LKSD LSC Communications Inc

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

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LSC Communications, Inc.

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LETTER FROM OUR LEAD DIRECTOR

DEAR FELLOW STOCKHOLDERS,

On behalf of the Board and management of LSC Communications, I want to thank you for your continued support of our Company. It has been my privilege to serve as LSC’s Lead Director this year, working with a group of highly-engaged and knowledgeable directors who are strongly attuned to their roles as your fiduciaries. I would like to reflect on 2018 and the year to date in 2019, and the many ways in which our Board worked together to provide independent oversight of management and represent your interests throughout this time.

In October of 2018 the Board approved the acquisition of the Company by Quad/Graphics, Inc. in an all-stock transaction. While we firmly believed that the transaction was in the best interest of our stockholders, the U.S. Department of Justice filed a lawsuit to enjoin the transaction. In light of the significant time and resources that would have been required to defend the lawsuit coupled with the uncertainty of the outcome, we determined that continuing to litigate against the Department of Justice was not in the best interests of our Company or our stockholders and so, in July 2019, we mutually made the difficult decision to terminate the transaction.

Independent Board Oversight

Our Board is composed of fully independent directors, with the exception of Tom Quinlan, our Chairman and Chief Executive Officer. The skills each of our directors bring to the Board reflect the deep expertise essential to effective oversight of our business, including operational leadership, governance, strategy and extensive experience in finance, sales, marketing and information technology. Our directors utilize their deep knowledge and diverse backgrounds to work with management in our oversight of the Company’s corporate strategy.

In 2018, we kicked off an operational restructuring program and reviewed capital allocation priorities and business development opportunities and we continued our efforts to take the pulse of our Company by inviting our business leaders to participate in Board meetings throughout the year. In addition, our Board and its committees were involved in overseeing enterprise risk management, including risk priorities and developments that could impact our business, and we also looked to the future by our ongoing discussion of director and management succession planning.

In 2019, in light of lower expectations for earnings and cash flows, the Board suspended dividend payments in order to allocate greater capital to LSC’s debt reduction and ongoing operational restructuring programs.

On top of our focus on the financial and operational performance of the Company, our Board also oversees other important Company initiatives and functions, including our safety, sustainability and ethics programs, in order to ensure that our Company’s culture aligns with our strategy and operates in the best interest of our stockholders.

Independent Board Leadership

As Lead Director, I work closely with our Chairman and Chief Executive Officer and other members of management to ensure that an active dialogue exists between our independent directors and management. In addition, in my role as Lead Director, I contribute to the development and approval of, Board meeting schedules, agendas, and materials. I attend each Board and Board committee meeting and also preside over the executive sessions of the Board held with our independent directors. Further, I am responsible, along with the Chairman of our Human Resources Committee, for leading the independent directors’ annual evaluation of the effectiveness of our Chief Executive Officer.

Good Governance Practices

As directors, we are vocal advocates for the adoption of sound governance practices that are informed by our ongoing engagement with our stockholders. The Corporate Responsibility & Governance Committee of the Board, consisting of independent directors, oversees the Board’s annual multi-step self-evaluation process which provides directors an opportunity to assess the Board, the Board committees and each individual director. This process also includes input from the management team on the effectiveness of the Board and the Board committees. Our independent directors serving on the Human Resources Committee establish and monitor the Company’s overall executive compensation strategy to ensure that executive officer compensation supports the Company’s business objectives. The Audit Committee of the Board, also consisting of independent directors, oversees the Company’s enterprise risk management program. Please see the Company Information and Compensation Discussion & Analysis sections of this proxy statement for more details on these and other governance highlights.

In closing, I want to acknowledge Richard Palmer who, because of time and travel constraints, will not be standing for reelection to our Board. Richard’s wise counsel and skillful leadership of the Audit Committee will be missed by all. On behalf of the entire Board, I thank him for his service to LSC and our stockholders and wish him all the best in his endeavors.

Our Board remains committed to serving your interests and thanks you for your continued commitment to our Company.

Sincerely,

Judith H. Hamilton

Lead Director

September 17, 2019

LSC COMMUNICATIONS, INC.

      LSC COMMUNICATIONS, INC. | 2019 Proxy Statement

PROXY SUMMARY

PROXY SUMMARY

This summary highlights certain information about the 2019 Annual Meeting of Stockholders. This proxy statement is being furnished to the holders of the Company’s common stock in connection with the solicitation of proxies by the Company. This summary does not include all the information you should consider in deciding how to vote. We encourage you to read the entire proxy statement carefully before voting.

For additional information about voting, see Questions and Answers About How to Vote.

Company Background

On October 1, 2016, R. R. Donnelley & Sons Company (“RR Donnelley” or “RRD”) effected its separation into three independent public companies: Donnelley Financial Solutions, Inc., LSC and RR Donnelley. The separation (the “Separation”) was effected when RRD distributed on a pro rata basis to holders of its common stock at least 80% of the outstanding shares of LSC common stock.

On October 30, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among Quad/Graphics, Inc. (“Quad”), QLC Merger Sub, Inc. and LSC to combine in an all-stock transaction with Quad (the “Merger”). The U.S. Department of Justice filed a lawsuit to enjoin the transaction in June 2019. In light of the significant time and resources that would have been required to defend the lawsuit coupled with the uncertainty of the outcome, it was determined that continuing to litigate against the Department of Justice was not in the best interests of the Company or our stockholders. On July 22, 2019, Quad and LSC entered into a letter agreement, pursuant to which the parties agreed to terminate the Merger Agreement.

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PROPOSALS

PROPOSALS

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PROPOSALS

Say on Pay Vote

Proposal 2 gives our stockholders the opportunity to express their views on the overall compensation of our named executive officers and the philosophy, policies and practices described in this proxy statement. For the reasons discussed above, we are asking our stockholders to indicate their support for our named executive officer compensation by voting FOR the following resolution at the 2019 Annual Meeting of Stockholders:

“RESOLVED: that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s proxy statement for its 2019 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion & Analysis, the 2018 Summary Compensation Table and the other related tables and disclosures in the Company’s 2019 proxy statement.”

The Say on Pay vote is an advisory vote only, and therefore it will not bind the Company or our Board (including the HR Committee). However, the Board and the HR Committee will consider the voting results when making future decisions regarding executive compensation, as appropriate.

The affirmative vote of the holders of a majority of the shares of the Company’s common stock present in person or by proxy at the 2019 Annual Meeting of Stockholders and entitled to vote on the advisory vote on executive compensation is required to approve the proposal.

PROPOSALS

Background and Purposes of the Amendment and the Amended and Restated 2016 PIP

The Board believes that approving the Amendment to make additional shares available for grant will allow us to attract, motivate, reward and retain the broad-based talent critical to achieving our business goals. Stock ownership by employees and directors provides performance incentives and fosters a long-term commitment to our benefit and to the benefit of our stockholders, offers additional incentives to put forth maximum effort for the success of our business, and affords them an opportunity to acquire a proprietary interest in the Company.

The Amended and Restated 2016 PIP is intended to provide incentives:

Dilution. Subject to stockholder approval of the Amendment, an estimated 3,383,882 shares of Company common stock will be available for issuance. The following summarizes current and proposed share reserves and resulting dilution levels as of August 21, 2019:

Share Usage. In determining the number of shares to propose under the Amendment, we evaluated the dilution and historic share usage, run rate and the existing terms of outstanding awards under our equity plans. The annual share usage under our equity plans for the last three fiscal years is:

Key Features of the Amended and Restated 2016 PIP

The Amended and Restated 2016 PIP has a number of special terms and limitations that are supportive of sound corporate governance practices, including:

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PROPOSALS

Summary Description of the Amended and Restated 2016 PIP

Under the Amended and Restated 2016 PIP, the Company may grant stock options, including incentive stock options, stock appreciation rights (“SARs”), restricted stock, stock units and cash awards, as discussed in greater detail below. The following description of the Amended and Restated 2016 PIP is a summary and is qualified in its entirety by reference to the complete text of the Amended and Restated 2016 PIP, which is attached as Appendix B to this proxy statement and to the Amendment, which is attached as Appendix A to this proxy statement.

Participants.  Non-employee directors (who are expected to number seven following the 2019 Annual Meeting of Stockholders) and employees (approximately 21,000 as of September 6, 2019) and other individuals who provide services to the Company are eligible to participate in the Amended and Restated 2016 PIP.

Administration. The Amended and Restated 2016 PIP will be generally administered by a committee designated by the Board (the “Plan Committee”), but the Board may, in its discretion, administer the Amended and Restated 2016 PIP or grant awards. Each member of the Plan Committee (which is currently the HR Committee) is a director that the Board has determined to be (i) a “non-employee director” under Section 16 of the Exchange Act and (ii) “independent” for purposes of the NYSE listing rules.

The Plan Committee may select eligible participants and determine the terms and conditions of each grant and award. All awards, other than awards granted to non-employee directors and awards that are subject to performance-based vesting conditions over a performance period of at least one year, shall have a minimum vesting period of at least three years (such vesting may, in the discretion of the Plan Committee, occur in full at the end of such period or may occur in specified installments over such period, provided that no more than 40% of any particular award may vest by the end of the first year following the date of grant and no more than 80% of any particular award may vest by the end of the second year following the date of grant). Awards granted to non-employee directors shall have a minimum vesting period of at least one year. Up to 5% of the shares available for grant may be granted with a minimum vesting period of less than one year, and the Plan Committee may provide for early vesting upon the death, permanent or total disability, retirement or termination of service of the award recipient. “Double trigger” vesting shall occur with acceleration upon a Change in Control (as defined in the Amended and Restated 2016 PIP) and the grantee’s termination without Cause or for Good Reason (each as defined in the applicable award agreement).

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PROPOSALS

Each grant and award will be evidenced by an award agreement approved by the Plan Committee. The Plan Committee generally cannot reprice any stock option or other award granted under the Amended and Restated 2016 PIP. Except with respect to grants to (i) officers of the Company who are subject to Section 16 of the Exchange Act, (ii) a person whose compensation is likely to be subject to the $1 million deduction limit under Section 162(m) of the Internal Revenue Code (the “Code”) or (iii) persons who are not employees of the Company, the Plan Committee may delegate some or all of its power and authority to administer the Amended and Restated 2016 PIP to the chief executive officer or other executive officer of the Company.

Available Shares. Subject to approval of the Amendment by the Company’s stockholders, 3,100,000 shares of Company common stock (including the approximately 283,882 shares that are available as of the record date under, and will be carried over from, the Amended and Restated 2016 PIP) will be available under the Amended and Restated 2016 PIP following the approval of the Amendment for grants and awards to eligible participants, subject to adjustment in the event of certain corporate transactions that affect the capitalization of the Company. Prior to approval of the Amendment, 3,500,000 shares of common stock had been authorized for grant under the Amended and Restated 2016 PIP. In general, shares subject to a grant or award under the Amended and Restated 2016 PIP which are not issued or delivered would again be available for grant. However, shares tendered or withheld upon exercise, vesting, settlement of an award or upon any other event to pay exercise price or tax withholding and shares purchased by the Company using the proceeds from the exercise of a stock option will not be available for future issuance. Upon exercise of an SAR, the total number of shares remaining available for issuance under the Amended and Restated 2016 PIP will be reduced by the gross number of shares for which the SAR is exercised.

Award Limits. The maximum number of shares of common stock with respect to which options, SARs or a combination thereof may be granted during any calendar year to any person is 1,500,000. No non-employee director may be granted (in any calendar year) compensation with a value in excess of $900,000, with the value of any equity-based awards based on such award’s accounting grant date value.

Termination and Amendment. Unless previously terminated by the Board, the Amended and Restated 2016 PIP will terminate on the date on which no shares remain available for grants or awards. Termination will not affect the rights of any participant under grants or awards made prior to termination. The Board may amend the Amended and Restated 2016 PIP at any time, but no amendment may be made without stockholder approval if required by any applicable law, rule or regulation, or if it would increase the number of shares of Company common stock available under the Amended and Restated 2016 PIP or permit repricing of awards.

Stock Options and Stock Appreciation Rights. The period for the exercise of a non-qualified stock option (other than options granted to non-employee directors) or an SAR, and the option exercise price and base price of an SAR, will be determined by the Plan Committee. The option exercise price and the base price of an SAR will not be less than 100% of the fair market value of a share of Company common stock on the date of grant, and the minimum vesting period must be at least three years. The exercise of an SAR entitles the holder to receive (subject to withholding taxes) shares of Company common stock, cash or both with a value equal to the excess of the fair market value of a stated number of shares of Company common stock over the SAR base price. Subject to the terms of the Amended and Restated 2016 PIP, the option exercise price can generally be paid by the option recipient in cash, in previously owned whole shares of Company common stock having a fair market value as of the date of exercise equal to the aggregate exercise price payable, by authorizing the Company to withhold whole shares of common stock that would otherwise be delivered having a fair market value as of the date of exercise equal to the aggregate exercise price payable, in cash by a broker-dealer acceptable to the Company, via a cashless exercise (to the extent expressly authorized by the Plan Committee), or any other method described under the Amended and Restated 2016 PIP.

Stock options and SARs must be exercised within ten years of the date of grant, or five years after the date of grant for incentive stock options granted to 10% stockholders. If the recipient of an incentive stock option is a 10% stockholder, the option exercise price will be not less than the price required by the Code, currently 110% of fair market value on the date of grant.

Performance Awards and Fixed Awards. Under the Amended and Restated 2016 PIP, bonus awards, whether performance awards or fixed awards, can be made in (i) cash, (ii) stock units, (iii) restricted shares of Company common stock that are forfeitable and have restrictions on transfer or (iv) any combination of the foregoing.

The performance goals of performance awards must be tied to one or more of the following: net sales; cost of sales; gross profit; earnings from operations; earnings before interest, taxes, depreciation and amortization; earnings before income taxes; earnings before interest and taxes; cash flow measures; return on equity; return on assets; return on net assets employed; return on capital; working capital; leverage ratio; stock price measures; enterprise value; safety measures; net income per common share (basic or diluted); EVA (economic value added); cost reduction goals or, in the case of awards

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PROPOSALS

not intended to be “qualified performance-based compensation” within the meaning of Section 162(m) of the Code, any other similar criteria established by the Plan Committee. The Plan Committee may provide in any award agreement that the Plan Committee (i) will amend or adjust the performance goals or other terms or conditions of an outstanding award in recognition of unusual or nonrecurring events and (ii) has the right to reduce the amount payable pursuant to any performance award.

Restricted stock recipients will have the rights of a shareholder, including voting and dividend rights, subject to any restrictions and conditions specified in the award agreement. No dividends, however, will be paid at a time when any performance-based goals that apply to an award of restricted shares have not been satisfied. Upon termination of any applicable restriction period, including the satisfaction or achievement of required performance goals, a certificate evidencing ownership of the shares of the common stock will be delivered to the grantee, subject to the Company’s right to require payment of any taxes.

Recipients of stock units may be credited dividends and other distributions otherwise payable and held until the award is paid out. Interest may also be credited. The grantee will have only the rights of a general unsecured creditor and no rights as a stockholder of the Company until delivery of the shares, cash or other property underlying the award.

At the time of vesting of a bonus award, the award: (i) if in units, will be paid to the participant in shares of Company common stock, in cash or in a combination thereof and (ii) if a cash bonus award, will be paid to the participant in cash, in shares of Company common stock or in a combination thereof. In addition, shares of restricted common stock issued pursuant to an award will be released from the restrictions.

Awards to Non-Employee Directors. On the date of each annual meeting, the Company will make an award under the Amended and Restated 2016 PIP to each individual who is, immediately following such annual meeting, a non-employee director. Any such awards will be in the form of stock options, restricted stock, stock units or SARs with a minimum vesting period of one year from the date of grant. Note however, that under the terms of the Merger Agreement, in 2019 our directors did not receive equity retainers and instead received an additional cash retainer equal to the value of the equity retainer such directors otherwise would have been entitled to.

Transferability. Awards granted under the Amended and Restated 2016 PIP may be assigned or transferred in the event of death, subject to certain conditions.

U.S. Federal Income Tax Consequences

The following is a brief summary of some of the U.S. federal income tax consequences generally arising with respect to grants and awards under the Amended and Restated 2016 PIP. This summary is not intended to constitute tax advice, is not intended to be exhaustive and, among other things, does not describe state, local or foreign tax consequences. This section is based on the Code, its legislative history, existing and proposed regulations under the Code and published rulings and court decisions, all as in effect as of the date of this document. These laws are subject to change, possibly on a retroactive basis.

Stock Options. A participant will not recognize any income upon the grant of a non-qualified or incentive stock option. A participant will recognize compensation taxable as ordinary income upon exercise of a non-qualified stock option in an amount equal to the excess of the fair market value of the shares purchased on the date of exercise over their exercise price, and the Company (or one of its subsidiaries) generally will be entitled to a corresponding deduction, except to the extent limited by Section 162(m) of the Code. A participant will not recognize any income (except for purposes of the alternative minimum tax) upon exercise of an incentive stock option. If the shares acquired by exercise of an incentive stock option are held for the longer of two years from the date the option was granted and one year from the date it was exercised, any gain or loss arising from a subsequent disposition of such shares will be treated as long-term capital gain or loss, and neither the Company nor its subsidiaries will be entitled to any deduction. If, however, such shares are disposed of within such one or two year periods, then in the year of such disposition the participant will recognize compensation taxable as ordinary income equal to the excess of (A) the lesser of either (i) the amount realized upon such disposition or (ii) the fair market value of such shares on the date of exercise, over (B) the exercise price, and the Company or one of its subsidiaries will be entitled to a corresponding deduction. The participant will also be subject to capital gain tax on the excess, if any, of the amount realized on such disposition over the fair market value of the shares on the date of exercise.

SARs. A participant will not recognize any income upon the grant of SARs. A participant will recognize compensation taxable as ordinary income upon exercise of an SAR in an amount equal to the fair market value of any shares delivered and the amount of cash paid by the Company upon such exercise, and the Company or one of its subsidiaries generally will be entitled to a corresponding deduction.

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PROPOSALS

Restricted Stock. A participant will not recognize any income at the time of the grant of shares of restricted stock (unless the participant makes an election to be taxed at the time of grant), and neither the Company nor its subsidiaries will be entitled to a tax deduction at such time. If the participant elects to be taxed at the time the restricted stock is granted, the participant will recognize compensation taxable as ordinary income at the time of the grant equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such shares. If such election is made, a participant will recognize compensation taxable as ordinary income at the time the forfeiture conditions on the restricted stock lapse in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for such shares. The Company or one of its subsidiaries generally will be entitled to a corresponding deduction at the time the ordinary income is recognized by a participant, except to the extent limited by Section 162(m) of the Code. In addition, a participant receiving dividends with respect to restricted stock for which the above-described election has not been made and prior to the time the forfeiture conditions lapse will recognize compensation taxable as ordinary income, rather than dividend income, in an amount equal to the dividends paid, and the Company or one of its subsidiaries generally will be entitled to a corresponding deduction, except to the extent limited by Section 162(m) of the Code.

Stock Units. A participant will not recognize any income at the time of the grant of stock units, and neither the Company nor its subsidiaries will be entitled to a tax deduction at such time. A participant will recognize compensation taxable as ordinary income at the time the Company common stock is delivered under the stock units in an amount equal to the fair market value of such shares. The Company or one of its subsidiaries generally will be entitled to a corresponding deduction at the time the ordinary income is recognized by a participant, except to the extent the limit of Section 162(m) of the Code applies. In addition, a participant will recognize compensation taxable as ordinary income when amounts equal to dividend equivalents and any other distributions attributable to stock units are paid, and the Company or one of its subsidiaries generally will be entitled to a corresponding deduction, except to the extent limited by Section 162(m) of the Code.

Cash Bonus Awards. A participant will not recognize any income upon the grant of a bonus award payable in cash, and neither the Company nor its subsidiaries will be entitled to a tax deduction at such time. At the time such award is paid, the participant will recognize compensation taxable as ordinary income in an amount equal to any cash paid by the Company, and the Company or one of its subsidiaries generally will be entitled to a corresponding deduction, except to the extent limited by Section 162(m) of the Code.

Section 409A. Awards made under the Amended and Restated 2016 PIP that are considered to include deferred compensation for purposes of Section 409A of the Code will be interpreted, administered and construed to comply with the requirements of Section 409A to avoid adverse tax consequences to recipients. The Company intends to structure any awards under the Amended and Restated 2016 PIP so that the requirements under Section 409A are either satisfied or are not applicable.

New Plan Benefits Table

The table below reflects awards granted in 2018, our last completed fiscal year. Due to the pendency of the Merger, the Company did not grant awards to all of the named executive officers in 2019. Because the Amendment will not alter the substantive provisions of the Amended and Restated 2016 PIP (except for the increase in the number of shares of Company common stock described therein), for purposes of this table, the Company has assumed that the same awards would have been made in 2018 under the Amended and Restated 2016 PIP had the Amendment been in place.

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PROPOSALS

Closing Price on September 6, 2019

On September 6, 2019, the closing price of our common stock on the NYSE was $1.42 per share.

Vote Required to Approve the Amendment

The affirmative vote of the holders of a majority of the shares of the Company’s common stock present in person or by proxy at the 2019 Annual Meeting of Stockholders and entitled to vote on the proposal is required to approve the Amendment.

QUESTIONS AND ANSWERS ABOUT HOW TO VOTE

QUESTIONS AND ANSWERS ABOUT HOW TO VOTE

Below are instructions on how to vote, as well as information on your rights as a stockholder as they relate to voting. Some of the instructions vary depending on how your stock is held. It’s important to follow the instructions that apply to your situation.

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QUESTIONS AND ANSWERS ABOUT HOW TO VOTE

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COMPANY INFORMATION

COMPANY INFORMATION

THE BOARD’S COMMITTEES AND THEIR FUNCTIONS

The Board has three standing committees. The members of those committees and the committees’ responsibilities are described below. Each committee operates under a written charter that is reviewed annually and is posted on the Investors section of the Company’s website at the following address: www.lsccom.com. References to the Company’s 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 proxy statement.

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POLICY ON ATTENDANCE AT STOCKHOLDER MEETINGS

Directors are expected to attend meetings of stockholders in person, except when circumstances prevent such attendance. When such circumstances exist, or in the case of special stockholder meetings, directors may participate by telephone or other electronic means and will be deemed present at such meetings if they can both hear and be heard. All but one member of the Board attended the Company’s 2018 Annual Meeting of Stockholders.

CORPORATE GOVERNANCE

Governance Highlights

The Company’s corporate governance practices and policies have been developed in accordance with the highest standards of integrity and include the adoption of a number of governance best practices including:

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COMPANY INFORMATION

As described in Compensation Discussion & Analysis, the Company engages with stockholders about various corporate governance topics, including executive compensation.

Principles of Corporate Governance

The Board has adopted a set of Principles of Corporate Governance to provide guidelines for the Company and the Board to ensure effective corporate governance. The Principles of Corporate Governance cover topics including, but not limited to, director qualification standards, Board and committee composition, director access to management and independent advisors, director orientation and continuing education, director retirement age, succession planning and the annual evaluations of the Board and its committees. Such evaluations determine whether the Board and each committee are functioning effectively, and the Corporate Responsibility & Governance Committee considers the mix of skills and experience that directors bring to the Board to assess whether the Board has the necessary tools to form its oversight function effectively.

The Corporate Responsibility & Governance Committee is responsible for overseeing and reviewing the Company’s Principles of Corporate Governance and recommending to the Board any changes to those principles. The full text of the Principles of Corporate Governance is available on the Investors section of our website at www.lsccom.com, and a print copy is available upon request. References to the Company’s 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 proxy statement.

In light of the recent termination of the Merger and her role as Lead Director, the Board decided to nominate Ms. Hamilton for another term and waive the provision of the Principles of Corporate Governance that provide directors should not stand for election after reaching age 75.

Principles of Ethical Business Conduct and Code of Ethics

In accordance with the NYSE listing requirements and Securities and Exchange Commission (“SEC”) rules, the Company has adopted and maintains a set of Principles of Ethical Business Conduct. The policies referred to therein apply to all directors, officers and employees of the Company. In addition, the Company has adopted and maintains a Code of Ethics for the Chief Executive Officer and Senior Financial Officers that applies to its chief executive officer and senior financial officers. The Principles of Ethical Business Conduct and the Code of Ethics for the Chief Executive Officer and Senior Financial Officers cover areas of professional conduct, including, but not limited to, conflicts of interest, disclosure obligations, insider trading and confidential information, as well as compliance with all laws, rules and regulations applicable to our business. The Company encourages all employees, officers and directors to promptly report any violations of any of the Company’s policies. In the event that an amendment to, or a waiver from, a provision of the Code of Ethics for the Chief Executive Officer and Senior Financial Officers is necessary, the Company will post such information on its website. The full text of each of the Principles of Ethical Business Conduct and our Code of Ethics is available on the

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COMPANY INFORMATION

Corporate Governance section of the Investors portion of our website at www.lsccom.com, and print copies are available upon request. References to the Company’s 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 proxy statement.

Director Independence

The Company’s Principles of Corporate Governance provide that the Board must be composed of a majority of independent directors. No director qualifies as independent unless the Board affirmatively determines that the director has no relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board has determined that all non-employee directors of our Board are also independent in accordance with the NYSE requirements. Mr. Quinlan, who as an employee of the Company, is not independent.

Executive Sessions

The Company’s independent directors are expected to meet regularly in executive sessions without management. Executive sessions are led by the Lead Director of the Board. An executive session is expected to be held in conjunction with each regularly scheduled Board meeting. Each committee of the Board also is expected to meet in executive session without management in conjunction with each regularly scheduled committee meeting and such sessions are led by the chair of such committee.

Board Leadership

Our Board has the discretion to combine or separate the roles of chairman and chief executive officer as the Board deems appropriate based on the needs of the Company at any given time. To facilitate this decision-making, the Corporate Responsibility & Governance Committee discusses our Board leadership structure, providing its recommendation on the appropriate structure to our independent directors. The Board has determined that having a combined chairman and chief executive officer with an independent Lead Director is the most appropriate Board leadership structure for LSC. This structure puts one person in the best position to be aware of major issues facing the Company on a day-to-day and long-term basis, and to identify and bring key risks and developments facing the Company to the Board’s attention (in coordination with the Lead Director as part of the agenda-setting process). As set forth in our Principles of Corporate Governance, our Lead Director:

In addition, the powers of the chairman under our By-laws are limited to chairing meetings of the Board and meetings of stockholders as well as certain other powers conferred on the chairman such as the ability to call special meetings of stockholders or the Board. These powers can also be exercised by the Board, by a specified number of directors or, in some cases, the Lead Director. Some of the chairman’s powers are administrative in nature (such as the authority to execute documents on behalf of the Company).

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COMPANY INFORMATION

Board’s Role in Risk Oversight

The Board and each of its committees is actively involved in oversight of risks inherent in the operation of the Company’s business and the implementation of its strategic plan. In performing this function, each committee has full access to management, as well as the ability to engage advisors, and each committee reports back to the Board.

Nomination of Directors

It is the policy of the Corporate Responsibility & Governance Committee to consider those candidates for director recommended by stockholders. In order to recommend a candidate, stockholders must submit the individual’s name and qualifications in writing to the Corporate Responsibility & Governance Committee (in care of the Secretary at the Company’s principal executive offices at 191 N. Wacker Drive, Suite 1400, Chicago, Illinois 60606) and otherwise in accordance with the procedures outlined under Submitting Stockholder Proposals and Nominations for 2020 Annual Meeting of Stockholders. The Corporate Responsibility & Governance Committee evaluates candidates recommended for director by stockholders in the same way that it evaluates any other candidate.

The Corporate Responsibility & Governance Committee also considers candidates recommended by management and members of the Board as well as nominees recommended by stockholders.

In identifying and evaluating nominees for director, the Corporate Responsibility & Governance Committee takes into account the applicable requirements for directors under the listing rules of the NYSE. In addition, the Corporate Responsibility & Governance Committee considers other criteria as it deems appropriate and which may vary over time depending on the Board’s needs, including certain core competencies and other criteria such as the personal and professional qualities, experience and education of the nominees, as well as the mix of skills and experience on the Board

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COMPANY INFORMATION

prior to and after the addition of the nominees. Although not part of any formal policy, the goal of the Corporate Responsibility & Governance Committee is a balanced and diverse Board, with members whose skills, viewpoints, backgrounds and experiences complement each other and, together, contribute to the Board’s effectiveness as a whole. The Corporate Responsibility & Governance Committee may engage third-party search firms to identify candidates for director and to do preliminary interviews and background and reference reviews of prospective candidates.

Communications with the Board of Directors

Interested persons wishing to communicate directly with the Board may do so by writing to the Chair of the Corporate Responsibility & Governance Committee or the other non-management members of the Board to their attention at 191 N. Wacker Drive, Suite 1400, Chicago, IL 60606; Attention: Secretary. A stockholder must include the number of shares of the Company’s common stock he or she holds, and any interested party must detail his or her relationship with the Company in any communication to the Board. Communications received in writing will be distributed to the Chair of the Corporate Responsibility & Governance Committee or non-management directors of the Board as a group, as appropriate, unless such communications are considered, in the reasonable judgment of the Company’s Secretary, improper for submission to the intended recipient(s). Examples of communications that would be considered inappropriate for submission include, without limitation, customer complaints, solicitations, communications that do not relate directly or indirectly to the Company or the Company’s business or communications that relate to improper or irrelevant topics.

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STOCK OWNERSHIP

STOCK OWNERSHIP

The table below lists the beneficial ownership of common stock as of September 6, 2019 by all current directors, each of the persons named in the tables under Executive Compensation, and the directors and executive officers as a group. The table includes all stock awards subject to vesting conditions that vest within 60 days of September 6, 2019. The table also lists all institutions and individuals known to hold more than 5% of the Company’s common stock, which has been obtained from filings made pursuant to Sections 13(d) and (g) of the Exchange Act. Except as otherwise indicated below, each of the entities or persons named in the table has sole voting and investment power with respect to all common stock beneficially owned set forth opposite their name. The percentages shown are based on outstanding shares of common stock as of September 6, 2019. Unless otherwise indicated, the business address of each stockholder listed below is LSC Communications, 191 N. Wacker Drive, Suite 1400, Chicago, IL 60606.

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STOCK OWNERSHIP

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COMPENSATION DISCUSSION & ANALYSIS

COMPENSATION DISCUSSION & ANALYSIS

This Compensation Discussion & Analysis (“CD&A”) discussing 2018 executive compensation was originally filed with our Form 10-K/A on April 12, 2019, during the pendency of our proposed merger with Quad (the “Merger”). We have updated the following CD&A to reflect the fact that the Merger was mutually terminated by the parties on July 23, 2019 (see Proxy Summary – Company Background) by removing certain references to the Merger, the Merger Agreement and the potential effects of the Merger on LSC’s compensation programs (such as the treatment of outstanding equity awards in the Merger Agreement), as those items are no longer relevant. Other than as noted above, this CD&A does not otherwise update information in the Form 10-K/A to reflect facts or events occurring subsequent to the filing date of the Form 10-K/A.

EXECUTIVE SUMMARY

In this CD&A, we will describe the material components of our executive compensation program applicable to our named executive officers (our “NEOs”). While the discussion in this CD&A is focused on our NEOs, many components of our executive compensation program apply broadly across our executive ranks.

Our NEOs include:

LSC’s executive compensation program is designed to strike an appropriate balance among rewarding our executives for strong performance, ensuring long-term LSC success, considering stockholder interest and encouraging our executive talent to remain with the Company.

This CD&A describes LSC’s Compensation Philosophy, the components of our executive compensation program, our decision-making process, our 2018 compensation decisions and other relevant policies and practices. Highlights of the Company’s performance as well as our 2018 executive compensation program are described below.

2018 Company Highlights

In 2018, LSC successfully:

2018 Executive Compensation Program Highlights

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COMPENSATION DISCUSSION & ANALYSIS

LSC COMPENSATION PHILOSOPHY

The HR Committee adopted the LSC Compensation Philosophy at the time of the Separation to guide its compensation decisions, and in 2018 reviewed and revised the philosophy as follows:

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COMPENSATION DISCUSSION & ANALYSIS

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COMPENSATION DISCUSSION & ANALYSIS

COMPENSATION OVERVIEW

The HR Committee determined the 2018 compensation for the NEOs, which was comprised of three major components: base salary, annual incentive compensation and long-term incentive compensation. In addition, the NEOs were eligible to receive certain benefits and to participate in benefit programs generally available to other employees of LSC.

In general, total compensation levels for the NEOs were targeted at the 50th percentile of peer group data, when available for a position, and by market survey data from the Willis Towers Watson 2017 CDB Executive Compensation Survey Report — U.S. This 50th percentile target level provided a total competitive anchor point for LSC’s executive compensation program. Actual compensation levels varied up or down from targeted levels based on the Company’s performance and the individual’s role, responsibilities, experience and performance.

The table below describes the elements of the executive compensation program for our NEOs.

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COMPENSATION DISCUSSION & ANALYSIS

Annual Incentive Plan

The threshold and corporate financial targets under the 2018 AIP were set by the HR Committee at the beginning of the year following the presentation of the annual operating budget to the Board. The targets were designed to be challenging. The table below sets forth a description of such targets and the individual performance goals under the AIP.

The 2018 performance payout curve under the AIP was structured as follows:

Payouts are modified (downward only) by achievement levels on individual performance goals.

Given marketplace dynamics and the possibility of unforeseen developments, the HR Committee retains discretion to increase or decrease the amount of participants’ AIP awards if it determines prior to the end of the plan year that an adjustment was appropriate to better reflect the actual performance of the Company and/or the participant. The HR Committee also has discretionary authority to reduce the amount of an AIP award payable to any participant at any time, including after the end of the plan year whether for misconduct or for any other reason.

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COMPENSATION DISCUSSION & ANALYSIS

Long-Term Incentive Program

Our Amended and Restated 2016 PIP, which was approved by stockholders at our 2017 Annual Meeting of Stockholders, allows the HR Committee to grant long-term incentive awards (including performance share units (“PSUs”), restricted share units (“RSUs”), restricted stock awards (“RSAs”), stock options, stock appreciation rights (“SARs”) and long-term incentive cash awards) to any eligible employee. Long-term incentive awards are granted to directly align the interests of our NEOs with those of our stockholders. In 2018, the HR Committee granted PSUs and RSUs to our NEOs; no RSAs, stock options, SARs or long-term incentive cash awards were granted.

EXECUTIVE COMPENSATION DECISION-MAKING PROCESS

The HR Committee establishes and monitors LSC’s overall compensation strategy to ensure that our executive compensation supports the Company’s business objectives, and oversees and establishes the compensation of the CEO, other senior officers and key management employees. While the HR Committee does not administer or have direct jurisdiction over our employee benefit plans, it reviews such plans so as to have a better understanding of the Company’s overall compensation structure.

In carrying out its responsibilities, the HR Committee is guided by the LSC Compensation Philosophy and also considers the following:

Note that during the pendency of the Merger, our HR Committee was restricted from making certain compensation changes, including with respect to our NEOs, without first obtaining the approval of Quad.

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COMPENSATION DISCUSSION & ANALYSIS

Stakeholders and Say on Pay Vote Feedback

In connection with its determinations regarding 2017 NEO compensation and its 2018 compensation planning and decisions, our HR Committee directed a proactive and robust process described in the below table to garner stockholder feedback in response to the results of our 2017 Say on Pay vote and on other governance topics annually. At meetings held with our stakeholders, we discussed various governance issues and received feedback on our executive compensation program. This process culminated in important changes to the compensation entitlements of certain of our NEOs, most notably, the removal of the legacy Section 280G excise tax gross-ups in Mr. Quinlan’s and Ms. Bettman’s legacy employment agreements with RRD that were assigned to the Company in the Separation and certain other enhanced disclosures as described below. Because of the pendency of the Merger we were not able to hold discussions with stakeholders in 2018.

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COMPENSATION DISCUSSION & ANALYSIS

Review of Tally Sheet Information

Along with performance and the other relevant factors discussed in this CD&A, the HR Committee generally considers the following information, which is presented on a “tally sheet” for each NEO when setting compensation:

In general, total compensation levels for the NEOs are targeted at the 50th percentile of peer group data, when available for a position, and by market survey data. This 50th percentile target level provides a total competitive anchor point for LSC’s executive compensation program. Actual compensation levels vary up or down from targeted levels based on the Company’s performance and the individual’s role, responsibilities, experience and performance.

Reviewing the information presented on the tally sheets assists the HR Committee in understanding the total compensation being delivered to and the long-term retentive elements in place for NEOs.

Internal Pay Equity

The HR Committee considers internal pay equity, among other factors, when making compensation decisions, but does not use a fixed ratio or formula when comparing compensation among executive officers.    

Mr. Quinlan, our CEO, is compensated at a higher level than other executive officers due to his higher level of responsibility, authority, accountability and experience. The HR Committee believes that Mr. Quinlan’s 2018 target total direct compensation was reasonable and appropriate in relation to the compensation targeted for the other NEOs and to one another.    

Risk Assessment

With assistance from Willis Towers Watson, the HR Committee reviewed and evaluated LSC’s executive and employee compensation practices and concluded, based on this review, that any risks associated with such practices are not likely to have a material adverse effect on LSC. The determination primarily took into account the balance of cash and equity payouts, the balance of annual and long-term incentives, the type of performance metrics used, incentive plan payout leverage, possibility that the plan designs could be structured in ways that might encourage gamesmanship, avoidance of uncapped rewards, multi-year vesting for equity awards, use of stock ownership requirements for senior management and the HR Committee’s oversight of our executive compensation program.

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COMPENSATION DISCUSSION & ANALYSIS

Peer Group Data/Market for Talent

The HR Committee reviews the competitive market for talent as part of its review of our compensation program’s effectiveness in attracting and retaining talent, and to help determine our NEOs’ compensation.

Willis Towers Watson assisted the HR Committee in the creation of a peer group for LSC in 2016. The primary focus of this process was on industrial companies of generally similar or larger size, complexity and scope rather than companies only in LSC’s industry, since the Company is significantly larger than many of its direct competitors and our markets for talent are necessarily broader. Willis Towers Watson’s analysis looked at companies in comparable industries and of a size of revenue between one-half to two times the size of our revenue. The HR Committee, with input from management, suggested changes to the broad group before finalization. The peer group is reviewed annually by the HR Committee with assistance from Willis Towers Watson. In 2018, four companies were removed from the peer group as they were acquired, announced a transaction to be acquired or filed for bankruptcy (Essendant Inc., KapStone Paper and Packaging Corporation, Time Inc. and Cenveo, Inc.) and two additional companies were added (R. R. Donnelley & Sons Company and Deluxe Corporation). The resulting peer group is comprised of the following 20 companies:

Role of the Compensation Consultant

The HR Committee again retained Willis Towers Watson in 2018 as its outside executive compensation consultant to provide objective analysis, advice and recommendations on executive officer pay in connection with the HR Committee’s decision-making process. Willis Towers Watson was also hired to assist in the calculation of the CEO pay ratio and to assist the HR Committee in reviewing this CD&A. Willis Towers Watson regularly attends HR Committee meetings and reports directly to the HR Committee, not to management, on matters relating to compensation for the executive officers and for directors.

While Willis Towers Watson provides additional services to the Company other than those under the direction of the HR Committee, all services have all been approved by the HR Committee. The HR Committee has reviewed the non-HR Committee work and services provided by Willis Towers Watson and determined that (1) those services were provided on an independent basis and (2) no conflicts of interest exist. Factors considered by the HR Committee in its assessment included: (i) other services provided to LSC by Willis Towers Watson; (ii) fees paid by LSC as a percentage of Willis Towers Watson’s total revenue; (iii) Willis Towers Watson’s policies and procedures that are designed to prevent a conflict of interest and maintain independence between the personnel who provide HR Committee services and those who provide these other non-HR Committee services; (iv) any business or personal relationships between individual consultants involved in the engagement and HR Committee members; (v) whether any LSC stock is owned by individual consultants involved in the engagement; and (vi) any business or personal relationships between LSC’s executive officers and Willis Towers Watson or the individual consultants involved in the engagement.

Role of Management

The Company’s management, including the CEO, develops preliminary recommendations regarding compensation matters with respect to the executive officers other than the CEO, and provides these recommendations to the HR Committee for its review. Management’s recommendations focus on, among other things, experience, performance, job responsibilities, future potential and accomplishments. With respect to the AIP, the CEO has a discussion with the HR Committee on the payouts for the other NEOs, including a discussion on performance against individual performance goals.

The HR Committee reviews management’s recommendations but makes all final compensation decisions for LSC’s executive officers. Management is responsible for the administration of the compensation programs once the HR Committee’s decisions are finalized.

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COMPENSATION DISCUSSION & ANALYSIS

2018 COMPENSATION DECISIONS

The LSC Compensation Philosophy and structure of the executive compensation program were applied consistently to all NEOs. Total compensation was targeted at the 50th percentile of peer group data, when available for a position, and by market survey data. Any differences in compensation levels and mix that exist among the NEOs are primarily due to differences in market practices for similar positions and the responsibility, scope, future potential and complexity of the NEO’s role at LSC.

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Base Salary

The HR Committee did not increase the base salaries of any of our NEOs in 2018 other than Messrs. Lane and Hansen. Mr. Lane was awarded an increase of $50,000 to his base salary in consideration of his expanded operational role with responsibility for the Company’s book segment. Mr. Hansen was awarded an increase of $40,000 to his base salary to position his compensation closer to the median compensation of the survey data. For 2018, after such increases, the NEOs’ base salaries were as follows: for Mr. Quinlan, $1,200,000; for Ms. Bettman, $540,000; for Mr. Coxhead, $540,000; for Mr. Hansen, $325,000 and for Mr. Lane, $450,000.

Annual Incentive Plan

The HR Committee did not make any changes to the NEOs’ AIP targets as a percentage of base salary. The AIP targets are 150% for Mr. Quinlan and Ms. Bettman, 100% for Messrs. Coxhead and Lane and 75% for Mr. Hansen.

The HR Committee reviewed the 2018 results and the Company’s performance against the net sales and non-GAAP EBITDA goals established and required to be met for the AIP to be funded. For 2018, the net sales goal was met. The target reported EBITDA goal was $355 million (with the minimum goal of $330 million and a maximum goal of $369 million), with actual results of $276 million (see Financial Review – Non-GAAP Measures in the Form 10-K for a reconciliation of net (loss) income to Non-GAAP EBITDA). Consistent with our pay for performance philosophy, given that 2018 performance did not meet the EBITDA corporate financial target under the AIP, no annual bonus payments were paid under the AIP for 2018 to any employee, including the CEO and the other NEOs. Accordingly, the HR Committee did not need to adjudicate individual performance goals for the NEOs.

Long-Term Incentive Program

With respect to 2018 compensation decisions, the HR Committee had a series of discussions regarding the most appropriate way to motivate and retain its executives while still maintaining a continued focus on producing strong operating results. The HR Committee believes it is important to use equity incentives to provide alignment with stockholders, to emphasize long-term performance and to ensure continuity of senior leadership.

Consistent with the LSC Compensation Philosophy, the HR Committee determined that the value of the 2018 long-term incentive plan grants for Messrs. Lane and Hansen would be equal to the value of their 2017 grants, the value of Mr. Coxhead’s 2018 grant was reduced by $150,000 from his 2017 grant and the value of Ms. Bettman’s 2018 grant was

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COMPENSATION DISCUSSION & ANALYSIS

reduced by $135,000 from her 2017 grant, in each case to align such NEOs’ compensation more closely with the median long-term incentive compensation of the peer group and survey data. In consideration of Mr. Quinlan’s 2016 Founder’s Award, the HR Committee, in 2017, chose not to grant to Mr. Quinlan a long-term incentive plan equity award in 2017. However, Mr. Quinlan did receive a long-term incentive grant in 2018 consistent with the peer group data and market practice.

See Executive Compensation – Grants of Plan-Based Awards for details concerning grants made to each NEO in 2018.

The 2018 long-term incentive grants for the NEOs consisted of:

See Executive Compensation – Grants of Plan-Based Awards for further details concerning grants made to each NEO in 2018.

Perquisites

In 2017, the HR Committee determined to extend the benefit of Company-paid supplemental long-term disability and life insurance effective 2018 to each of Messrs. Coxhead, Hansen and Lane to align with the benefits already afforded to Mr. Quinlan and Ms. Bettman. The premium cost for these supplemental benefits is included as taxable income for the NEOs and there is no tax gross-up on these benefits.

OTHER POLICIES AND PRACTICES

Benefit Programs

LSC’s benefit programs are established based upon an assessment of competitive market factors and a determination of what is needed to retain high-caliber executives. Primary benefits for executive officers include participation in LSC’s broad-based plans at the same benefit levels as other employees, including: retirement plans, savings plans, health and dental plans and various insurance plans, including disability and life insurance.

LSC also provides certain executives, including certain of the NEOs, with the following benefits:

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COMPENSATION DISCUSSION & ANALYSIS

Post-Termination Benefits

The HR Committee reviewed the post-termination benefits available to the NEOs and other executives in 2018. The HR Committee believes that severance benefits and change in control benefits are necessary in order to attract and retain the caliber and quality of executives that the Company needs in its most senior positions. These benefits are particularly important in our consolidating industry, as they provide for continuity of senior management and help our executives focus on results and strategic initiatives.

In early 2018, the HR Committee determined that Ms. Bettman and Messrs. Coxhead, Hansen and Lane would be eligible to participate in the Company’s Key Employee Severance Plan (which was originally adopted by the HR Committee in October 2017) if they each agreed to waive any existing legacy employment agreements and severance entitlements, which each subsequently did. Consequently, each of our NEOs, other than Mr. Quinlan, is party to a participation agreement under and is a participant in the Key Employee Severance Plan rather than to an individual employment agreement with the Company. Mr. Quinlan remains a party to his employment agreement with the Company, as amended in 2017 to remove his legacy Section 280G excise tax gross-up.

Each of the NEOs’ agreements provide for severance payments and benefits if termination occurs without “cause” or for “good reason.” Each of our NEOs is also eligible to receive additional compensation if he or she is terminated in connection with or following a “change in control.” However, all such payments are “double trigger” (requiring both a change in control and a qualifying termination).

Additional information regarding severance and change in control payments, including definitions of the key terms and a quantification of benefits that would have been received by our NEOs had a termination occurred on December 31, 2018, is found under Potential Payments upon Termination or Change in Control.

Stock Ownership Guidelines

The HR Committee has established stock ownership guidelines for the NEOs and certain other executives. These guidelines are designed to encourage LSC’s executives to have a meaningful equity ownership in LSC, thereby linking their interests with those of our stockholders. These stock ownership guidelines provide that, within three years of becoming an executive, each executive must own (by a combination of shares owned outright, shares owned through LSC’s 401(k) plan and shares of unvested RSAs and unvested RSUs, but excluding unexercised stock options or PSUs) shares of LSC common stock with a value of 5x base salary for the CEO, 3x base salary for the NEOs other than the CEO and 1x base salary for all other executives covered by the guidelines. Failure to achieve or make progress toward the guidelines shall be cause for review of such executive’s right to future participation in stock grants and/or affect future long-term incentive award payouts. As of April 3, 2019 (the date of the annual review of progress under the stock ownership guidelines), all of our NEOs had met, exceeded or made appropriate progress toward their applicable stock ownership guidelines.

Tax Deductibility Policy

The HR Committee considers the deductibility of compensation for federal income tax purposes in the design of LSC’s compensation programs. While LSC generally seeks to maintain the deductibility of the incentive compensation paid to its executive officers to the maximum extent permitted under applicable law, the HR Committee believes it is important to