LSC Communications, Inc. (NYSE: LKSD) today reported
financial results for the second quarter of 2017.
2Q 2017 Highlights:
- Net sales of $848 million compared to
$906 million in the second quarter of 2016
- GAAP net income of $5 million, or $0.12
per diluted share
- Non-GAAP net income of $21 million, or
$0.59 per diluted share
- Non-GAAP adjusted EBITDA of $82
million, or 9.7% of net sales, compared to $93 million, or 10.3% of
net sales, in the second quarter of 2016
- Company updates full-year 2017
guidance
“In spite of disappointing educational book
demand, we are pleased with our overall operating performance in
the second quarter, which reflects our strong focus on productivity
and cost control. As expected, we saw a significant improvement in
our earnings trend compared to recent quarters,” said Thomas J.
Quinlan III, LSC Communications’ Chairman and Chief Executive
Officer. “We are excited to have the talented people of Fairrington
Transportation on board and look forward to CREEL Printing joining
LSC Communications in the near future. We are updating our full
year guidance to reflect the expected impact of these acquisitions
and ongoing trends in our business.”
Net Sales
Second quarter net sales were $848 million, down $58 million, or
6.4%, from the second quarter of 2016. After adjusting for the
December 2, 2016 acquisition of Continuum and the March 1, 2017
acquisition of Hudson Yards, changes in foreign exchange rates, and
pass-through paper sales, organic net sales decreased 6.8% from the
second quarter of 2016. The decrease in organic net sales was due
to lower volume and price declines in both the Print and Office
Products segments.
GAAP Net Income
Second quarter 2017 net income was $5 million, or $0.12 per
diluted share, compared to net income of $28 million, or $0.87 per
diluted share, in the second quarter of 2016. The second quarter of
2017 included $17 million of interest expense primarily related to
debt issued in connection with the October 1 separation from RR
Donnelley & Sons Company, while no interest expense was
allocated to LSC Communications in the second quarter of 2016. The
effective tax rate for the second quarter of 2017 reflected tax
benefits associated with the reorganization of certain entities.
Also, second quarter net income included net of tax charges of $16
million and $3 million in 2017 and 2016, respectively, both of
which are excluded from the presentation of non-GAAP net income.
Additional details regarding the amount and nature of these
adjustments and other items are included in the attached
schedules.
Non-GAAP Adjusted EBITDA and Non-GAAP Net Income
Non-GAAP adjusted EBITDA in the second quarter of 2017 was $82
million, or 9.7% of net sales, compared to $93 million, or 10.3% of
net sales, in the second quarter of 2016. The decrease in non-GAAP
adjusted EBITDA was primarily due to volume declines and price
pressure in the Print and Office Products segments as well as
product mix within the Print segment, partially offset by ongoing
productivity and cost control initiatives.
Non-GAAP net income totaled $21 million, or $0.59 per diluted
share, in the second quarter of 2017 compared to non-GAAP net
income in the second quarter of 2016 of $31 million, or $0.97 per
diluted share. The second quarter of 2017 included $17 million of
interest expense primarily related to debt issued in connection
with the separation from RR Donnelley, while no interest expense
was allocated to LSC Communications in the second quarter of 2016.
The non-GAAP effective tax rate for the second quarter of 2017
reflected tax benefits associated with the reorganization of
certain entities. Reconciliations of net income to non-GAAP
adjusted EBITDA and non-GAAP net income are presented in the
attached schedules.
2017 Guidance
The Company’s updated full-year guidance for 2017, in the table
below, includes the impact of its announced acquisitions:
Current Guidance Previous
Guidance Net sales $3.55 to $3.60 billion
$3.55 to $3.65 billion Non-GAAP adjusted EBITDA margin
9.60% to 10.00% 9.75% to 10.25%
Depreciation and amortization $155 to $165 million
$155 to $165 million Interest expense
$68 to $72 million $68 to $72 million Non-GAAP
effective tax rate 33% to 36% 33% to
36% Capital expenditures $60 to $65 million
$60 to $65 million Free cash flow (1) $125 to
$155 million $125 to $155 million
(1) Free cash flow is defined as net cash provided by operating
activities less capital expenditures
Certain components of the guidance given in the table above are
provided on a non-GAAP basis only, without providing a
reconciliation to guidance provided on a GAAP basis. Information is
presented in this manner, consistent with SEC rules,
because the preparation of such a reconciliation could not be
accomplished without "unreasonable efforts." The Company does not
have access to certain information that would be necessary to
provide such a reconciliation, including non-recurring items that
are not indicative of the Company's ongoing operations. Such items
include, but are not limited to, restructuring charges, impairment
charges, pension settlement charges, acquisition-related expenses,
gains or losses on investments and business disposals, losses on
debt extinguishment 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.
Conference Call
LSC Communications will host a conference call and simultaneous
webcast to discuss its second-quarter results today, Thursday,
August 3, at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). The
live webcast will be accessible on LSC Communications’ web site:
www.lsccom.com. Individuals wishing to participate must register in advance at the following
link. After registering, participants will receive dial-in numbers,
a passcode, and a link to access the live event. A webcast replay
will be archived on the Company’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,
visit www.lsccom.com.
Use of non-GAAP Information
This news release contains certain non-GAAP measures. The
Company believes that these non-GAAP measures, such as non-GAAP
adjusted EBITDA, non-GAAP net income 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 net income and free cash flow allow investors to
make a more meaningful comparison between the Company’s core
business operating results over different periods of time. The
Company believes that non-GAAP adjusted EBITDA, non-GAAP net income
and free cash flow, when viewed with the Company’s results under
GAAP and the accompanying reconciliations, provides useful
information about the Company’s business without regard to
potential distortions. By eliminating potential differences in
results of operations between periods caused by factors such as
depreciation and amortization methods, historic cost and age of
assets, financing and capital structures, taxation positions or
regimes, restructuring, impairment and other charges and gain or
loss on certain equity investments and asset sales, the Company
believes that non-GAAP adjusted EBITDA and non-GAAP net income 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, Inc. Condensed Consolidated and Combined
Balance Sheets As of June 30, 2017 and December 31, 2016 (in
millions, except share and per share data) (UNAUDITED)
June 30, 2017 December 31, 2016
Assets
Cash and cash equivalents $ 98 $ 95
Receivables, less allowances for doubtful
accounts of $10 in 2017 (2016: $10)
582 667 Inventories 200 193 Prepaid expenses and other current
assets 30 21 Total Current
Assets
910 976
Property, plant and equipment - net 575 608 Goodwill 88 84 Other
intangible assets - net 123 131 Deferred income taxes 58 57
Other noncurrent assets 97
96
Total Assets $ 1,851
$ 1,952
Liabilities
Accounts payable $ 277 $ 294 Accrued liabilities 211 237
Short-term and current portion of long-term debt 26
52 Total Current Liabilities
514
583 Long-term debt 718 742
Pension liabilities 253 279 Deferred income taxes 1 2
Other noncurrent liabilities 102
106
Total Liabilities 1,588
1,712 Commitments and
Contingencies
Equity
Common stock, $0.01 par value Authorized: 65,000,000 shares;
Issued: 33,482,459 shares in 2017 (2016:
32,449,669)
— — Additional paid-in capital 784 770 (Accumulated deficit)
retained earnings (12 ) 1 Accumulated other comprehensive loss (508
) (531 ) Treasury stock, at cost: 34,727 shares in
2017 (1 ) —
Total Equity
263 240
Total Liabilities and Equity $ 1,851
$ 1,952
LSC Communications, Inc. Condensed Consolidated and
Combined Statements of Income For the Three and Six Months Ended
June 30, 2017 and 2016 (in millions, except per share data)
(UNAUDITED)
For the Three Months Ended For the Six Months Ended
June 30, June 30, 2017
2016 2 0 1 7 2 0 1 6 Net sales
$ 848 $ 906
$ 1,669 $ 1,786
Cost of sales (1) 705 745 1,397 1,467 Selling, general and
administrative expenses (SG&A) (1) 64 68 129 130 Restructuring,
impairment and other charges - net 21 5 27 8 Depreciation and
amortization 39 44
79 90
Income from operations
19 44
37 91
Interest expense (income) -net 16 (1 ) 33 (1 ) Investment and other
expense-net — 1 — 1
Income before income taxes
3 44 4
91 Income tax (benefit)
expense (2 ) 16 — 32
Net income $ 5
$ 28 $ 4
$ 59 Net earnings per common
share (2): Basic net earnings per share $ 0.13 $ 0.87 $ 0.11 $
1.82 Diluted net earnings per share $ 0.12 $ 0.87 $ 0.11 $ 1.82
Dividends declared per common share $ 0.25 $ — $ 0.50 $ —
Weighted average number of common shares outstanding:
Basic 33.5 32.4 33.1 32.4 Diluted 33.8 32.4 33.4 32.4
Additional
information:
Gross margin (1) 16.9 % 17.8 % 16.3 % 17.9 % SG&A as a % of net
sales (1) 7.5 % 7.5 % 7.7 % 7.3 % Operating margin 2.2 % 4.9 % 2.2
% 5.1 % Effective tax rate (91.3 %) 36.8 % (3.8 %) 35.3 %
(1) Exclusive of depreciation and amortization (2) On October 1,
2016, R. R. Donnelley & Sons Company ("RRD") distributed
approximately 26.2 million shares of LSC Communications common
stock to RRD shareholders. RRD retained an additional 6.2 million
shares that were sold on March 28, 2017. For the three and six
months ended June 30, 2016, basic and diluted earnings per share
and the average number of shares outstanding were retrospectively
restated for the number of LSC Communications, Inc. shares
outstanding immediately following the separation, 32.4 million
shares.
LSC
Communications, Inc. Reconciliation of GAAP Net Income to
Non-GAAP Adjusted EBITDA For the Three and Twelve Months Ended June
30, 2017 and 2016 (in millions) (UNAUDITED) For the Twelve
Months Ended For the Three Months Ended June 30, June 30, March 31,
December 31,
September 30, 2017 2017 2017
2016
2016
GAAP net income (loss) $ 51
$ 5 $ (1 ) 9 38
Adjustments: Restructuring, impairment and other
charges - net (1) 37 21 6 7 3 Separation-related transaction
expenses (2) 8 2 1 4 1 Acquisition-related expenses (3) 1 1 — — —
Depreciation and amortization 160 39 40 41 40 Interest expense -net
52 16 17 18 1 Income tax expense (benefit) 19
(2 ) 2 1 18 Total
Non-GAAP adjustments 277 77 66 71 63
Non-GAAP adjusted
EBITDA $ 328 $ 82
$ 65 $ 80
$ 101 Net sales $ 3,537 $ 848 $ 821 $
919 $ 949 Non-GAAP adjusted EBITDA margin % 9.3 % 9.7 % 7.9 % 8.7 %
10.6 % For the Twelve Months Ended For the Three Months
Ended June 30, June 30, March 31, December 31, September 30, 2016
2016 2016 2015 2015
GAAP net income $
112 $ 28 $ 31 $ 38
$ 15 Adjustments: Restructuring,
impairment and other charges - net (1) 38 5 3 5 25 Pension
settlement charge (4) 1 1 — — — Purchase accounting inventory
adjustments (5) 8 — — 1 7 Depreciation and amortization 185 44 46
47 48 Interest income (2 ) (1 ) — — (1 ) Income tax expense
83 16 16 20
31 Total Non-GAAP adjustments 313 65 65 73 110
Non-GAAP adjusted EBITDA $ 425
$ 93 $ 96 $
111 $ 125 Net
sales $ 3,789 $ 906 $ 880 $ 1,004 $ 999 Non-GAAP adjusted EBITDA
margin % 11.2 % 10.3 % 10.9 % 11.1 % 12.5 % (1)
Restructuring, impairment and other charges- net: Pre-tax charges
for employee termination costs, lease termination, other costs,
multi-employer pension plan withdrawal obligations, and impairment
of intangible assets and other long-lived assets. (2)
Separation-related transaction expenses: One-time transaction
expenses associated with the separation from RRD. (3)
Acquisition-related expenses: Related to legal, accounting and
other expenses associated with contemplated acquisitions.
(4) Pension settlement charge: Pre-tax charge recognized for
lump-sum pension settlement payments. (5) Purchase
accounting inventory adjustments: Recognition of charges as a
result of inventory purchase accounting adjustments.
LSC Communications, Inc. Reconciliation of
GAAP to Non-GAAP Measures For the Three Months Ended June 30, 2017
and 2016 (in millions, except per share data) (UNAUDITED)
For the Three Months Ended June 30, 2017 For the Three
Months Ended June 30, 2016 Net income
Net income Net income per diluted share
Net income
per diluted share GAAP basis measures $ 5 $ 0.12 $ 28 $ 0.87
Non-GAAP adjustments: Restructuring, impairment and other
charges - net (1) 14 0.42 3 0.10 Separation-related transaction
expenses (2) 1 0.03 —
— Acquisition-related expenses (3) 1 0.02
—
— Total Non-GAAP adjustments 16 0.47
3 0.10 Non-GAAP measures $ 21 $ 0.59 $
31 $ 0.97 (1) Restructuring, impairment and other
charges - net: Operating results for the three months ended June
30, 2017 and 2016 were affected by the following pre-tax
restructuring charges of $21 million ($14 million after-tax) and $5
million ($3 million after-tax), respectively: For the Three
Months Ended June 30, 2017 2016 Other restructuring charges (a) $
17 $ 1 Employee termination costs (b) 3 2
Impairment charges (c)
— 1 Other charges (d) 1 1
Total
restructuring, impairment and other charges - net $
21 $ 5 (a) For the three months
ended June 30, 2017, the charges primarily resulted from a
terminated supplier contract and the exit from certain operations
and facilities. For the three months ended June 30, 2016, other
restructuring charges include lease termination and other facility
costs. (b) For the three months ended June 30, 2017,
employee-related termination costs resulted from the announcement
of one facility closure in the Print segment and the reorganization
of certain business units and corporate functions. For the three
months ended June 30, 2016, employee-related termination costs
resulted from the announcement of one facility closure in the Print
segment and the reorganization of certain operations.
(c) Includes net impairment charges
related to buildings, machinery and equipment associated with
facility closings.
(d) Other charges related to the Company's multi-employer pension
plan withdrawal obligations unrelated to facility closures.
(2) Separation-related transaction expenses: Includes pre-tax
charges of $2 million ($1 million after-tax) for one-time
transaction expenses associated with the separation from RRD for
the three months ended June 30, 2017. (3)
Acquisition-related expenses: Includes pre-tax charges of $1
million ($1 million-after tax) for legal, accounting and other
expenses associated with contemplated acquisitions. Note:
The income tax impact is calculated using the tax rate in effect
for the non-GAAP adjustments.
LSC
Communications, Inc. Reconciliation of GAAP to Non-GAAP
Measures For the Six Months Ended June 30, 2017 and 2016 (in
millions, except per share data) (UNAUDITED) For the
Six Months Ended June 30, 2017 For the Six Months Ended June 30,
2016 Net income Net income Net income per diluted share Net income
per diluted share GAAP basis measures $ 4 $ 0.11 $ 59 $ 1.82
Non-GAAP adjustments: Restructuring, impairment and other
charges - net (1) 17 0.52 5 0.16 Separation-related transaction
expenses (2) 2 0.06 —
— Acquisition-related expenses (3) 1 0.02 —
— Income tax adjustments (4) 1 0.03 —
— Total Non-GAAP adjustments 21 0.63
5 0.16 Non-GAAP measures $ 25 $ 0.74 $
64 $ 1.98 (1) Restructuring, impairment and other
charges - net: Operating results for the six months ended June 30,
2017 and 2016 were affected by the following pre-tax restructuring
charges of $27 million ($17 million after-tax) and $8 million ($5
million after-tax), respectively: For the Six Months Ended
June 30, 2017 2016 Other restructuring charges (a) $ 18 $ 3
Employee termination costs (b) 7 2
Impairment charges (c)
— 1 Other charges (d) 2 2
Total
restructuring, impairment and other charges - net $
27 $ 8 (a) For the six months
ended June 30, 2017, the charges primarily resulted from a
terminated supplier contract and the exit from certain operations
and facilities. For the six months ended June 30, 2016, other
restructuring charges include lease termination and other facility
costs. (b) For the six months ended June 30, 2017, employee-related
termination costs resulted from the announcement of one facility
closure in the Print segment and the reorganization of certain
business units and corporate functions. For the six months ended
June 30, 2016, employee-related termination costs resulted from the
announcement of one facility closure in the Print segment and the
reorganization of certain operations.
(c) Includes net impairment charges
related to buildings, machinery and equipment associated with
facility closings.
(d) Other charges related to the Company's multi-employer pension
plan withdrawal obligations unrelated to facility closures.
(2) Separation-related transaction expenses: Includes pre-tax
charges of $3 million ($2 million after-tax) for one-time
transaction expenses associated with the separation from RRD for
the six months ended June 30, 2017. (3) Acquisition-related
expenses: Includes pre-tax charges of $1 million ($1 million-after
tax) for legal, accounting and other expenses associated with
contemplated acquisitions. (4) Income tax adjustments:
Included a tax expense of $1 million that was recorded due to the
unfavorable impact associated with share-based compensation awards
that lapsed during the six months ended June 30, 2017.
Note: The income tax impact is calculated using the tax rate
in effect for the non-GAAP adjustments.
LSC Communications, Inc. Segment GAAP to Non-GAAP Adjusted
EBITDA and Margin Reconciliation For the Three Months Ended June
30, 2017 and 2016 (in millions) (UNAUDITED) Office
Print Products Corporate Consolidated
For the Three
Months Ended June 30, 2017
Net sales $ 723 $ 125 $ — $ 848 Income (loss) from operations 22 12
(15 ) 19 Operating margin % 3.0 % 9.6 % nm 2.2 %
Non-GAAP
Adjustments
Depreciation and amortization
36
3
—
39 Restructuring charges - net 5
—
15 20 Other charges 1 — — 1 Separation-related transaction expenses
— — 2 2 Acquisition-related expenses —
— 1 1 Total
Non-GAAP adjustments
42
3
18
63 Non-GAAP Adjusted EBITDA $
64
$ 15 $
3
$ 82 Non-GAAP Adjusted EBITDA margin %
8.9
% 12.0 % nm 9.7 % Capital expenditures $ 12 $ 2 $ 1 $ 15
For the Three
Months Ended June 30, 2016
Net sales $ 764 $ 142 $ — $ 906 Income from operations 34 13 (3 )
44 Operating margin % 4.5 % 9.2 % nm 4.9 % Investment and other
expense-net — — 1 1
Non-GAAP
Adjustments
Depreciation and amortization 39 4 1 44 Restructuring charges - net
3 — — 3 Impairment charges-net 1 — — 1 Other charges 1 — — 1
Pension settlement charge — —
1 1 Total Non-GAAP
adjustments 44 4 2 50 Non-GAAP Adjusted EBITDA $ 78 $
17 $ (2 ) $ 93 Non-GAAP Adjusted EBITDA margin % 10.2 % 12.0 % nm
10.3 % Capital expenditures $ 6 $ 1 $ — $ 7 nm Not
meaningful
LSC Communications, Inc. Segment GAAP to
Non-GAAP Adjusted EBITDA and Margin Reconciliation For the Six
Months Ended June 30, 2017 and 2016 (in millions) (UNAUDITED)
Office Print Products
Corporate Consolidated
For the Six
Months Ended June 30, 2017
Net sales $ 1,433 $ 236 $ — $ 1,669 Income (loss) from operations
34 21 (18 ) 37 Operating margin % 2.4 % 8.9 % nm 2.2 %
Non-GAAP
Adjustments
Depreciation and amortization
71
7
1
79 Restructuring charges - net 9 1 15 25 Separation-related
transaction expenses — — 3 3 Acquisition-related expenses — — 1 1
Other charges 2 —
— 2 Total Non-GAAP adjustments
82
8
20
110 Non-GAAP Adjusted EBITDA $
116
$ 29 $
2
$ 147 Non-GAAP Adjusted EBITDA margin %
8.1
% 12.3 % nm 8.8 % Capital expenditures $ 32 $ 2 $ 2 $ 36
For the Six
Months Ended June 30, 2016
Net sales $ 1,516 $ 270 $ — $ 1,786 Income from operations 66 27 (2
) 91 Operating margin % 4.4 % 10.0 % nm 5.1 % Investment and other
expense-net — — 1 1
Non-GAAP
Adjustments
Depreciation and amortization 80 8 2 90 Restructuring charges - net
5 — — 5 Other charges 2 — — 2 Impairment charges-net 1 — — 1
Pension settlement charge — —
1 1 Total Non-GAAP
adjustments 88 8 3 99 Non-GAAP Adjusted EBITDA $ 154
$ 35 $ — $ 189 Non-GAAP Adjusted EBITDA margin % 10.2 % 13.0 % nm
10.6 % Capital expenditures $ 14 $ 2 $ 3 $ 19 nm Not
meaningful
LSC Communications, Inc. Condensed
Consolidated and Combined Statements of Cash Flows For the Six
Months Ended June 30, 2017 and 2016 (in millions) (UNAUDITED)
2017 2016 Net
income $ 4 $ 59 Adjustment to reconcile net income to net cash
provided by operating activities Impairment charges — 2
Depreciation and amortization 79 90 Provision for doubtful accounts
receivable 1 4 Share-based compensation 7 3 Deferred income taxes
(1 ) (16 ) Other (2 ) — Changes in operating assets and liabilities
- net of acquisitions: Accounts receivable - net 66 34 Inventories
(4 ) (21 ) Prepaid expenses and other current assets (3 ) (7 )
Accounts payable (4 ) (52 ) Income taxes payable and receivable (10
) (2 ) Accrued liabilities and other (55 )
(39 )
Net cash provided by operating
activities $ 78 $
55 Capital expenditures (36 ) (19 )
Acquisitions of businesses, net of cash acquired (5 ) — Proceeds
from sales of investments 3 — Proceeds from sales of other assets 6
1 Transfers from restricted cash —
10
Net cash used in investing
activities $ (32 ) $
(8 ) Payments of current maturities and
long-term debt (52 ) (2 ) Proceeds from issuance of common stock 18
— Dividends paid (16 ) — Payments from RRD - net 3 — Net
transfers to Parent and affiliates —
(73 )
Net cash used in financing activities
$ (47 ) $ (75 )
Effect of exchange rate on cash and cash equivalents 4 (2 )
Net increase (decrease) in cash and
cash equivalents
$ 3 $ (30 )
Cash and cash equivalents at beginning of year 95 95
Cash and cash equivalents at
end of period $ 98 $
65 Supplemental non-cash
disclosure: Assumption of warehousing equipment related to
customer contract $ — $ 9
LSC Communications,
Inc. Condensed Consolidated and Combined Statements of Cash
Flows For the Six Months Ended June 30, 2017 and 2016 (in millions)
(UNAUDITED)
Additional Information:
2017 2016 For the Six
Months Ended June 30: Net cash provided by operating activities $
78 $ 55 Less: capital expenditures 36
19 Free cash flow $ 42 $ 36 For the Three Months Ended March
31: Net cash provided by operating activities $ 64 $ 14 Less:
capital expenditures 21 12 Free cash
flow $ 43 $ 2 For the Three Months Ended June 30: Net cash
provided by operating activities $ 14 $ 41 Less: capital
expenditures 15 7 Free cash flow $ (1 )
$ 34
LSC Communications, Inc.
Reconciliation of Reported to Pro Forma Net Sales For the Three
Months Ended June 30, 2017 and 2016 (in millions) (UNAUDITED)
Print Office Products
Consolidated
For the Three
Months Ended June 30, 2017
Reported net sales $ 723 $ 125 $ 848 Adjustments (1) —
— — Pro forma net
sales $ 723 $ 125 $ 848
For the Three
Months Ended June 30, 2016
Reported net sales $ 764 $ 142 $ 906 Adjustments (1) 14
— 14 Pro forma net
sales $ 778 $ 142 $ 920
Net sales
change
Reported net sales (5.4 %) (12.0 %) (6.4 %) Pro forma net sales
(7.1 %) (12.0 %) (7.8 %)
Supplementary non-GAAP information:
Year-over-year impact of changes in foreign exchange (FX) rates
(0.1 %) --- % (0.1 %) Year-over-year impact of changes in
pass-through paper sales (1.0 %) --- % (0.9 %)
Net organic sales
change (2)
(6.0 %) (12.0 %) (6.8 %)
The reported results of the Company include the results of
acquired businesses from the acquisition dates forward. The Company
has provided this schedule to reconcile reported net sales for the
three months ended June 30, 2017 and 2016 to pro forma net sales as
if the acquisitions took place as of January 1, 2016 for purposes
of this schedule.
(1) Adjusted for net sales of acquired businesses: There were no
acquisitions during the three months ended June 30, 2017. For the
three months ended June 30, 2016, the adjustments for net sales of
acquired businesses reflect the net sales of HudsonYards Studios
("HudsonYards") (acquired March 1, 2017) and Continuum Management
Company, LLC ("Continuum") (acquired December 2, 2016).
(2) Adjusted for net sales of acquired businesses, the impact of
changes in FX rates and pass-through paper sales.
LSC Communications, Inc. Reconciliation
of Reported to Pro Forma Net Sales For the Six Months Ended June
30, 2017 and 2016 (in millions) (UNAUDITED)
Print Office Products
Consolidated
For the Six
Months Ended June 30, 2017
Reported net sales $ 1,433 $ 236 $ 1,669 Adjustments (1) 1
— 1 Pro forma net
sales $ 1,434 $ 236 $ 1,670
For the Six
Months Ended June 30, 2016
Reported net sales $ 1,516 $ 270 $ 1,786 Adjustments (1) 29
— 29 Pro forma net
sales $ 1,545 $ 270 $ 1,815
Net sales
change
Reported net sales (5.5 %) (12.6 %) (6.6 %) Pro forma net sales
(7.2 %) (12.6 %) (8.0 %)
Supplementary non-GAAP information:
Year-over-year impact of changes in foreign exchange (FX) rates
(0.3 %) --- % (0.3 %) Year-over-year impact of changes in
pass-through paper sales (0.8 %) --- % (0.7 %)
Net organic sales
change (2)
(6.1 %) (12.6 %) (7.0 %)
The reported results of the Company include the results of
acquired businesses from the acquisition dates forward. The Company
has provided this schedule to reconcile reported net sales for the
six months ended June 30, 2017 and 2016 to pro forma net sales as
if the acquisitions took place as of January 1, 2016 for purposes
of this schedule.
(1) Adjusted for net sales of acquired businesses: For the six
months ended June 30, 2017, the adjustment to net sales of an
acquired business reflects the net sales of HudsonYards (acquired
March 1, 2017). For the six months ended June 30, 2016, the
adjustments for net sales of acquired businesses reflect the net
sales of HudsonYards and Continuum (acquired December 2, 2016).
(2) Adjusted for net sales of acquired businesses, the impact of
changes in FX rates and pass-through paper sales.
LSC Communications, Inc.
Reconciliation of Reported to Pro Forma Net Sales - Print Segment
For the Three Months Ended June 30, 2017 and 2016 (in millions)
(UNAUDITED) Magazines, Catalogs, and Retail Inserts
Book Europe Directories Print
For the Three
Months Ended June 30, 2017
Reported net sales $ 378 $ 262 $ 56 $ 27 $ 723 Adjustments (1)
— — —
— — Pro forma net sales $
378 $ 262 $ 56 $ 27 $ 723
For the Three
Months Ended June 30, 2016
Reported net sales $ 377 $ 288 $ 67 $ 32 $ 764 Adjustments (1)
14 — —
— 14 Pro forma net sales
$ 391 $ 288 $ 67 $ 32 $ 778
Net sales
change
Reported net sales 0.3 % (9.0 %) (16.4 %) (15.6 %) (5.4 %) Pro
forma net sales (3.3 %) (9.0 %)
(16.4 %) (15.6 %) (7.1 %)
Supplementary non-GAAP information: Year-over-year
impact of changes in foreign exchange (FX) rates (0.3 %) --- % ---
% --- % (0.1 %) Year-over-year impact of changes in
pass-through paper sales 0.5 % (2.4 %) --- % (9.4 %) (1.0 %)
Net organic sales change (2)
(3.5 %) (6.6 %) (16.4 %)
(6.2 %) (6.0 %)
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, 2017 and 2016 to pro forma net sales as
if the acquisitions took place as of January 1, 2016 for purposes
of this schedule.
(1) Adjusted for net sales of acquired businesses: There were no
acquisitions during the three months ended June 30, 2017. For the
three months ended June 30, 2016, the adjustments for net sales of
acquired businesses reflect the net sales of HudsonYards (acquired
March 1, 2017) and Continuum (acquired December 2, 2016).
(2) Adjusted for net sales of acquired businesses, the impact of
changes in FX rates and pass-through paper sales.
LSC Communications, Inc.
Reconciliation of Reported to Pro Forma Net Sales - Print Segment
For the Six Months Ended June 30, 2017 and 2016 (in millions)
(UNAUDITED) Magazines, Catalogs, and Retail Inserts
Book Europe Directories Print
For the Six
Months Ended June 30, 2017
Reported net sales $ 761 $ 501 $ 112 $ 59 $ 1,433 Adjustments (1)
1 — —
— 1 Pro forma net sales $
762 $ 501 $ 112 $ 59 $ 1,434
For the Six
Months Ended June 30, 2016
Reported net sales $ 784 $ 531 $ 137 $ 64 $ 1,516 Adjustments (1)
29 — —
— 29 Pro forma net sales
$ 813 $ 531 $ 137 $ 64 $ 1,545
Net sales
change
Reported net sales (2.9 %) (5.6 %) (18.2 %) (7.8 %) (5.5 %) Pro
forma net sales (6.3 %) (5.6 %)
(18.2 %) (7.8 %) (7.2 %)
Supplementary non-GAAP information: Year-over-year
impact of changes in foreign exchange (FX) rates (0.5 %) --- % (0.7
%) --- % (0.3 %) Year-over-year impact of changes in
pass-through paper sales (0.5 %) (0.9 %) --- % (6.3 %) (0.8 %)
Net organic sales change (2)
(5.3 %) (4.7 %) (17.5 %)
(1.5 %) (6.1 %)
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, 2017 and 2016 to pro forma net sales as
if the acquisitions took place as of January 1, 2016 for purposes
of this schedule.
(1) Adjusted for net sales of acquired businesses: For the six
months ended June 30, 2017, the adjustment to net sales of an
acquired business reflects the net sales of HudsonYards. For the
six months ended June 30, 2016, the adjustments for net sales of
acquired businesses reflect the net sales of HudsonYards (acquired
March 1, 2017) and Continuum (acquired December 2, 2016).
(2) Adjusted for net sales of acquired businesses, the impact of
changes in FX rates and pass-through paper sales.
LSC Communications, Inc. Debt and Liquidity
Summary As of June 30, 2017 and December 31, 2016 (in millions)
(UNAUDITED) Total Liquidity (1) June 30, 2017
December 31, 2016
Availability Stated amount of the
Revolving Credit Facility (2) $ 400 $ 400 Less: availability
reduction from covenants 31 — Amount available under
the Revolving Credit Facility 369 400
Usage
Borrowings under Revolving Credit Facility $ — $ — Impact on
availability related to outstanding letters of credit (3) 20
12 $ 20 $ 12 Current availability $ 349 $ 388 Cash
98 95 Net Available Liquidity $ 447 $ 483
Short-term and
current portion of long-term debt $ 26 $ 52 Long-term debt
718 742 Total debt (4) $ 744 $ 794 Non-GAAP adjusted
EBITDA for the twelve months ended June 30, 2017 and the year ended
December 31, 2016 $ 328 $ 370
Non-GAAP Gross Leverage
(defined as total debt divided by non-GAAP adjusted EBITDA)
2.27
2.15
(1) Liquidity does not include uncommitted credit facilities,
located primarily 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
no borrowings under the Revolving Credit Facility as of June 30,
2017 and December 31, 2016. (3) The Company would have had
the ability to utilize $369 million of the $400 million Revolving
Credit Facility and not have been in violation of the terms of the
agreement. Availability under the Revolving Credit Facility was
reduced by $20 million related to outstanding letters of credit.
(4) On February 2, 2017, the Company paid in advance the
full amount of required amortization payments, $50 million, for the
year ended December 31, 2017 for the senior secured term loan B
facility (the “Term Loan Facility”).
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170803005214/en/
LSC Communications, Inc.Investor ContactJanet M.
Halpin, Senior Vice President, Treasurer & Investor
RelationsE-mail: investor.relations@lsccom.comTel: 773.272.9275
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