Exhibit 99.1
 |
LSC COMMUNICATIONS REPORTS SECOND QUARTER 2019 RESULTS IN LINE WITH PREVIOUSLY ANNOUNCED PRELIMINARY RESULTS
COMPLETES AMENDMENT OF CREDIT AGREEMENT PROVIDING
ADDITIONAL LIQUIDITY
ANNOUNCES THE PLANNED CLOSURE OF ITS PRODUCTION FACILITY
IN TORRANCE, CALIFORNIA
Chicago, August 8, 2019 – LSC Communications, Inc. (NYSE: LKSD) today reported financial results for the second quarter of 2019.
Financial Highlights:
| • | Completed amendment to credit agreement provides additional liquidity |
| • | Announced plan to close production facility in Torrance, California, and sell the land and building resulting in net proceeds of approximately $35 million |
| • | Net cash provided by operating activities of $27 million in the second quarter of 2019, compared to net cash used in operating activities of $2 million in the second quarter of 2018 |
| • | Non-GAAP free cash flow of $6 million, compared to ($19) million in the second quarter of 2018 |
| • | Net sales of $869 million compared to $943 million in the second quarter of 2018 |
| • | Organic net sales decrease of 4.2% from the second quarter of 2018 |
| • | GAAP net loss of $24 million, or $0.69 per diluted share, compared to net income of $8 million, or $0.23 per diluted share in the second quarter of 2018 |
| • | Non-GAAP net income of $2 million, or $0.08 per diluted share, compared tonon-GAAP net income of $17 million, or $0.48 per diluted share in the second quarter of 2018 |
| • | Non-GAAP adjusted EBITDA of $53 million, or 6.1% of net sales, compared to $77 million, or 8.2% of net sales, in the second quarter of 2018 |
“As we reduce costs, enhance our financial flexibility, and focus on initiatives designed to deepen our customer relationships, I am confident we will further strengthen our position within the industry.” said Thomas J. Quinlan III, LSC Communications’ Chairman, President and Chief Executive Officer. “As a standalone company operating in an evolving industry, we are taking decisive steps to better position the Company for the future.”
Net Sales
Second quarter net sales were $869 million, down $74 million, or 7.7%, from the second quarter of 2018. After adjusting for acquisitions, dispositions, changes in foreign exchange rates and pass-through paper sales, organic net sales decreased 4.2% from the second quarter of 2018. The decrease in organic net sales was largely due to lower volume in Magazines, Catalogs and Logistics, as well as Office Products, partially offset by volume growth in Book and price increases in Office Products.
GAAP Net Loss
The second quarter 2019 net loss was $24 million, or $0.69 per diluted share, compared to net income of $8 million, or $0.23 per diluted share, in the second quarter of 2018. The second quarter 2019 net loss includedafter-tax charges of $26 million, primarily due to the impairment of intangible assets in the Magazines, Catalogs and Logistics segment and other restructuring costs. The second quarter 2018 net income includedafter-tax charges of $9 million. Theseafter-tax charges are excluded from the presentation ofnon-GAAP net income. Additional details regarding the amount and nature of these adjustments and other items are included in the attached schedules.
LSC COMMUNICATIONS REPORTS SECOND QUARTER 2019 RESULTS
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Non-GAAP Adjusted EBITDA andNon-GAAP Net Loss
Non-GAAP adjusted EBITDA in the second quarter of 2019 was $53 million, or 6.1% of net sales, compared to $77 million, or 8.2% of net sales, in the second quarter of 2018. The decrease innon-GAAP adjusted EBITDA was primarily due to volume declines in the Magazines, Catalogs and Logistics segment.
Non-GAAP net income totaled $2 million, or $0.08 per diluted share, in the second quarter of 2019 compared tonon-GAAP net income of $17 million, or $0.48 per diluted share in the second quarter of 2018. Reconciliations of net loss tonon-GAAP adjusted EBITDA andnon-GAAP net income are presented in the attached schedules.
2019 Guidance
The Company’s full-year guidance for 2019 has not changed from the guidance provided on July 23, 2019 and is included in the table below.
Guidance | ||
Net sales | $3.45 to $3.55 billion | |
Non-GAAP adjusted EBITDA | $200 to $240 million | |
Net pension income | $35 million | |
Non-GAAP adjusted EBITDA excluding net pension income | $165 to $205 million | |
Depreciation and amortization | $115 to $125 million | |
Interest expense | $75 to $79 million | |
Non-GAAP effective tax rate | 30% to 35% | |
Capital expenditures | $75 to $85 million | |
Free cash flow(1) | $60 to $100 million | |
Diluted share count | 34 to 35 million |
| (1) | Free cash flow is defined as net cash provided by operating activities less capital expenditures. The 2019 Free Cash Flow Guidance includes $45 million of gross proceeds received in connection with the Merger Agreement termination fee, less estimated transaction costs of approximately $20 to $25 million. The $35 million expected net proceeds from the sale of the land and building in Torrance, California is not included in free cash flow. |
Certain components of the guidance given in the table above are provided on anon-GAAP basis only, without providing a reconciliation to guidance provided on a GAAP basis. Information is presented in this manner, consistent with SEC rules, because the preparation of such a reconciliation could not be accomplished without “unreasonable efforts.” The Company does not have access to certain information that would be necessary to provide such a reconciliation, includingnon-recurring items that are not indicative of the Company’s ongoing operations. Such items include, but are not limited to, restructuring charges, impairment charges, pension settlement charges, acquisition-related expenses, gains or losses on investments and business disposals,
LSC COMMUNICATIONS REPORTS SECOND QUARTER 2019 RESULTS
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losses on debt extinguishment, merger-related expenses and other similar gains or losses not reflective of the Company’s ongoing operations. The Company does not believe that excluding such items is likely to be significant to an assessment of the Company’s ongoing operations, given that such excluded items are not indicators of business performance.
Credit Agreement Amendment
On August 2, 2019, the Company entered into an amendment to its credit agreement to, among other things, decrease the minimum Interest Coverage Ratio and increase the maximum Consolidated Leverage Ratio, as defined in the agreement, which would have increased the net available liquidity under the revolving credit facility as of June 30, 2019 notwithstanding the reduction in the revolving credit facility aggregate principal amount from $400 million to $300 million, which was also effected through the amendment. The amendment also removed the general allowance to pay annual dividends up to $50 million, as well as other changes that generally further restrict the Company’s ability to incur additional indebtedness, create liens and make investments and acquisitions. The maturity date of the revolving credit facility remains September 30, 2021, and the outstanding principal amount, required amortization payments and maturity date of the term loan facility remains the same. Additional details regarding the credit agreement amendment can be found in the current report on Form8-K filed by the Company on August 5, 2019.
Facility Closure
The Company recently announced the planned closure of its production facility in Torrance, California. The Company has entered into an agreement to sell the land and building in Torrance and expects to receive net proceeds of approximately $35 million.
Conference Call
LSC Communications will host a conference call and live webcast to discuss its second quarter results today, Thursday, August 8, at 8:30 a.m. Eastern Time (7:30a.m. Central Time). The live webcast will be accessible on LSC’s website,www.lsccom.com, or through thislink.
Individuals wishing to dial in to the call or access the live webcast must register in advance. After registering, participants will receivedial-in numbers, a passcode, and a link to access the live event.
A webcast replay will be archived on LSC’s web site for 90 days after the call.
About LSC Communications
With a rich history of industry experience, innovative solutions and service reliability, LSC Communications (NYSE: LKSD) is a global leader in print and digital media solutions. Our traditional and digital print-related services and office products serve the needs of publishers, merchandisers and retailers around the world. With advanced technology and a consultative approach, our supply chain solutions meet the needs of each business by getting their content into the right hands as efficiently as possible.
For more information about LSC Communications, visitwww.lsccom.com.
Investor Contact
Janet M. Halpin, Senior Vice President, Treasurer & Investor Relations
E-mail:investor.relations@lsccom.com
Tel: 773.272.9275
LSC COMMUNICATIONS REPORTS SECOND QUARTER 2019 RESULTS
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Use ofnon-GAAP Information
This news release contains certainnon-GAAP measures. The Company believes that thesenon-GAAP measures, such asnon-GAAP adjusted EBITDA,non-GAAP adjusted EBITDA margin,non-GAAP net income/loss and free cash flow, when presented in conjunction with comparable GAAP measures, provide useful information about the Company’s operating results and liquidity and enhance the overall ability to assess the Company’s financial performance. The Company uses these measures, together with other measures of performance under GAAP, to compare the relative performance of operations in planning, budgeting and reviewing the performance of its business.Non-GAAP adjusted EBITDA,non-GAAP adjusted EBITDA margin,non-GAAP net income/loss and free cash flow allow investors to make a more meaningful comparison between the Company’s core business operating results over different periods of time. The Company believes thatnon-GAAP adjusted EBITDA,non-GAAP adjusted EBITDA margin,non-GAAP net income/loss and free cash flow, when viewed with the Company’s results under GAAP and the accompanying reconciliations, provides useful information about the Company’s business without regard to potential distortions. By eliminating potential differences in results of operations between periods caused by factors such as depreciation and amortization methods, historic cost and age of assets, financing and capital structures, taxation positions or regimes, restructuring, impairment and other charges and gain or loss on certain equity investments and asset sales, the Company believes thatnon-GAAP adjusted EBITDA,non-GAAP adjusted EBITDA margin andnon-GAAP net income/loss can provide useful additional basis for comparing the current performance of the underlying operations being evaluated. By adjusting for the level of capital investment in operations, the Company believes that free cash flow can provide useful additional basis for understanding the Company’s ability to generate cash after capital investment and provides a comparison to peers with differing capital intensity.
Forward Looking Statements
This news release may contain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the U.S. Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on these forward-looking statements and any such forward-looking statements are qualified in their entirety by reference to the following cautionary statements. All forward-looking statements speak only as of the date of this news release and are based on current expectations and involve a number of assumptions, risks and uncertainties that could cause the actual results to differ materially from such forward-looking statements, including risks associated with the ability of LSC Communications to perform as expected as a separate, independent entity and risks associated with the volatility and disruption of the capital and credit markets, and adverse changes in the global economy. Readers are strongly encouraged to read the full cautionary statements contained in LSC’s filings with the SEC. LSC disclaims any obligation to update or revise any forward-looking statements.
LSC COMMUNICATIONS REPORTS SECOND QUARTER 2019 RESULTS
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LSC Communications, Inc.
Condensed Consolidated Balance Sheets
As of June 30, 2019 and December 31, 2018
(in millions, except share and per share data)
(UNAUDITED)
| June 30, 2019 | December 31, 2018 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 17 | $ | 21 | ||||
Receivables, less allowances for doubtful accounts of $15 in 2019 (2018 - $14) | 582 | 617 | ||||||
Inventories | 213 | 197 | ||||||
Income tax receivable | 7 | 4 | ||||||
Prepaid expenses and other current assets | 36 | 28 | ||||||
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Total Current Assets | 855 | 867 | ||||||
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Property, plant andequipment-net | 485 | 508 | ||||||
Goodwill | 103 | 103 | ||||||
Other intangibleassets-net | 130 | 156 | ||||||
Right-of-use assets for operating leases | 188 | — | ||||||
Deferred income taxes | 30 | 27 | ||||||
Other noncurrent assets | 88 | 93 | ||||||
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Total Assets | $ | 1,879 | $ | 1,754 | ||||
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Liabilities | ||||||||
Accounts payable | $ | 347 | $ | 372 | ||||
Accrued liabilities | 188 | 199 | ||||||
Short-term debt and current portion of long-term debt | 192 | 108 | ||||||
Short-term operating lease liabilities | 46 | — | ||||||
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Total Current Liabilities | 773 | 679 | ||||||
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Long-term debt | 639 | 659 | ||||||
Pension liabilities | 100 | 132 | ||||||
Restructuring and multi-employer pension liabilities | 42 | 45 | ||||||
Long-term operating lease liabilities | 148 | — | ||||||
Other noncurrent liabilities | 51 | 61 | ||||||
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Total Liabilities | 1,753 | 1,576 | ||||||
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Commitments and Contingencies | ||||||||
Equity | ||||||||
Common stock, $0.01 par value | ||||||||
Authorized: 65,000,000 | ||||||||
Issued: 35,583,329 shares in 2019 (2018: 35,029,565) | — | — | ||||||
Additionalpaid-in capital | 832 | 828 | ||||||
Accumulated deficit | (209 | ) | (42 | ) | ||||
Accumulated other comprehensive loss | (472 | ) | (584 | ) | ||||
Treasury stock, at cost: 2,032,134 shares in 2019 (2018: 1,888,205) | (25 | ) | (24 | ) | ||||
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Total Equity | 126 | 178 | ||||||
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Total Liabilities and Equity | $ | 1,879 | $ | 1,754 | ||||
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LSC COMMUNICATIONS REPORTS SECOND QUARTER 2019 RESULTS
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LSC Communications, Inc.
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2019 and 2018
(in millions, except per share data)
(UNAUDITED)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
Net sales | $ | 869 | $ | 943 | $ | 1,714 | $ | 1,872 | ||||||||
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Cost of sales (1) | 750 | 798 | 1,485 | 1,606 | ||||||||||||
Selling, general and administrative expenses (SG&A) (1) | 80 | 82 | 165 | 165 | ||||||||||||
Restructuring, impairment and other charges-net | 24 | 11 | 37 | 17 | ||||||||||||
Depreciation and amortization | 31 | 34 | 62 | 72 | ||||||||||||
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(Loss) income from operations | (16 | ) | 18 | (35 | ) | 12 | ||||||||||
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Interest expense-net | 19 | 18 | 38 | 38 | ||||||||||||
Settlement of retirement benefit obligations | 1 | — | 136 | — | ||||||||||||
Investment and other (income)-net | (9 | ) | (13 | ) | (19 | ) | (24 | ) | ||||||||
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(Loss) income before income taxes | (27 | ) | 13 | (190 | ) | (2 | ) | |||||||||
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Income tax (benefit) expense | (3 | ) | 5 | (40 | ) | 1 | ||||||||||
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Net (loss) income | $ | (24 | ) | $ | 8 | $ | (150 | ) | $ | (3 | ) | |||||
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Net (loss) income per common share: | ||||||||||||||||
Basic net (loss) income per share | $ | (0.69 | ) | $ | 0.24 | $ | (4.48 | ) | $ | (0.09 | ) | |||||
Diluted net (loss) income per share | $ | (0.69 | ) | $ | 0.23 | $ | (4.48 | ) | $ | (0.09 | ) | |||||
Weighted-average number of common shares outstanding: | ||||||||||||||||
Basic | 33.5 | 34.0 | 33.4 | 34.3 | ||||||||||||
Diluted | 33.5 | 34.3 | 33.4 | 34.3 | ||||||||||||
Additional information: | ||||||||||||||||
Gross margin (1) | 13.7 | % | 15.4 | % | 13.4 | % | 14.2 | % | ||||||||
SG&A as a % of net sales (1) | 9.2 | % | 8.7 | % | 9.6 | % | 8.8 | % | ||||||||
Operating margin | nm | 1.9 | % | nm | 0.6 | % | ||||||||||
Effective tax rate | 13.3 | % | 35.3 | % | 21.3 | % | (35.7 | %) | ||||||||
| (1) | Exclusive of depreciation and amortization |
nm = not meaningful
LSC COMMUNICATIONS REPORTS SECOND QUARTER 2019 RESULTS
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LSC Communications, Inc.
Reconciliation of GAAP Net (Loss) Income toNon-GAAP Adjusted EBITDA
For the Three and Twelve Months Ended June 30, 2019 and 2018
(in millions)
(UNAUDITED)
| For the Twelve Months Ended | For the Three Months Ended | |||||||||||||||||||
| June 30, 2019 | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | ||||||||||||||||
GAAP net (loss) | $ | (170 | ) | $ | (24 | ) | $ | (126 | ) | $ | (16 | ) | $ | (4 | ) | |||||
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Adjustments: | ||||||||||||||||||||
Restructuring, impairment and other charges - net (1) | 55 | 24 | 13 | 17 | 1 | |||||||||||||||
Settlement of retirement benefit obligations (2) | 136 | 1 | 135 | — | — | |||||||||||||||
Expenses related to acquisitions, the Merger Agreement | 20 | 5 | 7 | 6 | 2 | |||||||||||||||
Purchase accounting adjustments (4) | — | — | — | (1 | ) | 1 | ||||||||||||||
Depreciation and amortization | 128 | 31 | 31 | 32 | 34 | |||||||||||||||
Interest expense - net | 80 | 19 | 19 | 21 | 21 | |||||||||||||||
Income tax (benefit) expense (5) | (8 | ) | (3 | ) | (37 | ) | (3 | ) | 35 | |||||||||||
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TotalNon-GAAP adjustments | 411 | 77 | 168 | 72 | 94 | |||||||||||||||
Non-GAAP adjusted EBITDA | $ | 241 | $ | 53 | $ | 42 | $ | 56 | $ | 90 | ||||||||||
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Net sales | $ | 3,668 | $ | 869 | $ | 845 | $ | 939 | $ | 1,015 | ||||||||||
Non-GAAP adjusted EBITDA margin % | 6.6 | % | 6.1 | % | 5.0 | % | 6.0 | % | 8.9 | % | ||||||||||
| For the Twelve Months Ended | For the Three Months Ended | |||||||||||||||||||
| June 30, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 | ||||||||||||||||
GAAP net (loss) income | $ | (64 | ) | $ | 8 | $ | (11 | ) | $ | (58 | ) | $ | (3 | ) | ||||||
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Adjustments: | ||||||||||||||||||||
Restructuring, impairment and other charges - net (1) | 119 | 11 | 6 | 42 | 60 | |||||||||||||||
Separation-related expenses (6) | 1 | — | — | — | 1 | |||||||||||||||
Expenses related to acquisitions, the Merger Agreement | 6 | 1 | 1 | 2 | 2 | |||||||||||||||
Purchase accounting adjustments (4) | 2 | — | 3 | (2 | ) | 1 | ||||||||||||||
Loss on debt extinguishment (7) | 3 | — | — | 3 | — | |||||||||||||||
Depreciation and amortization | 153 | 34 | 38 | 42 | 39 | |||||||||||||||
Interest expense - net | 77 | 18 | 20 | 20 | 19 | |||||||||||||||
Income tax expense (benefit) | 14 | 5 | (4 | ) | 36 | (23 | ) | |||||||||||||
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TotalNon-GAAP adjustments | 375 | 69 | 64 | 143 | 99 | |||||||||||||||
Non-GAAP adjusted EBITDA | $ | 311 | $ | 77 | $ | 53 | $ | 85 | $ | 96 | ||||||||||
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Net sales | $ | 3,806 | $ | 943 | $ | 929 | $ | 999 | $ | 935 | ||||||||||
Non-GAAP adjusted EBITDA margin % | 8.2 | % | 8.2 | % | 5.7 | % | 8.5 | % | 10.3 | % | ||||||||||
| (1) | Restructuring, impairment and othercharges-net: Restructuring charges for employee termination costs, lease terminations, other costs, multiemployer pension plan withdrawal obligations, impairment charges for goodwill, intangible assets and other long-lived assets. Refer to the Reconciliation of GAAP toNon-GAAP Measures schedules for more information. |
| (2) | Settlement of retirement benefit obligations: During the three months ended March 31, 2019, the Company completed a partial settlement of its retirement benefit obligations, and as a result, the Company’s pension assets and liabilities were remeasured as of the settlement date. The Company recorded anon-cash settlement charge of $135 million in settlement of retirement benefit obligations in the condensed consolidated statements of operations during the three months ended March 31, 2019. There were additional immateriallump-sum settlements (unrelated to the transaction noted above) that resulted in anon-cash settlement charge of $1 million during the three months ended June 30, 2019. |
| (3) | Expenses related to acquisitions, the Merger Agreement and dispositions: Legal, accounting and other expenses associated with completed and contemplated acquisitions and dispositions; and costs associated with the agreement and plan of merger between the Company, Quad/Graphics, Inc. and QLC Merger Sub, Inc. (the “Merger Agreement”). |
| (4) | Purchase accounting adjustments: Purchase accounting inventorystep-up adjustments and any gains associated with acquisitions. |
| (5) | Income tax expense (benefit): The three months ended March 31, 2019 included a $34 million benefit associated with the Company’s settlement of retirement benefit obligations. The three months ended September 30, 2018 included a $25 millionnon-cash provision primarily for thewrite-off of a deferred tax asset associated with the Company’s disposition of its European printing business on September 28, 2018. |
| (6) | Separation-related expenses:One-time transaction expenses associated with becoming a standalone company. |
| (7) | Loss on debt extinguishment: Loss related to a partial debt extinguishment. |
LSC COMMUNICATIONS REPORTS SECOND QUARTER 2019 RESULTS
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LSC Communications, Inc.
Reconciliation of GAAP toNon-GAAP Measures
For the Three Months Ended June 30, 2019 and 2018
(in millions, except per share data)
(UNAUDITED)
| For the Three Months Ended June 30, 2019 | For the Three Months Ended June 30, 2018 | |||||||||||||||
| Net (loss) income | Net (loss) income per diluted share | Net income | Net income per diluted share | |||||||||||||
GAAP basis measures | $ | (24 | ) | $ | (0.69 | ) | $ | 8 | $ | 0.23 | ||||||
Non-GAAP adjustments: | ||||||||||||||||
Restructuring, impairment and other charges - net (1) | 20 | 0.58 | 8 | 0.21 | ||||||||||||
Settlement of retirement benefit obligations (2) | — | 0.01 | — | — | ||||||||||||
Expenses related to acquisitions, the Merger Agreement and dispositions (3) | 6 | 0.18 | 1 | 0.03 | ||||||||||||
Income tax adjustments | — | — | — | 0.01 | ||||||||||||
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TotalNon-GAAP adjustments | 26 | 0.77 | 9 | 0.25 | ||||||||||||
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Non-GAAP measures | $ | 2 | $ | 0.08 | $ | 17 | $ | 0.48 | ||||||||
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| (1) | Restructuring, impairment and other charges - net: Operating results for the three months ended June 30, 2019 and 2018 were affected by thepre-tax restructuring charges below of $24 million ($20 millionafter-tax) and $11 million ($8 millionafter-tax), respectively. |
| For the Three Months Ended June 30, | ||||||||
| 2019 | 2018 | |||||||
Other restructuring charges (a) | $ | 6 | $ | 7 | ||||
Employee termination costs (b) | — | 3 | ||||||
Other charges (c) | 1 | 1 | ||||||
Impairment charges - intangibles (d) | 17 | — | ||||||
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Total restructuring, impairment and other charges - net | $ | 24 | $ | 11 | ||||
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| (a) | For the three months ended June 30, 2019 other restructuring charges included other facility costs as well as costs associated with new revenue opportunities and cost savings initiatives implemented in 2019, and multi-employer pension plan withdrawal obligations related to facility closures. For the three months ended June 30, 2018, other restructuring charges included other facility costs, a loss related to the Company’s disposition of its retail offset printing facilities and pension withdrawal obligations related to facility closures. |
| (b) | For the three months ended June 30, 2018, employee-related termination costs resulted from the reorganization of certain business units. |
| (c) | Other charges related to the Company’s multi-employer pension plan withdrawal obligations unrelated to facility closures. |
| (d) | Due to the unprecedented drop in demand in the magazines and catalogs reporting unit, management determined that a further review of the reporting unit’s intangible assets for recoverability was appropriate as of June 30, 2019. As a result, the Company recorded a $17 million impairment charge related to a certain definite-lived customer relationship intangible asset in the magazines and catalog reporting unit for the three months ended June 30, 2019, which fully impaired the asset. |
| (2) | Settlement of retirement benefit obligations: During the three months ended June 30, 2019, there were immateriallump-sum settlements that resulted in a totalnon-cash settlement charge of $1 million (a de minimis amount ofafter-tax charge). |
| (3) | Expenses related to acquisitions, the Merger Agreement and dispositions: The three months ended June 30, 2019 includedpre-tax charges of $5 million ($6 millionafter-tax) primarily related to the Merger Agreement. The three months ended June 30, 2018 includedpre-tax charges of $1 million ($1 millionafter-tax) related to legal, accounting and other expenses associated with completed and contemplated acquisitions and dispositions. |
Note:The income tax impact is calculated using the tax rate in effect for the non-GAAP adjustments.
LSC COMMUNICATIONS REPORTS SECOND QUARTER 2019 RESULTS
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LSC Communications, Inc.
Reconciliation of GAAP toNon-GAAP Measures
For the Six Months Ended June 30, 2019 and 2018
(in millions, except per share data)
(UNAUDITED)
| For the Six Months Ended June 30, 2019 | For the Six Months Ended June 30, 2018 | |||||||||||||||
| Net (loss) income | Net (loss) income per diluted share | Net (loss) income | Net (loss) income per diluted share | |||||||||||||
GAAP basis measures | $ | (150 | ) | $ | (4.48 | ) | $ | (3 | ) | $ | (0.09 | ) | ||||
Non-GAAP adjustments: | ||||||||||||||||
Restructuring, impairment and other charges - net (1) | 33 | 0.99 | 12 | 0.32 | ||||||||||||
Settlement of retirement benefit obligations (2) | 101 | 3.03 | — | — | ||||||||||||
Expenses related to acquisitions, the Merger Agreement and dispositions (3) | 12 | 0.36 | 1 | 0.04 | ||||||||||||
Purchase accounting adjustments (4) | — | — | 2 | 0.07 | ||||||||||||
Income tax adjustments (5) | 1 | 0.02 | 1 | 0.03 | ||||||||||||
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TotalNon-GAAP adjustments | 147 | 4.40 | 16 | 0.46 | ||||||||||||
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Non-GAAP measures | $ | (3 | ) | $ | (0.08 | ) | $ | 13 | $ | 0.37 | ||||||
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| (1) | Restructuring, impairment and other charges - net: Operating results for the six months ended June 30, 2019 and 2018 were affected by thepre-tax restructuring charges below of $37 million ($33 millionafter-tax) and $17 million ($12 millionafter-tax), respectively. |
| For the Six Months Ended June 30, | ||||||||
| 2019 | 2018 | |||||||
Other restructuring charges (a) | $ | 12 | $ | 10 | ||||
Employee termination costs (b) | 5 | 7 | ||||||
Other charges (c) | 1 | 1 | ||||||
Impairment charges - intangibles (d) | 17 | — | ||||||
Impairment charges - machinery and equipment (e) | 2 | — | ||||||
Reduction of goodwill impairment charges (f) | — | (1 | ) | |||||
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Total restructuring, impairment and other charges - net | $ | 37 | $ | 17 | ||||
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| (a) | For the six months ended June 30, 2019, other restructuring costs included other facility costs as well as costs associated with new revenue opportunities and cost savings initiatives implemented in 2019, and multi-employer pension plan withdrawal obligations related to facility closures. The six months ended June 30, 2018 included other facility costs, a loss related to the Company’s disposition of its retail offset printing facilities and pension withdrawal obligations related to facility closures. |
| (b) | For the six months ended June 30, 2019, employee-related termination costs primarily resulted from the closure of one facility in the Magazines, Catalogs and Logistics segment. For the six months ended June 30, 2018 employee-related termination costs resulted from the closure of one facility in the Magazines, Catalogs and Logistics segment and the reorganization of certain business units and corporate functions. |
| (c) | Other charges related to the Company’s multi-employer pension plan withdrawal obligations unrelated to facility closures. |
| (d) | Due to the unprecedented drop in demand in the magazines and catalogs reporting unit, management determined that a further review of the reporting unit’s intangible assets for recoverability was appropriate as of June 30, 2019. As a result, the Company recorded a $17 million impairment charge related to a certain definite-lived customer relationship intangible asset in the magazines and catalogs reporting unit for the six months ended June 30, 2019, which fully impaired the asset. |
| (e) | For the six months ended June 30, 2019, the Company recorded $2 million of net impairment charges related to machinery and equipment associated with facility closings in the Magazines, Catalogs and Logistics segment. |
| (f) | For the six months ended June 30, 2018, there was a reduction of $1 million of goodwill impairment charges as a result of a $1 million adjustment of previously recorded goodwill associated with prior acquisitions. |
| (2) | Settlement of retirement benefit obligations: During the three months ended March 31, 2019, the Company completed a partial settlement of its retirement benefit obligations, and as a result, the Company’s pension assets and liabilities were remeasured as of the settlement date. The Company recorded apre-taxnon-cash settlement charge of $135 million during the three months ended March 31, 2019. There were additional immateriallump-sum settlements that resulted innon-cash settlement charges of $1 million during the three months ended June 30, 2019. There were totalpre-taxnon-cash settlement charges of $136 million ($101 millionafter-tax) in settlement of retirement benefit obligations in the condensed consolidated statements of operations during the six months ended June 30, 2019. |
| (3) | Expenses related to acquisitions, the Merger Agreement and dispositions: The six months ended June 30, 2019 includedpre-tax charges of $12 million ($12 millionafter-tax) primarily related to the Merger Agreement. The six months ended June 30, 2018 includedpre-tax charges of $2 million ($1 millionafter-tax) related to legal, accounting and other expenses associated with completed and contemplated acquisitions and dispositions. |
| (4) | Purchase accounting adjustments: The six months ended June 30, 2018 includedpre-tax charges of $3 million ($2 millionafter-tax) as a result of purchase accounting inventorystep-up adjustments and changes to purchase price allocations related to prior acquisitions. |
| (5) | Income tax adjustments: Included tax expense of $1 million for each of the six months ended June 30, 2019 and 2018 that was recorded due to the unfavorable impact associated with share-based compensation awards that lapsed during each of the periods. |
Note:The income tax impact is calculated using the tax rate in effect for the non-GAAP adjustments.
LSC COMMUNICATIONS REPORTS SECOND QUARTER 2019 RESULTS
Page 10 of 16
LSC Communications, Inc.
Total Company GAAP toNon-GAAP Adjusted EBITDA and Margin Reconciliation
For the Three Months Ended June 30, 2019 and 2018 and Twelve Months Ended June 30, 2019
(in millions)
(UNAUDITED)
Total LSC Communications
| Q2 2019 LTM | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | Q2 2018 | Q1 2018 | ||||||||||||||||||||||
Net sales | $ | 3,668 | $ | 869 | $ | 845 | $ | 939 | $ | 1,015 | $ | 943 | $ | 929 | ||||||||||||||
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GAAP net (loss) income | (170 | ) | (24 | ) | (126 | ) | (16 | ) | (4 | ) | 8 | (11 | ) | |||||||||||||||
Restructuring, impairment and other charges - net | 55 | 24 | 13 | 17 | 1 | 11 | 6 | |||||||||||||||||||||
Settlement of retirement benefit obligations | 136 | 1 | 135 | — | — | — | — | |||||||||||||||||||||
Expenses related to acquisitions, the Merger Agreement and dispositions | 20 | 5 | 7 | 6 | 2 | 1 | 1 | |||||||||||||||||||||
Purchase accounting adjustments | — | — | — | (1 | ) | 1 | — | 3 | ||||||||||||||||||||
Depreciation and amortization | 128 | 31 | 31 | 32 | 34 | 34 | 38 | |||||||||||||||||||||
Interest expense - net | 80 | 19 | 19 | 21 | 21 | 18 | 20 | |||||||||||||||||||||
Income tax (benefit) expense | (8 | ) | (3 | ) | (37 | ) | (3 | ) | 35 | 5 | (4 | ) | ||||||||||||||||
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Non-GAAP Adjusted EBITDA | $ | 241 | $ | 53 | $ | 42 | $ | 56 | $ | 90 | $ | 77 | $ | 53 | ||||||||||||||
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Non-GAAP Adjusted EBITDA margin | 6.6 | % | 6.1 | % | 5.0 | % | 6.0 | % | 8.9 | % | 8.2 | % | 5.7 | % | ||||||||||||||
Net cash provided by (used in) operating activities | $ | 191 | $ | 27 | ($ | 24 | ) | $ | 188 | $ | — | ($ | 2 | ) | ($ | 24 | ) | |||||||||||
Capital expenditures | (75 | ) | (21 | ) | (28 | ) | (11 | ) | (15 | ) | (17 | ) | (20 | ) | ||||||||||||||
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Free cash flow | $ | 116 | $ | 6 | ($ | 52 | ) | $ | 177 | ($ | 15 | ) | ($ | 19 | ) | ($ | 44 | ) | ||||||||||
LSC COMMUNICATIONS REPORTS SECOND QUARTER 2019 RESULTS
Page 11 of 16
LSC Communications, Inc.
Segment GAAP toNon-GAAP Adjusted EBITDA and Margin Reconciliation
For the Three Months Ended June 30, 2019 and 2018 and Twelve Months Ended June 30, 2019
(in millions)
(UNAUDITED)
Magazines, Catalogs and Logistics
| Q2 2019 LTM | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | Q2 2018 | Q1 2018 | ||||||||||||||||||||||
Net sales | $ | 1,722 | $ | 380 | $ | 403 | $ | 476 | $ | 463 | $ | 401 | $ | 427 | ||||||||||||||
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(Loss) income from operations | ($ | 84 | ) | ($ | 42 | ) | ($ | 31 | ) | ($ | 12 | ) | $ | 1 | ($ | 6 | ) | ($ | 14 | ) | ||||||||
Depreciation and amortization | 59 | 13 | 15 | 15 | 16 | 15 | 16 | |||||||||||||||||||||
Restructuring, impairment and other charges - net | 41 | 20 | 11 | 10 | — | 6 | 4 | |||||||||||||||||||||
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Non-GAAP Adjusted EBITDA | $ | 16 | ($ | 9 | ) | ($ | 5 | ) | $ | 13 | $ | 17 | $ | 15 | $ | 6 | ||||||||||||
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Non-GAAP Adjusted EBITDA margin | 0.9 | % | (2.4 | %) | (1.2 | %) | 2.7 | % | 3.7 | % | 3.7 | % | 1.4 | % | ||||||||||||||
Capital expenditures | $ | 32 | $ | 12 | $ | 10 | $ | 4 | $ | 6 | $ | 5 | $ | 9 | ||||||||||||||
Book | ||||||||||||||||||||||||||||
| Q2 2019 LTM | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | Q2 2018 | Q1 2018 | ||||||||||||||||||||||
Net sales | $ | 1,089 | $ | 289 | $ | 260 | $ | 258 | $ | 282 | $ | 266 | $ | 249 | ||||||||||||||
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Income from operations | $ | 61 | $ | 18 | $ | 13 | $ | 9 | $ | 21 | $ | 19 | $ | 9 | ||||||||||||||
Depreciation and amortization | 50 | 13 | 12 | 13 | 12 | 13 | 14 | |||||||||||||||||||||
Restructuring, impairment and other charges - net | 4 | 1 | 1 | 1 | 1 | 3 | 1 | |||||||||||||||||||||
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Non-GAAP Adjusted EBITDA | $ | 115 | $ | 32 | $ | 26 | $ | 23 | $ | 34 | $ | 35 | $ | 24 | ||||||||||||||
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Non-GAAP Adjusted EBITDA margin | 10.6 | % | 11.1 | % | 10.0 | % | 8.9 | % | 12.1 | % | 13.2 | % | 9.6 | % | ||||||||||||||
Capital expenditures | $ | 37 | $ | 7 | $ | 17 | $ | 6 | $ | 7 | $ | 9 | $ | 9 | ||||||||||||||
LSC COMMUNICATIONS REPORTS SECOND QUARTER 2019 RESULTS
Page 12 of 16
LSC Communications, Inc.
Segment GAAP toNon-GAAP Adjusted EBITDA and Margin Reconciliation
For the Three Months Ended June 30, 2019 and 2018 and Twelve Months Ended June 30, 2019
(in millions)
(UNAUDITED)
Office Products
| Q2 2019 LTM | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | Q2 2018 | Q1 2018 | ||||||||||||||||||||||
Net sales | $ | 543 | $ | 139 | $ | 119 | $ | 140 | $ | 145 | $ | 154 | $ | 123 | ||||||||||||||
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Income from operations | $ | 46 | $ | 13 | $ | 8 | $ | 10 | $ | 15 | $ | 13 | $ | 2 | ||||||||||||||
Depreciation and amortization | 12 | 3 | 3 | 2 | 4 | 3 | 4 | |||||||||||||||||||||
Restructuring, impairment and other charges - net | 5 | 1 | — | 4 | — | 1 | 1 | |||||||||||||||||||||
Purchase accounting adjustments | — | — | — | — | — | — | 1 | |||||||||||||||||||||
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Non-GAAP Adjusted EBITDA | $ | 63 | $ | 17 | $ | 11 | $ | 16 | $ | 19 | $ | 17 | $ | 8 | ||||||||||||||
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Non-GAAP Adjusted EBITDA margin | 11.6 | % | 12.2 | % | 9.2 | % | 11.4 | % | 13.1 | % | 11.0 | % | 6.5 | % | ||||||||||||||
Capital expenditures | $ | 1 | $ | 1 | $ | — | $ | — | $ | — | $ | 1 | $ | — | ||||||||||||||
Other | ||||||||||||||||||||||||||||
| Q2 2019 LTM | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | Q2 2018 | Q1 2018 | ||||||||||||||||||||||
Net sales | $ | 316 | $ | 61 | $ | 63 | $ | 67 | $ | 125 | $ | 122 | $ | 130 | ||||||||||||||
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Income from operations | $ | 24 | $ | 8 | $ | 4 | $ | 3 | $ | 9 | $ | 7 | $ | 7 | ||||||||||||||
Depreciation and amortization | 6 | 1 | 1 | 2 | 2 | 2 | 4 | |||||||||||||||||||||
Restructuring, impairment and other charges - net | 1 | — | — | 1 | — | — | — | |||||||||||||||||||||
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Non-GAAP Adjusted EBITDA | $ | 31 | $ | 9 | $ | 5 | $ | 6 | $ | 11 | $ | 9 | $ | 11 | ||||||||||||||
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Non-GAAP Adjusted EBITDA margin | 9.8 | % | 14.8 | % | 7.9 | % | 9.0 | % | 8.8 | % | 7.4 | % | 8.5 | % | ||||||||||||||
Capital expenditures | $ | 2 | $ | — | $ | 1 | $ | — | $ | 1 | $ | 1 | $ | 1 | ||||||||||||||
Corporate | ||||||||||||||||||||||||||||
| Q2 2019 LTM | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | Q2 2018 | Q1 2018 | ||||||||||||||||||||||
Net sales | ($ | 2 | ) | $ | — | $ | — | ($ | 2 | ) | $ | — | $ | — | $ | — | ||||||||||||
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Operating expenses | ($ | 52 | ) | ($ | 13 | ) | ($ | 13 | ) | ($ | 21 | ) | ($ | 5 | ) | ($ | 15 | ) | ($ | 10 | ) | |||||||
Investment and other(income)-net | (43 | ) | (9 | ) | (10 | ) | (13 | ) | (11 | ) | (13 | ) | (11 | ) | ||||||||||||||
Depreciation and amortization | 1 | 1 | — | — | — | 1 | — | |||||||||||||||||||||
Restructuring, impairment and other charges - net | 4 | 2 | 1 | 1 | — | 1 | — | |||||||||||||||||||||
Expenses related to acquisitions, the Merger Agreement and dispositions | 20 | 5 | 7 | 6 | 2 | 1 | 1 | |||||||||||||||||||||
Purchase accounting adjustments | — | — | — | (1 | ) | 1 | — | 2 | ||||||||||||||||||||
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Non-GAAP Adjusted EBITDA | $ | 16 | $ | 4 | $ | 5 | ($ | 2 | ) | $ | 9 | $ | 1 | $ | 4 | |||||||||||||
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Capital expenditures | $ | 3 | $ | 1 | $ | — | $ | 1 | $ | 1 | $ | 1 | $ | 1 | ||||||||||||||
LSC COMMUNICATIONS REPORTS SECOND QUARTER 2019 RESULTS
Page 13 of 16
LSC Communications, Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2019 and 2018
(in millions)
(UNAUDITED)
| 2019 | 2018 | |||||||
Net (loss) | $ | (150 | ) | $ | (3 | ) | ||
Adjustment to reconcile net (loss) to net cash provided by (used in) operating activities: | ||||||||
Impairment charges | 19 | — | ||||||
Depreciation and amortization | 62 | 72 | ||||||
Provision for doubtful accounts receivable | 4 | 4 | ||||||
Share-based compensation | 4 | 8 | ||||||
Deferred income taxes | (39 | ) | 4 | |||||
Settlement of retirement benefit obligations | 136 | — | ||||||
Other | 1 | 4 | ||||||
Changes in operating assets and liabilities - net of acquisitions: | ||||||||
Accounts receivable - net | 32 | 61 | ||||||
Inventories | (15 | ) | (49 | ) | ||||
Prepaid expenses and other current assets | 1 | (4 | ) | |||||
Accounts payable | (13 | ) | (81 | ) | ||||
Income taxes receivable | (3 | ) | 2 | |||||
Accrued liabilities and other | (36 | ) | (44 | ) | ||||
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Net cash provided by (used in) operating activities | $ | 3 | $ | (26 | ) | |||
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Capital expenditures | (49 | ) | (37 | ) | ||||
Acquisitions of businesses, net of cash acquired | (3 | ) | 4 | |||||
Net proceeds from sales and purchase of investments and other assets | — | 1 | ||||||
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Net cash (used in) investing activities | $ | (52 | ) | $ | (32 | ) | ||
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Payments of current maturities and long-term debt | (22 | ) | (26 | ) | ||||
Net proceeds from credit facility borrowings | 84 | 115 | ||||||
Payments for repurchase of common stock | — | (20 | ) | |||||
Dividends paid | (17 | ) | (18 | ) | ||||
Other financing activities | (1 | ) | (1 | ) | ||||
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Net cash provided by financing activities | $ | 44 | $ | 50 | ||||
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Effect of exchange rate on cash and cash equivalents | 1 | (2 | ) | |||||
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Net (decrease) in cash, cash equivalents and restricted cash | $ | (4 | ) | $ | (10 | ) | ||
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Cash, cash equivalents and restricted cash at beginning of year | 24 | 35 | ||||||
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Cash, cash equivalents and restricted cash at end of period | $ | 20 | $ | 25 | ||||
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Reconciliation to the Condensed Consolidated Balance Sheets | As of June 30, 2019 | As of December 31, 2018 | ||||||
Cash and cash equivalents | $ | 17 | $ | 21 | ||||
Restricted cash included in prepaid expenses and other current assets | 3 | 3 | ||||||
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Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows | $ | 20 | $ | 24 | ||||
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LSC COMMUNICATIONS REPORTS SECOND QUARTER 2019 RESULTS
Page 14 of 16
LSC Communications, Inc.
Reconciliation of Reported to Pro Forma Net Sales
For the Three Months Ended June 30, 2019 and 2018
(in millions)
(UNAUDITED)
| Magazines, Catalogs & Logistics | Book | Office Products | Other | Total LSC | ||||||||||||||||
Q2 2018 Net Sales as Reported | $ | 401 | $ | 266 | $ | 154 | $ | 122 | $ | 943 | ||||||||||
Adjustments (1) | 41 | — | — | — | 41 | |||||||||||||||
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Q2 2018 Net Sales Pro Forma | $ | 442 | $ | 266 | $ | 154 | $ | 122 | $ | 984 | ||||||||||
Q2 2019 Net Sales as Reported | $ | 380 | $ | 289 | $ | 139 | $ | 61 | $ | 869 | ||||||||||
Adjustments (1) | — | — | — | — | — | |||||||||||||||
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Q2 2019 Net Sales Pro Forma | $ | 380 | $ | 289 | $ | 139 | $ | 61 | $ | 869 | ||||||||||
As Reported % Change | (5.3 | %) | 9.2 | % | (9.7 | %) | (50.1 | %) | (7.7 | %) | ||||||||||
Pro Forma % Change | (14.0 | %) | 9.2 | % | (9.7 | %) | (50.1 | %) | (11.6 | %) | ||||||||||
Non-GAAP Adjustments: | ||||||||||||||||||||
Impact of changes in foreign exchange rates | — | % | — | % | (0.2 | %) | 0.3 | % | — | % | ||||||||||
Impact of pass-through paper sales | (1.1 | %) | 4.1 | % | — | % | (2.9 | %) | 0.2 | % | ||||||||||
Impact of dispositions (2) | (4.1 | %) | — | % | — | % | (45.9 | %) | (7.6 | %) | ||||||||||
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Q2 2019 Organic % Change (3) | (8.8 | %) | 5.1 | % | (9.5 | %) | (1.6 | %) | (4.2 | %) | ||||||||||
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The reported results of the Company include the results of acquired businesses from the acquisition date forward. The Company has provided this schedule to reconcile reported net sales for the three months ended June 30, 2019 and 2018 to pro forma net sales as if the acquisitions took place as of January 1, 2018 for purposes of this schedule.
| (1) | Adjusted for net sales of acquired businesses: |
There were no acquisitions during the three months ended June 30, 2019.
For the three months ended June 30, 2018, the adjustments for net sales of acquired businesses reflect the net sales of RR Donnelley’s Print Logistics business (“Print Logistics”) (acquired July 2, 2018).
| (2) | Adjusted for the disposition of the Company’s retail offset printing facilities on June 5, 2018 and the sale of the Company’s European printing business on September 28, 2018. |
| (3) | Adjusted for the impact of acquisitions and dispositions, changes in FX rates, and pass-through paper sales. |
LSC COMMUNICATIONS REPORTS SECOND QUARTER 2019 RESULTS
Page 15 of 16
LSC Communications, Inc.
Reconciliation of Reported to Pro Forma Net Sales
For the Six Months Ended June 30, 2019 and 2018
(in millions)
(UNAUDITED)
| Magazines, Catalogs & Logistics | Book | Office Products | Other | Total LSC | ||||||||||||||||
Q2 2018 YTD Net Sales as Reported | $ | 828 | $ | 515 | $ | 277 | $ | 252 | $ | 1,872 | ||||||||||
Adjustments (1) | 85 | — | — | — | 85 | |||||||||||||||
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Q2 2018 YTD Net Sales Pro Forma | $ | 913 | $ | 515 | $ | 277 | $ | 252 | $ | 1,957 | ||||||||||
Q2 2019 YTD Net Sales as Reported | $ | 783 | $ | 549 | $ | 258 | $ | 124 | $ | 1,714 | ||||||||||
Adjustments (1) | — | — | — | — | — | |||||||||||||||
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Q2 2019 YTD Net Sales Pro Forma | $ | 783 | $ | 549 | $ | 258 | $ | 124 | $ | 1,714 | ||||||||||
As Reported % Change | (5.3 | %) | 6.8 | % | (6.8 | %) | (51.1 | %) | (8.4 | %) | ||||||||||
Pro Forma % Change | (14.2 | %) | 6.8 | % | (6.8 | %) | (51.1 | %) | (12.4 | %) | ||||||||||
Non-GAAP Adjustments: | ||||||||||||||||||||
Impact of changes in foreign exchange rates | — | % | — | % | (0.3 | %) | (0.1 | %) | (0.1 | %) | ||||||||||
Impact of pass-through paper sales | (0.5 | %) | 2.9 | % | — | % | (2.9 | %) | 0.2 | % | ||||||||||
Impact of dispositions (2) | (4.4 | %) | — | % | — | % | (46.8 | %) | (8.1 | %) | ||||||||||
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Q2 2019 YTD Organic % Change (3) | (9.3 | %) | 3.9 | % | (6.5 | %) | (1.3 | %) | (4.4 | %) | ||||||||||
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The reported results of the Company include the results of acquired businesses from the acquisition date forward. The Company has provided this schedule to reconcile reported net sales for the six months ended June 30, 2019 and 2018 to pro forma net sales as if the acquisitions took place as of January 1, 2018 for purposes of this schedule.
| (1) | Adjusted for net sales of acquired businesses: |
There were no acquisitions during the six months ended June 30, 2019.
For the six months ended June 30, 2018, the adjustments for net sales of acquired businesses reflect the net sales of Print Logistics (acquired July 2, 2018).
| (2) | Adjusted for the disposition of the Company’s retail offset printing facilities on June 5, 2018 and the sale of the Company’s European printing business on September 28, 2018. |
| (3) | Adjusted for the impact of acquisitions and dispositions, changes in FX rates, and pass-through paper sales. |
LSC COMMUNICATIONS REPORTS SECOND QUARTER 2019 RESULTS
Page 16 of 16
LSC Communications, Inc.
Liquidity, Debt and Pension Summary
As of June 30, 2019 and December 31, 2018
(in millions)
(UNAUDITED)
Total Liquidity (1) | June 30, 2019 | December 31, 2018 | ||||||
Availability | ||||||||
Stated amount of the Revolving Credit Facility (2) | $ | 400 | $ | 400 | ||||
Less: availability reduction from covenants | 207 | 122 | ||||||
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Amount available under the Revolving Credit Facility | $ | 193 | $ | 278 | ||||
Usage | ||||||||
Borrowings under Revolving Credit Facility | $ | 150 | $ | 64 | ||||
Impact on availability related to outstanding letters of credit | — | — | ||||||
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Total usage | $ | 150 | $ | 64 | ||||
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Availability (3) | $ | 43 | $ | 214 | ||||
Cash | 17 | 21 | ||||||
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Net Available Liquidity | $ | 60 | $ | 235 | ||||
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Short-term and current portion of long-term debt | $ | 192 | $ | 108 | ||||
Long-term debt | 639 | 659 | ||||||
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Total debt | $ | 831 | $ | 767 | ||||
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Non-GAAP adjusted EBITDA for the twelve months ended June 30, 2019 and the year ended December 31, 2018 | $ | 241 | $ | 276 | ||||
Non-GAAP Gross Leverage (defined as total debt divided bynon-GAAP adjusted EBITDA(4)) | 3.45 | 2.78 | ||||||
Credit Agreement Consolidated Leverage Ratio (5) | 3.09 | 2.54 | ||||||
Estimated Unfunded Status of Pension Benefit Plans
Based on the fair value of assets and the estimated discount rate used to value benefit obligations as of June 30, 2019, the Company estimates unfunded status of the pension benefit plans would approximate $100 million compared to $137 million at December 31, 2018.
| Qualified | Non-Qualified & International | Total | ||||||||||
Estimated pension liabilities | $ | 2,020 | $ | 94 | $ | 2,114 | ||||||
Estimated pension assets | 2,010 | 4 | 2,014 | |||||||||
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Estimated unfunded status at June 30, 2019 | $ | (10 | ) | $ | (90 | ) | $ | (100 | ) | |||
| (1) | Liquidity does not include uncommitted credit facilities located outside of the U.S. |
| (2) | The Company has a $400 million senior secured revolving credit agreement (the “Revolving Credit Facility”) which expires on September 30, 2021. The Revolving Credit Facility is subject to a number of covenants, including, but not limited to, a minimum Interest Coverage Ratio and a maximum Consolidated Leverage Ratio, as defined in and calculated pursuant to the Revolving Credit Facility, that, in part, restrict the Company’s ability to incur additional indebtedness, create liens, engage in mergers and consolidations, make restricted payments and dispose of certain assets. There were $150 million and $64 million of borrowings under the Revolving Credit Facility as of June 30, 2019 and December 31, 2018, respectively. Effective August 5, 2019, the aggregate principal amount was reduced to $300 million as a result of an amendment to the Company’s Credit Agreement. |
| (3) | The Company would have had the ability to utilize $193 million of the $400 million Revolving Credit Facility and not have been in violation of the terms of the agreement as of June 30, 2019. Availability under the Revolving Credit Facility was reduced by $150 million in borrowings. If the August 5, 2019 Credit Agreement amendment had been effective as of June 30, 2019, the Company would have had the ability to utilize the entire $300 million Revolving Credit Facility and not have been in violation. This availability would have been reduced by $150 million in borrowings and $41 million of outstanding letters of credit, for a net availability of $109 million. |
| (4) | The leverage ratio calculation includes non-GAAP adjusted EBITDA since the respective closing date of each acquisition and does not include a full 12 months ofnon-GAAP adjusted EBITDA. |
| (5) | The Consolidated Leverage Ratio as defined in the Credit Agreement was 3.09 at June 30, 2019. The Consolidated Leverage Ratio was 2.54 at December 31, 2018. Effective August 5, 2019, the Company amended the Credit Agreement to increase the maximum permitted ratio from 3.25 to 3.75. Per the amendment, the ratio will step down to 3.50 on June 30, 2020 and further down to 3.25 on March 31, 2021. The full definition of Consolidated Leverage Ratio is included in the Credit Agreement filed as an exhibit to the quarterly report on Form10-Q for the six months ended June 30, 2019. |