UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q  

    

(Mark One)      

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019  

OR  

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number

001-37729      

LSC Communications, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

36-4829580

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

191 N. Wacker Drive, Suite 1400

Chicago, IL 60606

(Address of principal executive offices, including zip code)

(773) 272-9200  

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days.

Yes   No 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  

Yes   No 

 

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

 

Large accelerated filer

  

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   No  ☒    

As of April 26, 2019, 33,510,017 shares of common stock were outstanding.           

 

 


 

LSC COMMUNICATIONS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED March 31, 2019

 

TABLE OF CONTENTS

  

PART I

 

 

Page

FINANCIAL INFORMATION

 

 

Item 1: Condensed Consolidated Financial Statements (unaudited)

 

2

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

 

3

Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018

 

4

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018

 

5

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018

 

6

Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2019 and 2018

 

7

Notes to Condensed Consolidated Financial Statements

 

8

Item 2:  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26

Item 3: Quantitative and Qualitative Disclosures About Market Risk

 

42

Item 4: Controls and Procedures

 

43

 

 

 

Part II. Other Information

 

 

44

Item 1: Legal Proceedings

 

44

Item 1A: Risk Factors

 

44

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

 

44

Item 4: Mine Safety Disclosures

 

45

Item 6: Exhibits

 

45

Signatures

 

48

 

 

  

2


 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

LSC COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)   

(UNAUDITED)         

 

  

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

13

 

 

$

21

 

Receivables, less allowances for doubtful accounts of $16 in 2019 (2018 - $14)

 

 

616

 

 

 

617

 

Inventories (Note 5)

 

 

221

 

 

 

197

 

Income tax receivable

 

 

8

 

 

 

4

 

Prepaid expenses and other current assets

 

 

26

 

 

 

28

 

Total current assets

 

 

884

 

 

 

867

 

Property, plant and equipment-net (Note 6)

 

 

502

 

 

 

508

 

Goodwill (Note 7)

 

 

103

 

 

 

103

 

Other intangible assets-net (Note 7)

 

 

151

 

 

 

156

 

Right-of-use assets for operating leases

 

 

192

 

 

 

 

Deferred income taxes

 

 

25

 

 

 

27

 

Other noncurrent assets

 

 

90

 

 

 

93

 

Total assets

 

$

1,947

 

 

$

1,754

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable

 

$

330

 

 

$

372

 

Accrued liabilities

 

 

235

 

 

 

199

 

Short-term debt and current portion of long-term debt (Note 10)

 

 

175

 

 

 

108

 

Short-term operating lease liabilities

 

 

45

 

 

 

 

Total current liabilities

 

 

785

 

 

 

679

 

Long-term debt (Note 10)

 

 

649

 

 

 

659

 

Pension liabilities

 

 

113

 

 

 

132

 

Restructuring and multi-employer pension liabilities (Note 8)

 

 

44

 

 

 

45

 

Long-term operating lease liabilities

 

 

153

 

 

 

 

Other noncurrent liabilities

 

 

50

 

 

 

61

 

Total liabilities

 

$

1,794

 

 

$

1,576

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

 

Common stock, $0.01 par value

 

 

 

 

 

 

 

 

Authorized: 65,000,000

 

 

 

 

 

 

 

 

Issued: 35,542,151 shares in 2019 (2018: 35,029,565)

 

$

 

 

$

 

Additional paid-in capital

 

 

831

 

 

 

828

 

Accumulated deficit

 

 

(177

)

 

 

(42

)

Accumulated other comprehensive loss (Note 13)

 

 

(476

)

 

 

(584

)

Treasury stock, at cost: 2,032,134 shares in 2019 (2018: 1,888,205)

 

 

(25

)

 

 

(24

)

Total equity

 

 

153

 

 

 

178

 

Total liabilities and equity

 

$

1,947

 

 

$

1,754

 

                              

                      

  

    

    

 

See Notes to the Condensed Consolidated Financial Statements

3


 

LSC COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)   

(UNAUDITED)  

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Net sales

 

$

845

 

 

$

929

 

Cost of sales

 

 

735

 

 

 

808

 

Selling, general and administrative expenses (exclusive of

     depreciation and amortization)

 

 

85

 

 

 

83

 

Restructuring, impairment and other charges-net (Note 8)

 

 

13

 

 

 

6

 

Depreciation and amortization

 

 

31

 

 

 

38

 

(Loss) from operations

 

 

(19

)

 

 

(6

)

Interest expense-net (Note 10)

 

 

19

 

 

 

20

 

Settlement of retirement benefit obligations (Note 12)

 

 

135

 

 

 

 

Investment and other (income)-net

 

 

(10

)

 

 

(11

)

(Loss) before income taxes

 

 

(163

)

 

 

(15

)

Income tax (benefit)

 

 

(37

)

 

 

(4

)

Net (loss)

 

$

(126

)

 

$

(11

)

 

 

 

 

 

 

 

 

 

Net (loss) per common share (Note 11)

 

 

 

 

 

 

 

 

Basic net (loss) per share

 

$

(3.79

)

 

$

(0.32

)

Diluted net (loss) per share

 

$

(3.79

)

 

$

(0.32

)

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

33.3

 

 

34.7

 

Diluted

 

33.3

 

 

34.7

 

        

                

                        

            

      

    

  

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to the Condensed Consolidated Financial Statements

4


 

LSC COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(UNAUDITED)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Net (loss)

 

$

(126

)

 

$

(11

)

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of tax (Note 13):

 

 

 

 

 

 

 

 

Translation adjustments

 

 

1

 

 

 

5

 

Adjustment for net periodic pension plan cost, net of tax expense of $36 million and

     $1 million for the three months ended March 31, 2019 and 2018, respectively

 

 

107

 

 

 

4

 

Other comprehensive income

 

 

108

 

 

 

9

 

Comprehensive (loss)

 

$

(18

)

 

$

(2

)

    

 

      

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to the Condensed Consolidated Financial Statements

5


 

LSC COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(UNAUDITED)       

          

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net (loss)

 

$

(126

)

 

$

(11

)

Adjustments to reconcile net (loss) to net cash (used in) operating

     activities:

 

 

 

 

 

 

 

 

Impairment charges

 

 

2

 

 

 

 

Depreciation and amortization

 

 

31

 

 

 

38

 

Provision for doubtful accounts receivable

 

 

3

 

 

 

2

 

Share-based compensation

 

 

3

 

 

 

3

 

Deferred income taxes

 

 

(34

)

 

 

3

 

Settlement of retirement benefit obligations

 

 

135

 

 

 

 

Other

 

 

1

 

 

 

2

 

Changes in operating assets and liabilities - net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable-net

 

 

(2

)

 

 

56

 

Inventories

 

 

(24

)

 

 

(33

)

Prepaid expenses and other current assets

 

 

3

 

 

 

1

 

Accounts payable

 

 

(33

)

 

 

(75

)

Income taxes receivable

 

 

(4

)

 

 

(8

)

Accrued liabilities and other

 

 

21

 

 

 

(2

)

Net cash (used in) operating activities

 

 

(24

)

 

 

(24

)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(28

)

 

 

(20

)

Acquisitions of businesses, net of cash acquired

 

 

(3

)

 

 

1

 

Net cash (used in) investing activities

 

 

(31

)

 

 

(19

)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Payments of current maturities and long-term debt

 

 

(11

)

 

 

(13

)

Net proceeds from credit facility borrowings

 

 

67

 

 

 

55

 

Dividends paid

 

 

(9

)

 

 

(9

)

Other financing activities

 

 

(1

)

 

 

(2

)

Net cash provided by financing activities

 

 

46

 

 

 

31

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate on cash and cash equivalents

 

 

1

 

 

 

1

 

Net (decrease) in cash, cash equivalents and restricted cash

 

 

(8

)

 

 

(11

)

Cash, cash equivalents and restricted cash at beginning of year

 

 

24

 

 

 

35

 

Cash, cash equivalents and restricted cash at end of period

 

$

16

 

 

$

24

 

 

 

 

 

 

 

 

 

 

Reconciliation to the Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

As of

 

 

As of

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Cash and cash equivalents

 

$

13

 

 

$

21

 

Restricted cash included in prepaid expenses and other current assets

 

 

3

 

 

 

3

 

Total cash, cash equivalents and restricted cash shown in the condensed consolidated

     statements of cash flows

 

$

16

 

 

$

24

 

 

 

 

See Notes to the Condensed Consolidated Financial Statements   

6


 

LSC COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Earnings

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Treasury Stock

 

 

(Accumulated

 

 

Comprehensive

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Deficit)

 

 

(Loss) Income

 

 

Equity

 

Balance at December 31, 2018

 

 

35

 

 

$

 

 

$

828

 

 

 

2

 

 

$

(24

)

 

$

(42

)

 

$

(584

)

 

$

178

 

Net (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(126

)

 

 

 

 

 

(126

)

Issuance of share-based awards, net of

     withholdings and other

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

Share-based compensation

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

Cash dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

(9

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

108

 

 

 

108

 

Balance at March 31, 2019

 

 

36

 

 

$

 

 

$

831

 

 

 

2

 

 

$

(25

)

 

$

(177

)

 

$

(476

)

 

$

153

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Earnings

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Treasury Stock

 

 

(Accumulated

 

 

Comprehensive

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Deficit)

 

 

(Loss) Income

 

 

Equity

 

Balance at December 31, 2017

 

35

 

 

$

 

 

$

816

 

 

 

 

 

$

(2

)

 

$

(90

)

 

$

(476

)

 

$

248

 

Net (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11

)

 

 

 

 

 

(11

)

Revenue recognition adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Reclassification of tax rate change

     to accumulated deficit

     (Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

97

 

 

 

(97

)

 

 

 

Issuance of share-based awards,

     net of withholdings and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

(2

)

Share-based compensation

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

Cash dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

(9

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

9

 

Balance at March 31, 2018

 

 

35

 

 

$

 

 

$

819

 

 

 

 

 

$

(4

)

 

$

(4

)

 

$

(564

)

 

$

247

 

 

During the three months ended March 31, 2018, the Company recorded $9 million in equity adjustments as a result of the adoption of Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASC 606”) .          

 

There were dividends declared per common share of $0.26 during each of the three months ended March 31, 2019 and 2018.

 

 

 

 

 

 

7


LSC Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

For the Three Months Ended March 31, 2019 and 2018

(tabular amounts in millions, except per share data)

 

Note 1.   Overview and B asis of Presentation  

 

Description of Business

 

The principal business of LSC Communications, Inc., a Delaware corporation, and its direct or indirect wholly-owned subsidiaries (“LSC Communications,” “the Company,” “we,” “our” and “us”) is to offer a broad scope of traditional and digital print, print-related services and office products.  The Company serves the needs of publishers, merchandisers and retailers worldwide with a service offering that includes  e-services, logistics, warehousing and fulfillment and supply chain management services.  The Company utilizes a broad portfolio of technology capabilities coupled with consultative attention to clients' needs to increase speed to market, reduce costs, provide postal savings to customers and improve efficiencies.  The Company prints magazines, catalogs, books and directories, and its office products offerings include filing products, envelopes, note-taking products, binder products, and forms.   

 

 

Merger Agreement

 

On October 30, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Quad/Graphics, Inc. (“Quad/Graphics”), and QLC Merger Sub, Inc., a direct, wholly-owned subsidiary of Quad/Graphics (“Merger Sub”).  Pursuant to the Merger Agreement, subject to the terms and conditions therein, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving corporation.  Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of the Company’s common stock issued and outstanding immediately prior to the Effective Time, will be converted into the right to receive 0.625 shares of class A common stock of Quad/Graphics, without interest and subject to adjustment as provided in the Merger Agreement.  

 

The Company and Quad/Graphics have made customary representations, warranties and covenants in the Merger Agreement.  Subject to certain exceptions outlined in the Merger Agreement, the Company has agreed to covenants relating to the Company’s business during the period between the execution of the Merger Agreement and the consummation of the Merger, including restrictions on its ability to issue any shares of its capital stock, repurchase any shares of its capital stock and incur additional indebtedness outside the ordinary course of business.  The Merger Agreement allows the Company to continue paying a regular quarterly dividend up to $0.26 per share.      

 

On February 25, 2019, Quad/Graphics announced that its shareholders had voted to approve the issuance of Quad/Graphics’ class A common stock in the Merger on February 22, 2019.

 

On February 22, 2019, the Company held a Special Meeting of Stockholders in connection with the Merger. At the special meeting, the Company’s stockholders voted to adopt the Merger Agreement.  

 

The Company and Quad/Graphics filed notification and report forms in connection with the transactions contemplated by the Merger Agreement with the U.S. Department of Justice (the “DOJ”) and the U.S. Federal Trade Commission pursuant to the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the “HSR Act”) on November 13, 2018. On December 13, 2018, the Company and Quad/Graphics each received a request for additional information and documentary material (the “Second Request”) from the DOJ in connection with the DOJ’s review of the transactions contemplated by the Merger Agreement.

 

The HSR Act provides that the issuance of the Second Request extends the waiting period under the HSR Act until either 30 days after both the Company and Quad/Graphics have substantially complied with the Second Request or such later time as agreed to by the parties with the DOJ, unless the waiting period is terminated earlier by the DOJ. The Company continues to expect the Merger to be consummated in mid-2019.

 

Consummation of the Merger remains subject to the expiration of the waiting period under the HSR Act and other required regulatory approvals, and the satisfaction or waiver of the other closing conditions specified in the Merger Agreement.  

 

       

8


LSC Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

For the Three Months Ended March 31, 2019 and 2018

(tabular amounts in millions, except per share data)

 

Basis of Presentation

 

The condensed consolidated financial statements include the balance sheets, statements of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”).  All intercompany transactions have been eliminated in consolidation.  These unaudited condensed consolidated interim financial statements include estimates and assumptions of management that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these estimates.  

 

During the third quarter of 2018, management changed the Company’s reportable segments and reporting units.  Consequently, prior year amounts were restated to conform to the new segment structure.  Refer to Note 15, Segment Information , for more information.  

 

 

Note 2.  Business Combination and Disposition

 

2018 Acquisition  

  

On July 2, 2018, the Company completed the acquisition of R. R. Donnelley & Sons Company’s (“RRD”) Print Logistics business (“Print Logistics”), an integrated logistics services provider to the print industry with an expansive distribution network.   The acquisition enhanced the Company’s logistics service offering and is included in the Magazines, Catalogs and Logistics segment.  The original total purchase price was $58 million in cash, which was reduced to $52 million as a result of a $6 million net working capital settlement in the fourth quarter of 2018.  Of the final total purchase price, $21 million was recorded in goodwill related to this acquisition.  

  

 

2018 Disposition

 

On September 28, 2018, the Company completed the sale of its European printing business, which included web offset manufacturing facilities, a logistics and warehousing site and a location dedicated to premedia services, for proceeds of $47 million.  The Company recorded a $25 million non-cash provision primarily for the write-off of a deferred tax asset associated with the disposition.  The European printing business was included in the Europe segment, which was disclosed as part of the Other segment grouping.  

 

 

Acquisition Information 

 

The acquisition of Print Logistics was recorded by allocating the cost of the acquisition to the assets acquired, including other intangible assets, based on their estimated fair values at the acquisition date.  The excess of the cost of the acquisition over the net amounts assigned to the fair value of the assets acquired was recorded in goodwill. The goodwill is primarily attributable to the synergies expected to arise as a result of the acquisition.   

 

The tax deductible goodwill related to Print Logistics was $25 million.

 

The purchase price allocation for Print Logistics was final as of December 31, 2018.  There were no changes to the purchase price allocation for the acquisition as of March 31, 2019 compared to the disclosed purchase price allocation in the Company’s annual report on Form 10-K for the year ended December 31, 2018. 

 

The final purchase price allocation for Print Logistics was as follows:

 

 

9


LSC Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

For the Three Months Ended March 31, 2019 and 2018

(tabular amounts in millions, except per share data)

 

Accounts Receivable

 

$

40

 

Prepaid expenses and other current assets

 

 

1

 

Property, plant and equipment

 

 

8

 

Other intangible assets

 

 

17

 

Goodwill

 

 

21

 

Accounts payable and accrued liabilities

 

 

(35

)

Purchase price and net cash paid

 

$

52

 

 

The fair values of goodwill, other intangible assets and property, plant and equipment associated with Print Logistics were determined to be Level 3 under the fair value hierarchy, which included discounted cash flow analyses and comparable marketplace fair value data.  Property, plant and equipment values were estimated using either the cost or market approach, if a secondhand market existed. The following table presents the fair value, valuation techniques and related unobservable inputs for these Level 3 measurements associated with Print Logistics:

 

 

 

Fair Value

 

 

Valuation Technique

 

Unobservable Input

 

Value

 

Customer relationships

 

$

17

 

 

Multi-period excess earnings method

 

Existing customer growth rate

 

(3.5%)

 

 

 

 

 

 

 

 

 

Attrition rate

 

7.5%

 

 

 

 

 

 

 

 

 

Discount rate

 

18.0%

 

 

For the three months ended March 31, 2019 and 2018, the Company recorded a de minimis amount and $1 million of acquisition-related expenses, respectively, associated with the completed and contemplated acquisitions within selling, general and administrative expenses in the condensed consolidated statements of operations.  

  

     

Pro forma results    

 

The following unaudited pro forma financial information for the three months ended March 31, 2019 and 2018 presents the condensed consolidated statements of operations of the Company and the acquisition of Print Logistics, as if the acquisition had occurred as of January 1 of the year prior to the acquisition.   

  

The unaudited pro forma financial information is not intended to represent or be indicative of the Company’s condensed consolidated statements of operations that would have been reported had these acquisitions been completed as of the beginning of the period presented and should not be taken as indicative of the Company’s future condensed consolidated statements of operations.  Pro forma adjustments are tax-effected at the applicable statutory tax rates.         

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Net sales

 

$

845

 

 

$

973

 

Net (loss)

 

 

(126

)

 

 

(12

)

 

The following table outlines unaudited pro forma financial information for the three months ended March 31, 2019 and 2018:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Amortization of purchased intangibles

 

$

5

 

 

$

5

 

 

There were no nonrecurring pro forma adjustments affecting net (loss) for the three months ended March 31, 2019 and 2018.  

  

 

10


LSC Communications, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

For the Three Months Ended March 31, 2019 and 2018

(tabular amounts in millions, except per share data)

 

Note 3.  Revenue Recognition   

    

Disaggregated Revenue

 

The following tables provide information about disaggregated revenue by major products/service lines and timing of revenue recognition, and include a reconciliation of the disaggregated revenue with reportable segments for the three months ended March 31, 2019 and 2018.  

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

 

 

Magazines,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Catalogs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and

 

 

 

 

 

 

Office

 

 

 

 

 

 

 

 

 

 

 

Logistics

 

 

Book

 

 

Products

 

 

Other

 

 

Total

 

Major Products / Service Lines

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Book (a)

 

$

 

 

$

260

 

 

$

 

 

$

 

 

$

260

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Magazines and Catalogs (b)

 

$

319

 

 

$

 

 

$

 

 

$

44

 

 

$

363

 

     North America

 

 

319

 

 

 

 

 

 

 

 

 

44

 

 

 

363

 

     Europe

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Logistics

 

$

84

 

 

$

 

 

$

 

 

$

 

 

$

84

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Directories

 

$

 

 

$

 

 

$

 

 

$

19

 

 

$

19

 

     North America

 

 

 

 

 

 

 

 

 

 

 

19

 

 

 

19

 

     Europe

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Office Products

 

$

 

 

$

 

 

$

119

 

 

$

 

 

$

119

 

Total

 

$

403

 

 

$

260

 

 

$

119

 

 

$

63