02 ) (2 )
(0.08 ) Loss on debt extinguishment (4) — — 2 0.05 Income tax
adjustments (5) 2 0.06
24 0.69
Total
Non-GAAP adjustments 20
0.59 75
2.18 Non-GAAP measures $
4 $ 0.12 $
17 $ 0.50
(1)
Restructuring, impairment and other
charges - net: Operating results for the three months ended
December 31, 2018 and 2017 were affected by the pre-tax
restructuring charges below of $17 million ($14 million after-tax)
and $42 million ($50 million after-tax), respectively.
For the Three Months Ended December 31,
2018 2017 Employee
termination costs (a) $ 7 $ 6 Other restructuring charges (b) 3 2
Other charges (c) 1 1 Impairment charges - machinery and equipment
(d) 3 7 Goodwill impairment charges (e) — 18 Impairment charges -
intangibles (f) 3 8
Total
restructuring, impairment and other charges - net $
17 $ 42 (a) For
the three months ended December 31, 2018, employee-related
termination costs primarily resulted from one facility closure in
the Magazines, Catalogs and Logistics segment and one facility
closure in the Office Products segment. For the three months ended
December 31, 2017, employee-related termination costs resulted from
one facility closure in the Magazines, Catalogs and Logistics
segment, two facility closures in the Book segment and other
organizational changes. (b) The three months ended December 31,
2018 and 2017 included other facility costs and pension withdrawal
obligations related to facility closures. (c) Other charges related
to the Company's multi-employer pension plan withdrawal obligations
unrelated to facility closures. (d) During the three months ended
December 31, 2018 the Company recorded total net impairment charges
of $3 million related to machinery and equipment associated with
facility closings in the Company’s Magazines, Catalogs and
Logistics segment. During the three months ended December 31, 2017,
the Company recorded net impairment charges of $7 million related
to the machinery and equipment that were recorded in the Company's
Magazines, Catalogs and Logistics segment. The impairment in both
periods was primarily due to volume declines. (e) For the three
months ended December 31, 2017, the Company recorded a non-cash
charge of $18 million to recognize the impairment of goodwill for
the Company's former magazines, catalogs and retail inserts
reporting unit in the former Print segment as a result of goodwill
impairment tests performed as of December 31, 2017. As a result of
the Company's change in reportable segments and reporting units
during the year ended December 31, 2018, the non-cash charges were
restated to the Magazines, Catalogs and Logistics segment. (f) For
the three months ended December 31, 2018, the Company recorded
charges of $3 million for the impairment of certain acquired
indefinite-lived tradename intangible assets in the Office Products
segment. For the three months ended December 31, 2017, the Company
recorded charges of $8 million for the impairment of certain
acquired indefinite-lived tradename intangible assets, including $3
million in the Office Products segment and $5 million in the Book
segment. The impairment of the indefinite-lived tradename
intangible assets in both periods resulted from lower expectations
of future revenue to be derived from those tradenames. (2)
Acquisition, merger and disposition-related expenses: The three
months ended December 31, 2018 included pre-tax charges of $6
million ($5 million after-tax) related to legal, accounting and
other expenses associated with completed and contemplated
acquisitions, dispositions and the upcoming merger. The three
months ended December 31, 2017 included pre-tax charges of $2
million ($1 million-after tax) for legal, accounting and other
expenses associated with completed and contemplated acquisitions.
(3) Purchase accounting adjustments: The three months ended
December 31, 2018 included a pre-tax benefit of $1 million ($1
million after-tax benefit) as a result of adjustments to gains
associated with acquisitions. The three months ended December 31,
2017 included net benefit charges of $2 million ($2 million
after-tax benefit) as a result of purchase accounting inventory
step-up adjustments and any gains associated with acquisitions. (4)
Loss on debt extinguishment: The three months ended December 31,
2017 included pre-tax charges of $3 million ($2 million after-tax)
for a loss related to a partial debt extinguishment. (5)
Income tax adjustments: The three months
ended December 31, 2018 included a $1 million adjustment for the
one-time transition tax and a $1 million adjustment for the
remeasurement of deferred taxes related to the Tax Cuts and Jobs
Act (the "Tax Act"). The three months ended December 31,
2017 included the impact of the Tax Act that consisted of a $16
million provisional expense for the one-time transition tax and a
net provisional expense of $8 million for the remeasurement of
deferred taxes associated with the reduced U.S. federal corporate
tax rate from 35% to 21%.
Note: The income tax impact is calculated
using the tax rate in effect for the non-GAAP adjustments.
LSC Communications, Inc. Reconciliation of GAAP to Non-GAAP
Measures For the Year Ended December 31, 2018 and 2017 (in
millions, except per share data) (UNAUDITED)
For the Year Ended December 31, 2018 For
the Year Ended December 31, 2017 Net (loss) income
Net (loss) income
per diluted share
Net (loss) income
Net (loss) income
per diluted share
GAAP basis measures $ (23 )
$ (0.67 ) $ (57
) $ (1.69 ) Non-GAAP
adjustments:
Restructuring, impairment andother charges
- net (1)
27 0.79 92 2.75 Separation-related expenses (2) — — 3 0.09
Acquisition, merger and disposition-related expenses (3) 8 0.23 3
0.10 Purchase accounting adjustments (4) 2 0.06 (1 ) (0.07 ) Loss
on debt extinguishment (5) — — 2 0.05 Income tax adjustments (6)
28 0.82 25
0.74
Total Non-GAAP
adjustments 65
1.90 124
3.66 Non-GAAP measures $ 42
$ 1.23 $ 67
$ 1.97 (1) Restructuring,
impairment and other charges - net: Operating results for the
twelve months ended December 31, 2018 and 2017 were affected by the
pre-tax restructuring charges below of $35 million ($27 million
after-tax) and $129 million ($92 million after-tax).
For
the Year Ended December 31 2018 2017
Employee termination costs (a) $ 14 $ 13 Other restructuring
charges (b) 14 24 Other charges (c) 2 4 Impairment charges -
machinery and equipment (d) 3 7 Impairment charges - goodwill (e)
(1 ) 73 Impairment charges - intangibles (f) 3
8
Total restructuring, impairment and other
charges - net $ 35 $
129 (a) For the twelve months ended December
31, 2018, employee-related termination costs primarily related to
two facility closures in the Magazines, Catalogs and Logistics
segment, one facility closure in the Office Products segment and
the reorganization of certain business units and corporate
functions. For the twelve months ended December 31, 2017,
employee-related termination costs resulted from three facility
closures in the Book segment, one facility closure in the
Magazines, Catalogs and Logistics segment and the reorganization of
certain business units. (b) The twelve months ended December 31,
2018 included charges related to facility costs, a loss related to
the Company's disposition of its retail offset printing facilities
and pension withdrawal obligations related to facility closures.
For the twelve months ended December 31, 2017, the charges
primarily resulted from the exit from certain operations and
facilities, as well as charges as a result of a terminated supplier
contract. (c) Other charges related to the Company's multi-employer
pension plan withdrawal obligations unrelated to facility closures.
(d) During the twelve months ended December 31, 2018 the Company
recorded net impairment charges of $3 million related to machinery
and equipment associated with facility closings in the Company’s
Magazines, Catalogs and Logistics segment. During the twelve months
ended December 31, 2017, the Company recorded net impairment
charges of $7 million related to the machinery and equipment that
were recorded in the Company's Magazines, Catalogs and Logistics
segment. The impairment in both periods was primarily due to volume
declines. (e) For the twelve months ended December 31, 2018, there
was a reduction of $1 million of goodwill impairment charges as a
result of a $1 million adjustment of previously recorded goodwill
associated with the 2017 acquisitions. For the twelve months ended
December 31, 2017, the Company recorded non-cash charges of $73
million to recognize the impairment of goodwill for the Company's
former magazines, catalogs and retail inserts reporting unit in the
former Print segment as a result of goodwill impairment tests
performed as of September 30, 2017, and again as of December 31,
2017. As a result of the Company's change in reportable segments
and reporting units during the year ended December 31, 2018, the
non-cash charges were restated to the following reporting units:
logistics ($40 million) and magazines and catalogs ($28 million)
which are both included in the Magazines, Catalogs and Logistics
segment, and Other segment grouping ($5 million). (f) During the
twelve months ended December 31, 2018, the Company recorded charges
of $3 million for the impairment of certain acquired
indefinite-lived tradename intangible assets in the Office Products
segment. During the twelve months ended December 31, 2017, the
Company recorded charges of $8 million for the impairment of
certain acquired indefinite-lived tradename intangible assets,
including $3 million in the Office Products segment and $5 million
in the Book segment. The impairment of the indefinite-lived
tradename intangible assets in both periods resulted from lower
expectations of future revenue to be derived from those tradenames.
(2) Separation-related expenses: The twelve months ended December
31, 2017 included pre-tax charges of $4 million ($3 million
after-tax) for one-time transaction costs associated with becoming
a standalone company. (3) Acquisition, merger and
disposition-related expenses: The twelve months ended December 31,
2018 included pre-tax charges of $10 million ($8 million after-tax)
related to legal, accounting and other expenses associated with
completed and contemplated acquisitions, dispositions and the
merger. The twelve months ended December 31, 2017 included pre-tax
charges of $5 million ($3 million-after tax) for legal, accounting
and other expenses associated with completed and contemplated
acquisitions. (4) Purchase accounting adjustments: The twelve
months ended December 31, 2018 included pre-tax charges of $3
million ($2 million after-tax) as a result of purchase accounting
inventory step-up adjustments and changes to purchase price
allocations related to prior acquisitions. The twelve months ended
December 31, 2017 included a pre-tax benefit of $1 million ($1
million after-tax benefit) as a result of purchase accounting
inventory step-up adjustments and any gains associated with
acquisitions. (5) Loss on debt extinguishment: The twelve months
ended December 31, 2017 included pre-tax charges of $3 million ($2
million after-tax) for a loss related to partial debt
extinguishment. (6)
Income tax adjustments: The twelve months
ended December 31, 2018 primarily included a $25 million non-cash
provision primarily for the write-off of a deferred tax asset
related to the Company's disposition of its European printing
business. Additionally, the twelve months ended December 31, 2018
included a $1 million adjustment for the one-time transition tax
and a $1 million adjustment for the remeasurement of deferred taxes
related to the Tax Act. The twelve months ended December 31, 2017
primarily included the impact of the Tax Act that consisted of a
$16 million provisional expense for the one-time transition tax and
a net provisional expense of $8 million for the remeasurement of
deferred taxes associated with the reduced U.S. federal corporate
tax rate from 35% to 21%.
The twelve months ended December 31, 2018
and 2017 each include $1 million that was recorded due to the
unfavorable impact associated with share-based compensation awards
that lapsed during each of the periods.
Note: The income tax impact is calculated
using the tax rate in effect for the non-GAAP adjustments.
LSC Communications, Inc. Total Company GAAP to Non-GAAP
Adjusted EBITDA and Margin Reconciliation For the Three and Twelve
Months Ended December 31, 2018 and 2017 (in millions) (UNAUDITED)
Total LSC Communications
FY
2018 Q4 2018 Q3
2018 Q2 2018 Q1
2018 FY 2017 Q4
2017 Q3 2017 Q2
2017 Q1 2017 FY
2016 Net sales $ 3,826 $ 939
$ 1,015 $ 943 $ 929
$ 3,603 $ 999 $ 935
$ 848 $ 821 $ 3,654
GAAP net (loss) income $ (23 ) $ (16 )
$ (4 ) $ 8 $ (11 ) $ (57 ) $ (58
) $ (3 ) $ 5 $ (1 ) $ 106
Restructuring, impairment and other charges - net 35
17 1
11 6 129
42 60 21
6 18 Separation-related
expenses - -
- - -
4 - 1
2 1
5 Pension settlement charge -
- - -
- - -
- -
- 1 Acquisition, merger and
disposition-related expenses 10
6 2 1
1 5 2
2 1 -
- Purchase accounting adjustments
3 (1 ) 1
- 3 (1 )
(2 ) 1 -
- - Loss on debt
extinguishment - -
- - -
3 3 -
- -
- Depreciation and amortization 138
32 34 34
38 160
42 39 39
40 171 Interest expense -
net 80 21
21 18 20
72 20 19
16 17 18
Income tax expense (benefit) 33
(3 ) 35 5
(4 ) 13 36
(23 ) (2 ) 2 51
Non-GAAP Adjusted EBITDA $ 276
$ 56 $ 90
$ 77 $ 53
$ 328 $ 85
$ 96 $ 82
$ 65 $ 370
Non-GAAP Adjusted EBITDA margin 7.2 %
6.0 % 8.9 % 8.2 % 5.7 %
9.1 % 8.5 % 10.3 %
9.7 % 7.9 % 10.1 % Net cash
provided by (used in) operating activities $ 162
$ 188 $ 0 ($2 )
($24 ) $ 205 $ 147
($20 ) $ 14 $ 64 $ 231
Capital expenditures (63 ) (11 )
(15 ) (17 ) (20 ) (60 )
(9 ) (15 ) (15 )
(21 ) (48 )
Free cash flow $
99 $ 177 ($15 ) ($19
) ($44 ) $ 145 $
138 ($35 ) ($1 ) $
43 $ 183 LSC Communications, Inc.
Segment GAAP to Non-GAAP Adjusted EBITDA and Margin Reconciliation
For the Three and Twelve Months Ended December 31, 2018 and 2017
(in millions) (UNAUDITED)
Magazines, Catalogs and
Logistics FY 2018 Q4
2018 Q3 2018
Q2 2018 Q1 2018
FY 2017 Q4
2017 Q3 2017
Q2 2017 Q1 2017
FY 2016 Net sales $
1,767 $ 476
$ 463 $ 401
$ 427 $ 1,583
$ 484 $ 409
$ 341 $ 349
$
1,526
(Loss) income from operations ($31 )
($12 ) $ 1 ($6 )
($14 ) ($73 ) ($22 ) ($41
) ($6 ) ($4 ) $ 28
Depreciation and amortization 62
15 16 15
16 72 20
18 17 17
76 Restructuring, impairment and other
charges - net 20 10
- 6 4
86 31
51 2 2
4 Purchase accounting adjustments
- - -
- - 1
- 1
- - -
Non-GAAP
Adjusted EBITDA $ 51 $
13 $ 17 $
15 $ 6 $
86 $ 29 $
29 $ 13 $
15 $ 108 Non-GAAP
Adjusted EBITDA margin 2.9 % 2.7 %
3.7 % 3.7 % 1.4 %
5.4 % 6.0 % 7.1 %
3.8 % 4.3 % 7.1 % Capital expenditures
$ 24 $ 4 $ 6 $ 5 $ 9 $ 24 $ 4 $ 6 $ 7 $ 7 $ 19
Book FY 2018 Q4
2018 Q3 2018 Q2
2018 Q1 2018 FY
2017 Q4 2017 Q3
2017 Q2 2017 Q1
2017 FY 2016 Net sales
$ 1,055 $ 258
$ 282 $ 266
$ 249 $ 1,022
$ 245 $ 276
$ 262 $ 239
$
1,097
Income from operations $ 58 $ 9
$ 21 $ 19 $ 9 $ 62
$ 9 $ 26 $ 18
$ 9 $ 86 Depreciation and amortization
52 13 12
13 14
60 14 14
16 16 67
Restructuring, impairment and other charges - net
6 1 1
3 1 15
8 2
3 2 6
Non-GAAP
Adjusted EBITDA $ 116 $
23 $ 34 $
35 $ 24 $
137 $ 31 $
42 $ 37 $
27 $ 159 Non-GAAP
Adjusted EBITDA margin 11.0 % 8.9 %
12.1 % 13.2 % 9.6 %
13.4 % 12.7 % 15.2 %
14.1 % 11.3 % 14.5 %
Capital expenditures $ 31 $ 6 $ 7 $ 9 $ 9 $ 13 $ 1 $ 2 $ 3 $ 7 $ 10
LSC Communications, Inc. Segment GAAP to Non-GAAP Adjusted
EBITDA and Margin Reconciliation For the Three and Twelve Months
Ended December 31, 2018 and 2017 (in millions) (UNAUDITED)
Office Products FY 2018
Q4 2018 Q3 2018
Q2 2018 Q1
2018 FY 2017
Q4 2017 Q3 2017
Q2 2017 Q1
2017 FY 2016 Net sales
$ 562 $ 140
$ 145 $ 154
$ 123 $ 495
$ 143 $ 116
$ 125 $ 111
$ 527 Income from operations $
40 $ 10 $ 15 $ 13
$ 2 $ 42 $ 10 $ 11
$ 12 $ 9 $ 54
Depreciation and amortization 13
2 4 3
4 15 4
4 3 4
15 Restructuring, impairment and other
charges - net 6 4
- 1 1
4 3 -
- 1
- Purchase accounting adjustments 1
- - -
1 1 1
- -
- -
Non-GAAP Adjusted EBITDA
$ 60 $ 16
$ 19 $ 17
$ 8 $ 62
$ 18 $ 15
$ 15 $ 14
$ 69 Non-GAAP Adjusted EBITDA margin
10.7 % 11.4 % 13.1 %
11.0 % 6.5 % 12.5 %
12.6 % 12.9 % 12.0 %
12.6 % 13.1 % Capital expenditures $ 1 $ - $ -
$ 1 $ - $ 5 $ 2 $ 1 $ 2 $ - $ 3
Other FY 2018 Q4
2018 Q3 2018 Q2
2018 Q1 2018 FY
2017 Q4 2017 Q3
2017 Q2 2017 Q1
2017 FY 2016 Net sales
$ 444 $ 67
$ 125 $ 122
$ 130 $ 503
$ 127 $ 134
$ 120 $ 122
$ 504 Income from operations $ 26
$ 3 $ 9 $ 7
$ 7 $ 28 $ 6 $ 5
$ 10 $ 7 $ 27
Depreciation and amortization 10
2 2 2
4 11 3
3 3 2
12 Restructuring, impairment and other
charges - net 1 1
- - -
7 - 5
1 1 5
Non-GAAP Adjusted EBITDA $ 37
$ 6 $ 11
$ 9 $ 11
$ 46 $ 9
$ 13 $ 14
$ 10 $ 44
Non-GAAP Adjusted EBITDA margin 8.3 %
9.0 % 8.8 % 7.4 % 8.5 %
9.1 % 7.1 % 9.7 %
11.7 % 8.2 % 8.7 % Capital
expenditures $ 3 $ - $ 1 $ 1 $ 1 $ 10 $ 1 $ 1 $ 2 $ 6 $ 10
Corporate FY
2018 Q4 2018 Q3
2018 Q2 2018 Q1
2018 FY 2017 Q4
2017 Q3 2017 Q2
2017 Q1 2017 FY
2016 Net sales ($2 )
($2 ) $ 0
$ 0 $ 0
$ 0 $ 0
$ 0 $ 0
$ 0 $ 0
Operating expenses ($51 ) ($21 )
($5 ) ($15 ) ($10 )
($78 ) ($18 ) ($19 )
($27 ) ($14 ) ($65 ) Investment
and other (income)-net (48 ) (13 )
(11 ) (13 ) (11 )
(47 ) (13 ) (11 )
(12 ) (11 ) (45 ) Depreciation and
amortization 1 -
- 1 -
2 1 -
- 1
1 Restructuring, impairment and other charges - net
2 1 -
1 - 17
- 2
15 - 3
Separation-related expenses - -
- -
- 4 -
1 2 1
5 Pension settlement charge -
- -
- - -
- - -
- 1 Acquisition, merger
and disposition-related expenses 10
6 2 1
1 5 2
2 1
- - Loss on debt extinguishment
- - -
- - 3
3 -
- - - Purchase
accounting adjustments 2 (1 )
1 - 2
(3 ) (3 ) -
- - -
Non-GAAP Adjusted EBITDA $ 12
($2 ) $ 9
$ 1 $ 4
($3 ) ($2 )
($3 ) $ 3
($1 ) ($10 )
Capital expenditures $ 4 $ 1 $ 1 $ 1 $ 1 $ 8 $ 1 $ 5 $ 1 $ 1 $ 6
LSC Communications, Inc. Consolidated Statements of Cash
Flows
For the Years Ended December 31, 2018 and
2017
(in millions) (UNAUDITED)
2018 2017 Net (loss) $ (23 )
$ (57 ) Adjustment to reconcile net (loss) to net cash
provided by operating activities: Impairment charges 6 88
Depreciation and amortization 138 160 Provision for doubtful
accounts receivable 7 3 Share-based compensation 12 13 Deferred
income taxes 21 (15 ) Gain on sale of investments and other assets
- net (3 ) (10 ) Other 7 5 Changes in operating assets and
liabilities - net of acquisitions and dispositions: Accounts
receivable - net 103 (7 ) Inventories (6 ) 5 Prepaid expenses and
other current assets (2 ) (1 ) Accounts payable (38 ) 103 Income
taxes payable and receivable 11 (7 ) Accrued liabilities and other
(71 ) (75 )
Net cash provided by
operating activities $ 162
$ 205 Capital expenditures (63 ) (60 )
Acquisitions of businesses, net of cash acquired (48 ) (236 )
Disposition of business 47 — Net proceeds from sales and purchase
of investments and other assets 9
18
Net cash (used in) investing activities
$ (55 ) $ (278
) Proceeds from issuance of long-term debt — 65
Payments of current maturities and long-term debt (50 ) (118 ) Net
(payments) proceeds from credit facility borrowings (9 ) 75 Debt
issuance costs (1 ) (1 ) Proceeds from issuance of common stock —
18 Payments for repurchase of common stock (20 ) — Dividends paid
(35 ) (34 ) Other financing activities (1 ) (2 ) Payments from RRD
- net — 3
Net cash
(used in) provided by financing activities $
(116 ) $ 6 Effect
of exchange rate on cash and cash equivalents (2 ) 5
Net (decrease) in cash, cash equivalents
and restricted cash $ (11 )
$ (62 ) Cash, cash equivalents and
restricted cash at beginning of year 35 97
Cash, cash equivalents and restricted cash at end
of period $ 24 $
35 Reconciliation to the
Consolidated Balance Sheets
As of December 31,
2018
As of December 31,
2017
Cash and cash equivalents $ 21 $ 34 Restricted cash included in
prepaid expenses and other current assets 3 1
Total cash, cash equivalents and restricted cash shown in
the consolidated statements of cash flows $ 24 $ 35
Supplemental non-cash disclosure 2018
2017
Issuance of approximately 1.0 million
shares of LSC Communications, Inc. common stock for acquisition of
a business
$
— $ 20
LSC Communications, Inc. Reconciliation of Reported
to Pro Forma Net Sales For the Three Months Ended December 31, 2018
and 2017 (in millions) (UNAUDITED)
Magazines,
Catalogs &
Logistics
Book
Office
Products
Other Corporate Total LSC
Q4 2017 Net Sales as Reported $ 484 $ 245
$ 143 $ 127 $ — $ 999
Adjustments(1) 56 —
8 — — 64
Q4 2017 Net Sales Pro Forma $ 540 $ 245 $ 151 $ 127 $ — $
1,063
Q4 2018 Net Sales as Reported $ 476 $ 258 $ 140
$ 67 ($2 ) $ 939
Adjustments(1) —
— — — —
—
Q4 2018 Net Sales Pro Forma $ 476 $ 258 $
140 $ 67 ($2 ) $ 939 As Reported % Change (1.6 %) 5.1 % (1.6
%) (47.7 %) nm (5.9 %) Pro Forma % Change (11.8 %) 5.1 % (6.5 %)
(47.7 %) nm (11.5 %)
Non-GAAP Adjustments: Impact of
changes in foreign exchange rates --- % --- % (0.4 %) (0.9 %) --- %
(0.2 %) Impact of pass-through paper sales 1.2 % 1.9 % --- % (1.0
%) --- % 0.9 % Impact of adoption of new revenue recognition
standard (0.3 %) 1.7 % (0.2 %) 0.2 % --- % 0.2 %
Impact of dispositions (2)
(5.8 %) --- % --- % (52.3 %) --- % (9.2 %)
Q4 2018
Organic % Change (3) (6.9 %) 1.5
% (5.9 %) 6.3 % nm
(3.2 %)
The reported results of the Company include the results of
acquired businesses from the acquisition date forward. The Company
has provided this schedule to reconcile reported net sales for the
three months ended December 31, 2018 and 2017 to pro forma net
sales as if the acquisitions took place as of January 1, 2017 for
purposes of this schedule.
(1) Adjusted for net sales of acquired businesses:
There were no acquisitions during the three months ended
December 31, 2018.
For the three months ended December 31, 2017, the adjustments
for net sales of acquired businesses reflect the net sales of RR
Donnelley's Print Logistics business ("Print Logistics") (acquired
July 2, 2018), The Clark Group ("Clark Group") (acquired November
29, 2017) and Quality Park (acquired November 9, 2017).
(2) Adjusted for the disposition of the Company’s retail offset
printing facilities on June 5, 2018 and the sale of the Company's
European printing business on September 28, 2018. There were no
dispositions during the twelve months ended December 31, 2017.
(3) Adjusted for the impact of acquisitions and dispositions,
changes in FX rates, pass-through paper sales and the Company’s
adoption of Accounting Standards Update No. 2014-09 "Revenue from
Contracts with Customers (Topic 606)" ("ASC 606") on January 1,
2018.
nm Not meaningful
LSC Communications, Inc. Reconciliation of Reported to Pro
Forma Net Sales For the Year Ended December 31, 2018 and 2017 (in
millions) (UNAUDITED)
Magazines,
Catalogs &
Logistics
Book
Office
Products
Other Corporate Total LSC
Q4 2017 YTD Net Sales as Reported $ 1,583 $
1,022 $ 495 $ 503 $ — $ 3,603
Adjustments(1) 416 —
95 — — 511
Q4 2017 YTD Net Sales Pro Forma $ 1,999 $ 1,022 $ 590 $ 503
$ — $ 4,114
Q4 2018 YTD Net Sales as Reported $ 1,767
$ 1,055 $ 562 $ 444 ($2 ) $ 3,826
Adjustments(1)
85 — — —
— 85
Q4 2018 YTD Net Sales Pro
Forma $ 1,852 $ 1,055 $ 562 $ 444 ($2 ) $ 3,911 As
Reported % Change 11.7 % 3.2 % 13.6 % (11.9 %) nm 6.2 % Pro Forma %
Change (7.3 %) 3.2 % (4.6 %) (11.9 %) nm (4.9 %)
Non-GAAP
Adjustments: Impact of changes in foreign exchange rates --- %
--- % --- % 2.0 % --- % 0.2 % Impact of pass-through paper sales
0.6 % 1.0 % --- % (2.6 %) --- % 0.2 % Impact of adoption of new
revenue recognition standard 0.1 % 1.0 % (0.9 %) --- % --- % 0.2 %
Impact of dispositions (2) (3.2 %) --- % --- % (13.2 %) --- % (3.2
%)
Q4 2018 YTD Organic % Change (3)
(4.8 %) 1.2 % (3.7 %)
1.9 % nm (2.3 %)
The reported results of the Company include the results of
acquired businesses from the acquisition date forward. The Company
has provided this schedule to reconcile reported net sales for the
twelve months ended December 31, 2018 and 2017 to pro forma net
sales as if the acquisitions took place as of January 1, 2017 for
purposes of this schedule.
(1) Adjusted for net sales of acquired businesses:
For the twelve months ended December 31, 2018, the adjustments
for net sales of an acquired business reflect the net sales of
Print Logistics (acquired July 2, 2018).
For the twelve months ended December 31, 2017, the adjustments
for net sales of acquired businesses reflect the net sales of Print
Logistics, Clark Group (acquired November 29, 2017), Quality Park
(acquired November 9, 2017), Publishers Press (acquired September
7, 2017), NECI (acquired August 21, 2017), CREEL (acquired August
17, 2017), Fairrington (acquired July 28, 2017), and HudsonYards,
LLC (acquired March 1, 2017).
(2) Adjusted for the disposition of the Company’s retail offset
printing facilities on June 5, 2018, and the sale of the Company's
European printing business on September 28, 2018. There were no
dispositions during the twelve months ended December 31, 2017.
(3) Adjusted for the impact of acquisitions and dispositions,
changes in FX rates, pass-through paper sales and the Company’s
adoption of ASC 606 on January 1, 2018.
nm Not meaningful
LSC Communications, Inc. Liquidity, Debt and Pension Summary
As of December 31, 2018 and December 31, 2017 (in millions)
(UNAUDITED)
Total Liquidity (1)
December 31, 2018 December 31, 2017
Availability Stated amount of the
Revolving Credit Facility (2) $ 400 $ 400 Less: availability
reduction from covenants 122 — Amount
available under the Revolving Credit Facility $ 278 $ 400
Usage Borrowings under Revolving Credit Facility $ 64 $ 75
Impact on availability related to outstanding letters of credit
— 53
Total Usage
$ 64 $ 128
Availability
(3) $ 214 $ 272 Cash
21 34 Net Available Liquidity $ 235
$ 306
Short-term and current portion of long-term debt $ 108 $ 123
Long-term debt 659 699 Total debt $ 767
$ 822
Non-GAAP adjusted EBITDA for the twelve
months ended December 31, 2018 and December 31, 2017
$ 276 $ 328
Non-GAAP Gross Leverage (defined as total
debt divided by non-GAAP adjusted EBITDA(4))
2.78 2.51
Credit Agreement Consolidated Leverage
Ratio (5)
2.54
2.18
Unfunded Status
of Pension Benefit Plans
Based on the fair value of assets and the discount rate used to
value benefit obligations as of December 31, 2018, the unfunded
status of the pension benefit plans is $137 million compared to
$187 million at December 31, 2017. Qualified
Non-Qualified & International Total Pension liabilities $ 2,318
$
88
$
2,406
Pension assets 2,265
4
2,269
Unfunded status at December 31, 2018 $ (53 )
$ (84 ) $ (137 ) (1) Liquidity does not
include uncommitted credit facilities, located outside of the U.S.
(2) The Company has a $400 million senior secured revolving credit
agreement (the “Revolving Credit Facility”) which expires on
September 30, 2021. The Revolving Credit Facility is subject to a
number of covenants, including, but not limited to, a minimum
Interest Coverage Ratio and a maximum Consolidated Leverage Ratio,
as defined in and calculated pursuant to the Revolving Credit
Facility, that, in part, restrict the Company’s ability to incur
additional indebtedness, create liens, engage in mergers and
consolidations, make restricted payments and dispose of certain
assets. There were $64 million and $75 million of borrowings under
the Revolving Credit Facility as of December 31, 2018 and December
31, 2017, respectively. (3) The Company would have had the ability
to utilize $278 million of the $400 million Revolving Credit
Facility and not have been in violation of the terms of the
agreement as of December 31, 2018. Availability under the Revolving
Credit Facility was reduced by $64 million in borrowings. (4) The
leverage ratio calculation includes non-GAAP adjusted EBITDA since
the respective closing date of each acquisition and does not
include a full 12 months of non-GAAP adjusted EBITDA. (5)
The Consolidated Leverage Ratio as defined
in the Credit Agreement was 2.54 at December 31, 2018 compared to a
maximum permitted ratio under the Credit Agreement of 3.25, which
steps down to 3.00 on March 31, 2020. The Consolidated Leverage
Ratio was 2.18 at December 31, 2017. The full definition of
Consolidated Leverage Ratio is included in the Credit Agreement
filed as an exhibit to the annual report on Form 10-K for the year
ended December 31, 2018.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190219005887/en/
Investor ContactJanet M. Halpin, Senior Vice President,
Treasurer & Investor RelationsE-mail:
investor.relations@lsccom.comTel: 773.272.9275
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