LSC COMMUNICATIONS/media/Files/L/LSC-IR... · Magazines: Magazine publishers who use the...

LSC COMMUNICATIONSQuality. Reliability. Integrity

CJS Securities Conference

January 11, 2017

This presentation includes certain "forward-looking statements" within the meaning of, and subject to the safe harbor created by, Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the business, strategy and plans of LSC Communications and its expectations relating to future financial condition and performance. Statements that are not historical facts, including statements about LSC Communications management’s beliefs and expectations, are forward-looking statements. Words such as "believes," "anticipates," "estimates," "expects," "intends," "aims," "potential," "will," "would," "could," "considered," "likely," "estimate" and variations of these words and similar future or conditional expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. While LSC Communications believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond LSC Communications’ control. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend upon future circumstances that may or may not occur. Actual results may differ materially from LSC Communications’ current expectations depending upon a number of factors affecting the business and risks associated with the performance of the business. These factors include such risks and uncertainties detailed in LSC Communications’ information statement, dated September 23, 2016, filed as an exhibit to our Current Report filed on Form 8-K filed on September 23, 2016 and LSC Communications’ periodic filings with the SEC. LSC Communications does not undertake to and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

LSC COMMUNICATIONS CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

LSC COMMUNICATIONS | 2

This presentation 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 forthe 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.

NON-GAAP FINANCIAL INFORMATION


COMPANY REPRESENTATIVES

ANDREW B. COXHEAD

Chief Financial OfficerLSC Communications

THOMAS J. QUINLAN III

Chairman, Chief Executive OfficerLSC Communications

JANET M. HALPIN

Senior Vice President, Treasurer and Investor RelationsLSC Communications

DAVID M. CLARK

Senior Financial Analyst, Investor RelationsLSC Communications


AGENDA

+ LSC Communications Overview

+ 2017 Big Ideas for the New Year

+ Book Supply Chain Services Overview

+ Q&A

+ Appendix


TRUSTED PARTNERWe are the trusted print, fulfillment and supply chain solutions partner for publishers, retailers and merchandisers worldwide. Focused on print and related products, services and technology solutions.


Source: Company management and company filings. Note: 2015 net sales included $184mm from the acquisition of Courier, representing net sales from close date of 6/8/2015 to 12/31/2015.

LSC COMMUNICATIONS: GROUNDED IN PRINT. FOCUSED ON REVOLUTIONIZING THE SUPPLY CHAIN

BUSINESS OVERVIEW SEGMENT OVERVIEW– DIVERSE PRODUCTS & SERVICES CAPABILITIES ACROSS 2 SEGMENTS: PRINT AND OFFICE PRODUCTS

LSC Communications (“LSC” or “the Company”) is a worldwide leader in providing print, fulfillment and supply chain solutions to publishers, merchandisers and retailers

Specializes in publishing and retail-centric print services, such as books, magazines, catalogs, inserts, and directories

Manufactures and sells office products such as filing products, note-taking products, binders, tax and stock forms and envelopes

Serves >3,000 publishers, merchandisers, catalogers and retailers globally, offering leaner and more flexible supply chain solutions to support operating efficiency

LSC has 41 production facilities in the U.S and 12 international manufacturing facilities

~22,000 employees globally

SELECTED CLIENTS

$3.7B2015 sales3.7%

Directories

14.1%Office Products 29.3%

Books

7.8%Europe

45.1%Magazines, Catalogs, and Retail Inserts

$3.7 B3Q’16 LTM sales

Strategic Growth Opportunities


Note: Reconciliation of non-GAAP financials in appendix.Source: Company management, Company filings, PwC Research and Technavio.

Directories

Europe

Book

Magazines, catalogs, and retail inserts

Print segment produces magazines, catalogs, retail inserts, books and directories and also provides certain print-related services, including mail-list management and sortation and e-book formatting and distribution with operations in US, Europe, and Mexico

Serves > 3,000 publishers, merchandisers, catalogers and retailers globally, offering leaner and more flexible supply chain solutions to support operating efficiency

Offers a wide range of products and services to customers:

Magazines: Magazine publishers who use the Company’s capabilities to print and distribute magazines through the mail directly to subscribers and through wholesalers to retailers

Catalogs: Retailers and other direct-to-buyer sellers who use the Company’s production capabilities to print and distribute catalogs to customers through the mail

Retail Inserts: Retailers who seek to include inserts in newspapers distributed to newspaper subscribers and in-store distribution

Books: publishers who seek to print hardcover and softcover books, with soft or spiral binding serving the education, trade, religious and testing sectors

Serves the top 10 book publishers in North America, along with 9 of the top 10 catalogers and magazine publishers in the U.S.

Print represents ~86% of LSC Communications’ net sales (3Q 2016 LTM)

Designing and executing innovative supply chain strategies to increase speed to market and improve efficiencies across the distribution process

Best-in-class, proprietary co-service solution leverages mail volume to offer our clients significant cost savings

11.2%10.2% 10.3%10.1%

Non-GAAP Adj. EBITDA Margin

KEY HIGHLIGHTS/STRATEGIES

SELECT COMPETITORS

PRINT SEGMENT OVERVIEWNET SALES ($mm)


http://www.bertelsmann.de/

http://www.bertelsmann.de/

OFFICE PRODUCTS SEGMENT OVERVIEW

LSC customers in the office products segment include office superstores, mass merchandisers and contract stationers

Offers a wide range of branded and private label products, primarily within the following five core categories

Filing products

Note-taking products

Binder products

Forms

Envelopes

LSC has product placement at 9 of the top 10 retailers

Top 5 supplies-vendor at both of the office supply superstores

LSC services 5 of the top 10 eCommerce retailers

Additional focus on eCommerce channel to capture market share with our premium branded products

Office Products represents ~14% of LSC Communications net sales (3Q 2016 LTM)

Further industry consolidation opportunities in Office Products

Note: Reconciliation of non-GAAP financials in appendix.Source: Company management, Company filings, PwC Research and Technavio.

Net Sales Non-GAAP Adj. EBITDA Margin

KEY HIGHLIGHTS/STRATEGIES NET SALES ($mm)

BRANDED PRODUCTS


VALUE CREATION STRATEGY

Grow core print and

supply chain service

offerings

Deploy capital with discipline

Continue operating excellence


STRONG M&A TRACK RECORD

Capabilities, Solutions and TechnologyCourier (2015)Pro Line Printing (2008) Banta (2007)Continuum (2016)

Office ProductsEsselte Corporation (NA operations) (2014)Cardinal Brands (2007)TOPS (2004)

Go-forward M&ACriteria and Objectives

Enhance existing product offerings

Expand technological capabilities

Provide synergy opportunities

Attractive financial return on investment

ScaleVon Hoffman (2007)Perry Judd’s (2007) Poligrafia (2005)

Expanding Our Solutions and Services Offerings and Broadening Our Reach

We have a proven ability to strategically acquire, integrate and rationalize quickly in a fragmented market


LEVERAGE AND LIQUIDITY

Commitment to a conservative leverage target Continuing to target 1.75x to 2.25x gross leverage(1)

2.0x reported gross leverage(1) at September 30, 2016 Strong free cash flow(2) generation supports commitment to leverage target Combination of pre-payable and long term debt provides ability to efficiently pay down debt Supportive bank group with access to five year credit facility that provides for seasonal working capital needs and

liquidity buffer

PENSION PLANS US pension plans closed and frozen De-risking actions and liability driven investment structure reduces funded status volatility while minimizing

required contributions

CAPITAL EXPENDITURES Approximately 1.5% to 2.0% of net sales

MERGERS AND ACQUISITIONS

Selectively pursue strategic acquisitions Strategy governed by target leverage

DIVIDEND POLICY Initial dividend of $0.25 per share Board of Directors to review dividend quarterly

LSC FINANCIAL POLICY

1. Gross leverage defined as total debt / LTM non-GAAP adjusted EBITDA2. Free cash flow defined as net cash provided by operating activities less capital expenditures LSC COMMUNICATIONS | 12

BIG IDEAS FOR THE NEW YEAR

Developing new technologies, capabilities and solutions to better fit the needs of our evolving customer base:

+ Book Supply Chain Services

+ Expanding Digital Print Platform

+ Office Products e-Commerce Strategy

+ Book Anti-Piracy Technology

+ Hi-Density Co-mail Services


SUPPLY CHAIN SERVICES OVERVIEW

SOLUTION OVERVIEW

Our Supply Chain Services combine print, warehousing, fulfillment and supply chain management into a single workflow designed to increase speed to market and improve efficiencies across the distribution process

Improve Total Cost of

Ownership

Single Source of Supply

Faster Speed to Market

Reduce/ Eliminate

Publisher’s Fixed Costs


LSC’S INDUSTRY LEADING SCALE AND UNIFIED PLATFORM ENABLE A FULL SERVICE OFFERING FOR BOOK PUBLISHERS

Vendor Management Materials Manufacturing Book Fulfillment

ServicesOrder-to-

Cash Logistics

SUPPLY CHAIN SERVICES

SERVICE OFFERING SCALE

WAREHOUSING AND FULFILLMENT

3,800,000 square ft. of warehouses Full service offering includes:

High volume storage Returns Kitting

TRADITIONAL BOOK PRODUCTION SCALE

95 offset printing presses 80 binding lines 15 sheet-fed presses Extensive component, finishing, packaging, and

logistics capabilities

DIGITAL PRINT PLATFORM 9 billion pages of capacity Growing platform for quick-turn production Platform for short-run markets (self-publishing)


CUSTOMER ENGAGEMENT – TOP EDUCATION PUBLISHERBENEFITS OF THE TOTAL LSC SUPPLY CHAIN SOLUTION

LSC has entered into an agreement with a leading

company in education, business and consumer

publishing, to provide complete supply chain

management of 100% of this company’s physical print

products and other learning materials.

Combines production, warehousing, fulfillment and

supply chain management into a single workflow

designed to increase speed to market, reduce costs and

improve efficiencies across the distribution process.

Client benefits+ Significant savings on paper and

procurement costs + Cash flow improvements+ Quicker fulfillment rates to customers+ Increase in titles available for sale+ Reduce total payroll costs+ Fewer “out-of-stock” products+ Less inventory obsolescence+ Reduction in warehouse space

E-SERVICESOFFSET PRINTING

WAREHOUSING/FULFILLMENT

FREIGHT/ DISTRIBUTION

DIGITALPRINTING


Q&A


APPENDIX


NON-GAAP FINANCIAL MEASURES

($ millions)

Total LSC CommunicationsQ1 2016 Q2 2016 Q4 Q3 2016

2015 2014 2013 2016 2015 LTM 2016 2015 2016 2015 LTM 2016 2015 2016 2015 2015 LTM

Net sales $3,742.9 $3,853.4 $3,741.0 $880.0 $860.9 $3,762.0 $906.1 $879.0 $1,786.1 $1,739.9 $3,789.1 $948.5 $999.0 $2,734.6 $2,738.9 $1,004.0 $3,738.6

Net income 73.6 58.0 94.5 31.0 9.1 95.5 28.0 11.8 59.0 20.9 111.7 38.1 14.7 97.1 35.6 38.0 135.1

Restructuring, impairment and other charges, net

56.5 131.5 79.3 2.9 5.9 53.5 5.1 21.1 8.0 27.0 37.5 3.2 25.4 11.2 52.4 4.1 15.3

Spinoff-related transaction expenses - - - - - - - - - - - 0.6 - 0.6 - - 0.6

Pension settlement charge - - - - - - 0.5 - 0.5 - 0.5 - - 0.5 - - 0.5

Acquisition-related expenses 13.8 1.4 1.0 - 10.5 3.3 - 3.1 - 13.6 0.2 - 0.1 - 13.7 0.1 0.1

Purchase accounting inventory adjustments, net

10.8 2.2 - - - 10.8 - 3.2 - 3.2 7.6 - 6.7 - 9.9 0.9 0.9

Gain on bargain purchase - (9.5) - - - - - - - - - - - - - - -

Loss on equity investment - - 2.5 - - - - - - - - - - - - - -

Depreciation and amortization 181.4 182.0 193.7 45.5 43.1 183.8 43.6 43.0 89.1 86.1 184.4 40.6 48.1 129.7 134.2 47.2 176.9

Interest income-net (2.5) (3.9) (3.8) (0.3) (0.8) (2.0) (0.5) (0.8) (0.8) (1.6) (1.7) 0.5 (0.6) (0.3) (2.2) (0.3) (0.6)

Income tax expense 63.9 30.2 42.1 15.9 6.4 73.4 16.3 7.1 32.2 13.5 82.6 18.0 30.2 50.2 43.7 20.2 70.4

Non-GAAP Adjusted EBITDA $397.5 $391.9 $409.3 $95.0 $74.2 $418.3 $93.0 $88.5 $188.0 $162.7 $422.8 $101.0 $124.6 $289.0 $287.3 $110.2 $399.2

Non-GAAP Adjusted EBITDA margin 10.6% 10.2% 10.9% 10.8% 8.6% 11.1% 10.3% 10.1% 10.5% 9.4% 11.2% 10.6% 12.5% 10.6% 10.5% 11.0% 10.7%

Net cash provided by operating activities $274.6 $306.7 $312.9 $14.0 $18.9 $269.7 $41.3 $55.3 $55.3 $74.2 $255.7 $80.9 $82.2 $136.2 $156.4 $118.2 $254.4

Capital expenditures (41.6) (60.4) (79.3) (11.9) (13.4) (40.1) (7.2) (9.5) (19.1) (22.9) (37.8) (15.8) (9.4) (34.9) (32.3) (9.3) (44.2)

Free cash flow $233.0 $246.3 $233.6 $2.1 $5.5 $229.6 $34.1 $45.8 $36.2 $51.3 $217.9 $65.1 $72.8 $101.3 $124.1 $108.9 $210.2

Q1 Q2 Q2 YTD Q3 Q3 YTD


($ millions)

Print SegmentQ1 2016 Q2 2016 Q4 Q3 2016

2015 2014 2013 2016 2015 LTM 2016 2015 2016 2015 LTM 2016 2015 2016 2015 2015 LTM

Magazines, catalogs and retail inserts $1,806.6 $2,035.9 $2,108.7 $406.8 $437.7 $1,775.7 $377.6 $422.9 $784.4 $860.6 $1,730.4 $407.1 $450.3 $1,191.5 $1,310.9 $495.7 $1,687.2

Books 925.0 787.3 827.0 242.8 177.4 990.4 288.0 201.0 530.8 378.4 1,077.4 309.8 292.6 840.6 671.0 254.0 1,094.6

Europe 304.7 381.3 385.1 70.0 74.8 299.9 66.6 69.5 136.6 144.3 297.0 72.1 77.9 208.7 222.2 82.5 291.2

Directories 144.4 148.6 177.3 32.6 33.0 144.0 31.6 37.1 64.2 70.1 138.5 32.4 33.5 96.6 103.6 40.8 137.4

Net sales $3,180.7 $3,353.1 $3,498.1 $752.2 $722.9 $3,210.0 $763.8 $730.5 $1,516.0 $1,453.4 $3,243.3 $821.4 $854.3 $2,337.4 $2,307.7 $873.0 $3,210.4

Income from operations 95.9 46.8 126.6 32.2 18.3 109.8 34.2 7.7 66.4 26.0 136.3 46.7 27.8 113.1 53.8 42.1 155.2



53.1 126.9 78.9 3.0 4.6 51.5 5.1 20.6 8.1 25.2 36.0 1.2 24.2 9.3 49.4 3.7 13.0


10.8 - - - - 10.8 - 3.2 - 3.2 7.6 - 6.7 - 9.9 0.9 0.9



Office Products SegmentQ1 2016 Q2 2016 Q4 Q3 2016

2015 2014 2013 2016 2015 LTM 2016 2015 2016 2015 LTM 2016 2015 2016 2015 2015 LTM

Net sales $562.2 $500.3 $242.9 $127.8 $138.0 $552.0 $142.3 $148.5 $270.1 $286.5 $545.8 $127.1 $144.7 $397.2 $431.2 $131.0 $528.2

Income from operations 46.8 39.8 24.1 13.8 8.5 52.1 13.2 13.9 27.0 22.4 51.4 11.2 14.1 38.2 36.5 10.3 48.5



3.2 4.6 0.4 (0.1) 1.3 1.8 - 0.5 (0.1) 1.8 1.3 0.2 1.1 0.1 2.9 0.3 0.4


- 2.2 - - - - - - - - - - - - - - -





NON-GAAP FINANCIAL MEASURES


ORGANIC GROWTH RATES

($ millions)

Magazines, Catalogs, and Retail Inserts

Books Europe Directories Total Print Total Office Products Total LSC

3Q 2015 YTD Net Sales as Reported 1,310.9$ 671.0$ 222.2$ 103.6$ 2,307.7$ 431.2$ 2,738.9$

Pro forma(1) - 117.9 - - 117.9 - 117.9 1,310.9$ 788.9$ 222.2$ 103.6$ 2,425.6$ 431.2$ 2,856.8$

3Q 2016 YTD Net Sales as Reported 1,191.5 840.6 208.7 96.6 2,337.4 397.2 2,734.6

As Reported % Change -9.1% 25.3% -6.1% -6.8% 1.3% -7.9% -0.2%Pro Forma % Change -9.1% 6.6% -6.1% -6.8% -3.6% -7.9% -4.3%

Non-GAAP Adjustments:Impact of pass-through paper sales -3.8% 3.8% 0.0% -3.5% -1.0% 0.0% -0.8%Impact of changes in foreign exchange rates -1.0% 0.0% -4.7% 0.0% -0.9% -0.6% -1.0%

3Q YTD Organic % Change -4.3% 2.8% -1.4% -3.3% -1.7% -7.3% -2.5%

3Q 2015 Net Sales as Reported 450.3$ 292.6$ 77.9$ 33.5$ 854.3$ 144.7$ 999.0$

3Q 2016 Net Sales as Reported 407.1 309.8 72.1 32.4 821.4 127.1 948.5

As Reported % Change -9.6% 5.9% -7.4% -3.3% -3.9% -12.2% -5.1%

Non-GAAP Adjustments:Impact of pass-through paper sales -4.3% 5.4% -1.3% 0.0% -0.6% 0.0% -0.5%Impact of changes in foreign exchange rates -0.9% 0.0% -3.3% 0.0% -0.8% -0.2% -0.7%

3Q Organic % Change -4.4% 0.5% -2.8% -3.3% -2.5% -12.0% -3.9%

(1) Adjusted for net sales of acquired business: Courier


www.lsccom.com | 1-844-572-5720 | 35 W Wacker, Chicago, Illinois 60601

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