LSC Communications, Inc. (OTCQX: LKSD) today reported
financial results for the fourth quarter of 2019.
Financial Highlights:
- Net sales of $778 million compared to $939 million in the
fourth quarter of 2018
- Organic net sales decrease of 14.1% from the fourth quarter of
2018
- GAAP net loss of $169 million, or $5.02 per diluted share,
compared to net loss of $16 million, or $0.47 per diluted share, in
the fourth quarter of 2018
- Non-GAAP net loss of $34 million, or $1.03 per diluted share,
compared to non-GAAP net income of $4 million, or $0.12 per diluted
share, in the fourth quarter of 2018
- Non-GAAP adjusted EBITDA of $1 million, or 0.1% of net sales,
compared to $56 million, or 6.0% of net sales, in the fourth
quarter of 2018
- Cash balance of $105 million as of December 31, 2019;
sufficient liquidity to continue to fund ongoing operations
- Company evaluating opportunities to reduce debt with support
from lenders under its credit agreement through a Waiver and
Forbearance Agreement
“Since the termination of the proposed merger with Quad Graphics
in July of 2019, we have acted decisively to manage our operational
and financial position by narrowing our strategic focus and
aligning our manufacturing platform to address the significant
structural changes in the industry,” said Thomas J. Quinlan III,
LSC Communications’ Chairman, President and Chief Executive
Officer. “As part of this plan, we have closed or are in the
process of closing eight manufacturing plants. We are also
aggressively pursuing new business opportunities, including a
recent significant win with a major book publisher. These are not
steps we could have taken while the Quad merger was pending. While
the financial results of our ongoing operational actions in 2019
will not be seen until 2020 and beyond, as one of the country’s
largest and most experienced printers with the leading mailing
distribution network, we are well positioned to continue to compete
and deliver exceptional products and services to our clients.”
Net Sales
Fourth quarter net sales were $778 million, down $161 million,
or 17.1%, from the fourth quarter of 2018. After adjusting for
dispositions, changes in foreign exchange rates and pass-through
paper sales, organic net sales decreased 14.1% from the fourth
quarter of 2018. The decrease in organic net sales was largely due
to the ongoing impact of digital substitution on magazine and
catalog volume and lower book volume driven by higher
back-to-school production in the first half of the year as well as
the effect of college textbook rental programs and digital
alternatives.
GAAP Net Income/Loss
The fourth quarter 2019 net loss was $169 million, or $5.02 per
diluted share, compared to net loss of $16 million, or $0.47 per
diluted share, in the fourth quarter of 2018. The fourth quarter
2019 net loss included after-tax charges of $135 million while the
fourth quarter 2018 net loss included after-tax charges of $20
million. These items 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 Loss
Non-GAAP adjusted EBITDA in the fourth quarter of 2019 was $1
million, or 0.1% of net sales, compared to $56 million, or 6.0% of
net sales, in the fourth quarter of 2018. The decrease in non-GAAP
adjusted EBITDA was driven by volume declines across the Magazines,
Catalogs and Logistics and Book segments, the impact of lower
by-products prices, and wage increases. These decreases were
partially offset by the impact of ongoing company-wide productivity
initiatives.
Non-GAAP net loss totaled $34 million, or $1.03 per diluted
share, in the fourth quarter of 2019 compared to non-GAAP net
income of $4 million, or $0.12 per diluted share in the fourth
quarter of 2018. Reconciliations of net loss to non-GAAP adjusted
EBITDA and non-GAAP net income are presented in the attached
schedules.
Segment Results
The Company reports its results using the following segments (1)
Magazines, Catalogs and Logistics, (2) Book, (3) Office Products,
(4) Mexico, and (5) other, which includes Directory and Print
Management.
Magazines, Catalogs and Logistics
Fourth quarter net sales in Magazines, Catalogs and Logistics
were $384 million, a decrease of 19.2%, from the fourth quarter of
2018. After adjusting for dispositions and pass-through paper
sales, organic net sales decreased 14.3% from the fourth quarter of
2018. This organic decline is primarily due to ongoing volume
declines driven by digital substitution for printed materials.
Magazines, Catalogs and Logistics GAAP net loss from operations
was $35 million, compared to a net loss from operations of $12
million in the fourth quarter of 2018. Segment non-GAAP adjusted
EBITDA in the fourth quarter was a loss of $16 million. The EBITDA
decline was primarily due to volume declines and lower by-products
prices, partially offset by productivity gains achieved through
plant consolidations and the company’s comprehensive cost savings
program.
Book
Fourth quarter net sales in Book were $206 million, a decrease
of 20.2%, from the fourth quarter of 2018. After adjusting for
pass-through paper sales, organic net sales decreased 18.3% from
the fourth quarter of 2018. The organic net sales decrease was
primarily driven by lower college book volumes, reflecting high
customer inventory levels due to growth in textbook rental programs
and the impact of digital textbook alternatives. Volumes for trade
books, elementary and secondary education books, and religious
books were all down slightly in the quarter, but by amounts
consistent with normal industry cycles.
Book GAAP loss from operations was $72 million, compared to
income from operations of $9 million in the fourth quarter of 2018.
Segment non-GAAP adjusted EBITDA in the quarter was $2 million and
non-GAAP adjusted EBITDA margin was 1.0%. The non-GAAP adjusted
EBITDA margin decreased 790 bps compared with the fourth quarter of
2018, primarily due to the lower education book volumes. In
addition, the impacts of targeted wage increases to address labor
market conditions and lower by-products prices were partially
offset by productivity & cost reduction initiatives.
The Company recently secured a contract with a major book
publisher, with work commencing no later than January 2021.
Office Products
Fourth quarter net sales in Office Products were $131 million, a
decrease of 6.9% on an as-reported and organic basis from the
fourth quarter of 2018. The organic sales decline was primarily
related to lower volume in filing and note-taking products,
partially offset by the impact of price increases implemented
earlier in the year to address higher costs for materials and
freight.
Office Products income from operations was $13 million compared
to $10 million in the fourth quarter of 2018. Non-GAAP adjusted
EBITDA in the Office Products segment was $17 million for the
quarter, an increase of $1 million compared to last year’s fourth
quarter. Non-GAAP adjusted EBITDA margin increased 160 bps to 13.0%
due to a favorable mix of branded versus private label sales, the
impact of price increases, productivity and cost reduction
initiatives.
Credit Agreement Waiver, Forbearance Agreement and
Liquidity
LSC Communications today filed its Annual Report on a Form 10-K,
including its annual audited financial statements for the fiscal
year ended December 31, 2019, and the related management's
discussion and analysis (collectively, the "Form 10-K").
As noted in the Form 10-K, LSC Communications is actively
evaluating opportunities to delever its capital structure. Certain
risks related to the Company’s highly-leveraged capital structure
are described in the Form 10-K.
On March 2, 2020, LSC Communications entered into a Waiver,
Forbearance Agreement and Fourth Amendment to Credit Agreement (the
“Agreement”) with lenders under the Company’s Credit Agreement. The
Agreement waives the defaults or events of default that have
occurred as a result of noncompliance with financial covenants
relating to the Company’s Consolidated Leverage Ratio and Minimum
Interest Ratio on December 31, 2019. The Agreement also includes an
undertaking from lenders to forbear from exercising remedies for
certain potential future defaults or events of default through the
period ended May 14, 2020, subject to LSC Communications’
compliance with various undertakings in the Agreement.
As of December 31, 2019, LSC Communications had a cash balance
of $105 million, which the Company believes provides substantial
liquidity to fund its current operations.
Mr. Quinlan continued, “We appreciate the support we have
received from our revolver and term loan lenders for the waiver as
we continue to engage in productive discussions regarding
opportunities to strengthen our capital structure. We remain firmly
committed to serving our clients with the same high standards of
quality and reliability that they expect. We also appreciate the
strong support of our vendors and the continuing dedication of our
employees in recent months and going forward as they work to
support our mutual success.”
About LSC Communications
With a rich history of industry experience, innovative solutions
and service reliability, LSC Communications (OTCQX: 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 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 that
non-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 that non-GAAP adjusted EBITDA, non-GAAP adjusted EBITDA
margin and non-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, to maintain sufficient
liquidity needed to implement its strategy 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. Consolidated Balance Sheets As of
December 31, 2019 and December 31, 2018 (in millions, except share
and per share data) (UNAUDITED)
December 31, 2019
December 31, 2018 Assets
Cash and cash equivalents
$
105
$
21
Receivables, less allowances for doubtful accounts of $12 in 2019
(2018 - $14)
472
617
Inventories
170
197
Income tax receivable
5
4
Prepaid expenses and other current assets
36
28
Total Current Assets
788
867
Property, plant and equipment-net
440
508
Goodwill
52
103
Other intangible assets-net
120
156
Right-of-use assets for operating leases
163
-
Deferred income taxes
9
27
Other noncurrent assets
77
93
Total Assets
$
1,649
$
1,754
Liabilities
Accounts payable
$
175
$
372
Accrued liabilities
211
199
Short-term debt and current portion of long-term debt
465
108
Short-term operating lease liabilities
42
-
Total Current Liabilities
893
679
Long-term debt
445
659
Pension liabilities
156
132
Restructuring and multi-employer pension liabilities
42
45
Long-term operating lease liabilities
129
-
Other noncurrent liabilities
56
61
Total Liabilities
1,721
1,576
Commitments and Contingencies
Equity Common stock, $0.01 par value
Authorized: 65,000,000 Issued: 35,559,052 shares in 2019 (2018:
35,029,565)
-
-
Additional paid-in capital
835
828
Accumulated deficit
(354
)
(42
)
Accumulated other comprehensive loss
(528
)
(584
)
Treasury stock, at cost: 2,084,055 shares in 2019 (2018: 1,888,205)
(25
)
(24
)
Total Equity
(72
)
178
Total Liabilities and Equity
$
1,649
$
1,754
LSC Communications, Inc. Consolidated Statements of
Operations For the Three and Twelve Months Ended December 31, 2019
and 2018 (in millions, except per share data) (UNAUDITED)
For the Three Months Ended
December 31,
For the Year Ended December
31,
2019
2018
2019
2018
Net sales
$
778
$
939
$
3,326
$
3,826
Cost of sales
687
815
2,888
3,283
Selling, general and administrative expenses (exclusive of
depreciationand amortization)
74
86
327
328
Restructuring, impairment and other charges-net
101
17
148
35
Depreciation and amortization
29
32
120
138
(Loss) income from operations
(113
)
(11
)
(157
)
42
Interest expense-net
18
21
76
80
Settlement of retirement benefit obligations
-
-
137
-
Termination fee from Quad
-
-
(45
)
-
Investment and other (income)-net
(9
)
(13
)
(37
)
(48
)
(Loss) income before income taxes
(122
)
(19
)
(288
)
10
Income tax expense (benefit)
47
(3
)
7
33
Net (loss)
$
(169
)
$
(16
)
$
(295
)
$
(23
)
Net (loss) per common share: Basic net (loss)
per share
$
(5.02
)
$
(0.47
)
$
(8.82
)
$
(0.67
)
Diluted net (loss) per share
$
(5.02
)
$
(0.47
)
$
(8.82
)
$
(0.67
)
Weighted-average number of common shares outstanding:
Basic
33.5
33.3
33.4
33.8
Diluted
33.5
33.3
33.4
33.8
Additional information: Gross margin (1)
11.7
%
13.2
%
13.2
%
14.2
%
SG&A as a % of net sales (1)
9.5
%
9.2
%
9.8
%
8.6
%
Operating margin
nm
nm
nm
1.1
%
Effective tax rate
(37.8
%)
15.9
%
(2.3
%)
319.4
%
(1) Exclusive of depreciation and amortization nm = not meaningful
LSC Communications, Inc. Reconciliation of GAAP Net (Loss)
Income to Non-GAAP Adjusted EBITDA For the Three and Twelve Months
Ended December 31, 2019 and 2018 (in millions) (UNAUDITED)
For the TwelveMonths Ended For the Three Months Ended
December 31,2019 December 31,2019 September
30,2019 June 30,2019 March 31,2019 GAAP
net (loss) income
$
(295
)
$
(169
)
$
24
$
(24
)
$
(126
)
Adjustments: Restructuring, impairment and other
charges - net (1)
148
101
10
24
13
Gain on the sale of fixed assets (2)
(26
)
(26
)
-
-
-
Termination fee from Quad (3)
(45
)
-
(45
)
-
-
Settlement of retirement benefit obligations (4)
137
-
1
1
135
Expenses related to acquisitions, the Merger Agreementand
dispositions (5)
23
1
10
5
7
Depreciation and amortization
120
29
29
31
31
Interest expense - net
76
18
20
19
19
Income tax expense (benefit) (7)
7
47
-
(3
)
(37
)
Total Non-GAAP adjustments
440
170
25
77
168
Non-GAAP adjusted EBITDA
$
145
$
1
$
49
$
53
$
42
Net sales
$
3,326
$
778
$
834
$
869
$
845
Non-GAAP adjusted EBITDA margin %
4.4
%
0.1
%
5.9
%
6.1
%
5.0
%
For the TwelveMonths Ended For the Three Months Ended
December 31,2018 December 31,2018 September
30,2018 June 30,2018 March 31,2018 GAAP
net (loss) income
$
(23
)
$
(16
)
$
(4
)
$
8
$
(11
)
Adjustments: Restructuring, impairment and other
charges - net (1)
35
17
1
11
6
Expenses related to acquisitions, the Merger Agreementand
dispositions (5)
10
6
2
1
1
Purchase accounting adjustments (6)
3
(1
)
1
-
3
Depreciation and amortization
138
32
34
34
38
Interest expense - net
80
21
21
18
20
Income tax expense (benefit) (7)
33
(3
)
35
5
(4
)
Total Non-GAAP adjustments
299
72
94
69
64
Non-GAAP adjusted EBITDA
$
276
$
56
$
90
$
77
$
53
Net sales
$
3,826
$
939
$
1,015
$
943
$
929
Non-GAAP adjusted EBITDA margin %
7.2
%
6.0
%
8.9
%
8.2
%
5.7
%
(1)
Restructuring, impairment and other charges-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 to Non-GAAP
Measures schedules for more information.
(2)
Gain on the sale of fixed assets: During the fourth quarter of
2019, the Company sold land and building associated with a plant
closure in the Magazines, Catalogs and Logistics segment. The $26
million gain was recorded in cost of sales in the consolidated
statement of operations.
(3)
Termination fee from Quad: On July 22, 2019, Quad/Graphics, Inc.
("Quad"), and the Company entered into a letter agreement (the
"Letter Agreement"), pursuant to which the parties agreed to
terminate the merger agreement (the "Merger Agreement"). The
Company received a $45 million termination fee pursuant to the
Letter Agreement. The Company incurred transaction costs of
approximately $26 million associated with the Merger Agreement, of
which $5 million was incurred in 2018.
(4)
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 a non-cash settlement
charge of $135 million in settlement of retirement benefit
obligations in the statements of operations during the three months
ended March 31, 2019. There were additional immaterial lump-sum
settlements (unrelated to the transaction noted above) that
resulted in a non-cash settlement charges of $2 million during the
year ended December 31, 2019.
(5)
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 Merger Agreement.
(6)
Purchase accounting adjustments: Purchase accounting inventory
step-up adjustments and any gains associated with acquisitions.
(7)
Income tax (benefit) expense: The three months ended December 31,
2019 included income tax expense of $67 million related to a
valuation allowance recorded on the Company’s deferred tax assets.
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 million non-cash provision primarily for the
write-off of a deferred tax asset associated with the Company's
disposition of its European printing business on September 28,
2018.
LSC Communications, Inc. Reconciliation of GAAP to
Non-GAAP Measures For the Three Months Ended December 31, 2019 and
2018 (in millions, except per share data) (UNAUDITED)
For
the Three Months Ended December 31,2019 For the Three Months
Ended December 31,2018 Net income (loss) Net income
(loss)per diluted share Net (loss) income Net (loss)
incomeper diluted share GAAP basis measures
$
(169
)
$
(5.02
)
$
(16
)
$
(0.47
)
Non-GAAP adjustments: Restructuring, impairment and
other charges - net (1)
86
2.53
14
0.40
Gain related to the sale of fixed assets (2)
(19
)
(0.57
)
-
-
Settlement of retirement benefit obligations (3)
-
0.01
-
-
Expenses related to acquisitions, the Merger Agreementand
dispositions (4)
-
-
5
0.15
Purchase accounting adjustments (5)
-
-
(1
)
(0.02
)
Income tax adjustments (6)
68
2.02
2
0.06
Total Non-GAAP adjustments
135
3.99
20
0.59
Non-GAAP measures
$
(34
)
$
(1.03
)
$
4
$
0.12
(1)
Restructuring, impairment and other charges - net: Operating
results for the three months ended December 31, 2019 and 2018 were
affected by the pre-tax restructuring charges below of $101 million
($86 million after-tax) and $17 million ($14 million after-tax),
respectively.
For the Three Months Ended
December 31,
2019
2018
Other restructuring charges (a)
$
16
$
3
Employee termination costs (b)
25
7
Other charges (c )
1
1
Impairment charges - machinery and equipment (d)
8
3
Impairment charges - intangibles (e )
-
3
Goodwill impairment charges (f)
51
-
Total restructuring, impairment and other charges - net
$
101
$
17
(a) For the three months ended December 31, 2019, other
restructuring charges included other facility costs, costs
associated with new revenue opportunities and cost savings
initiatives implemented in 2019, lease costs, and multi-employer
pension plan withdrawal obligations related to facility closures.
The three months ended December 31, 2018 included other facility
costs and pension withdrawal obligations related to facility
closures. (b) For the three months ended December 31, 2019,
employee-related termination costs primarily resulted from four
facility closures in the Magazines, Catalogs and Logistics segment
and one facility closure in the Book segment. For the three months
ended December 31, 2018, employee-related termination costs
primarily resulted from one facility closure in the Magazines,
Catalogs and Logistics segment and one facility closure in the
Office Products segment. (c) Other charges related to the
Company's multi-employer pension plan withdrawal obligations
unrelated to facility closures. (d) During the three months
ended December 31, 2019, the Company recorded net impairment
charges of $8 million related to machinery and equipment associated
with facility closings in the Magazines, Catalogs and Logistics and
Book segments. During the three months ended December 31, 2018 the
Company recorded total net impairment charges of $3 million related
to machinery and equipment associated with facility closings in the
Company’s Magazines, Catalogs and Logistics segment. (e) For
the three months ended December 31, 2018, the Company recorded
charges of $3 million for the impairment of certain acquired
indefinite-lived tradename intangible assets in the Office Products
segment. The impairment resulted from lower expectations of future
revenue to be derived from those tradenames. (f) As a result
of the 2019 annual impairment test for Book, the Company fully
impaired Book’s goodwill and recorded a $51 million goodwill
impairment charge during the three months ended December 31, 2019
as the carrying value of the reporting unit did not exceed its
estimated fair value. This was primarily due to the negative
revenue trends experienced in the fourth quarter of 2019 and lower
revenue forecasts in future years.
(2)
Gain related to the sale of fixed assets: During the three months
ended December 31, 2019, the Company sold land and building
associated with the sale of a plant closure that resulted in a
pre-tax gain of $26 million ($19 million after-tax benefit). The
gain was recorded in cost of sales in the consolidated statement of
operations.
(3)
Settlement of retirement benefit obligations: During the three
months ended December 31, 2019, there were immaterial lump-sum
settlements that resulted in a de minimis non-cash settlement
charge (de minimis million after-tax).
(4)
Expenses related to acquisitions, the Merger Agreement and
dispositions: The three months ended December 31, 2018 included
pre-tax charges of $6 million ($5 million after-tax) related to
legal, accounting and other expenses associated with completed and
contemplated acquisitions, dispositions and the Merger Agreement.
(5)
Purchase accounting adjustments: The three months ended December
31, 2018 included a pre-tax benefit of $1 million ($1 million
after-tax benefit) as a result of changes to purchase price
allocations related to prior acquisitions.
(6)
Income tax adjustments: The three months ended December 31, 2019
included income tax expense of $67 million related to a valuation
allowance recorded on the Company’s deferred tax assets.
Additionally, the three months ended December 31, 2019 includes $1
million that was recorded due to the unfavorable impact associated
with share-based compensation awards that lapsed during the period.
The three months ended December 31, 2018 included a $1 million
adjustment for the one-time transition tax and a $1 million
adjustment for the remeasurement of deferred taxes related to the
Tax Cuts and Jobs Act (the "Tax Act"). 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 Year Ended December 31, 2019 and 2018
(in millions, except per share data) (UNAUDITED)
For the
Year Ended December 31, 2019 For the Year Ended December 31,
2018
Net (loss) income
Net (loss) income per diluted
share
Net (loss) income
Net (loss) income per diluted
share
GAAP basis measures
$
(295
)
$
(8.82
)
$
(23
)
$
(0.67
)
Non-GAAP adjustments: Restructuring, impairment and
other charges - net (1)
122
3.62
27
0.79
Gain related to the sale of fixed assets (2)
(19
)
(0.57
)
-
-
Termination fee from Quad (3)
(34
)
(1.00
)
-
-
Settlement of retirement benefit obligations (4)
102
3.06
-
-
Expenses related to acquisitions, the Merger Agreementand
dispositions (5)
16
0.49
8
0.23
Purchase accounting adjustments (6)
-
-
2
0.06
Income tax adjustments (7)
69
2.05
28
0.82
Total Non-GAAP adjustments
256
7.65
65
1.90
Non-GAAP measures
$
(39
)
$
(1.17
)
$
42
$
1.23
(1)
Restructuring, impairment and other charges - net: Operating
results for the year ended December 31, 2019 and 2018 were affected
by the pre-tax restructuring charges below of $148 million ($122
million after-tax) and $35 million ($27 million after-tax),
respectively.
For the Year Ended December
31,
2019
2018
Other restructuring charges (a)
$
37
$
14
Employee termination costs (b)
30
14
Other charges (c)
2
2
Impairment charges - intangibles (d)
18
3
Impairment charges - machinery and equipment (e)
10
3
Goodwill impairment charges (f)
51
-
Reduction of goodwill impairment charges (g)
-
(1
)
Total restructuring, impairment and other charges - net
$
148
$
35
(a) For the year ended December 31, 2019, other restructuring costs
primarily included facility costs, costs associated with new
revenue opportunities and cost savings initiatives implemented in
2019, lease costs, and pension withdrawal obligations related to
facility closures. The twelve months ended December 31, 2018
included charges related to 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 year ended December 31, 2019, employee-related
termination costs primarily resulted from five facility closures in
the Magazines, Catalogs and Logistics segment and one facility
closure in the Book segment. For the twelve months ended December
31, 2018, employee-related termination costs primarily related to
two facility closures in the Magazines, Catalogs and Logistics
segment, one facility closure in the Office Products 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) As a result of the faster pace of
decline in demand, negative revenue trends and lower expectations
of future revenue to be derived from certain customer
relationships, management determined that a certain definite-lived
customer relationship intangible asset recorded in the magazines
and catalogs reporting unit was not recoverable. Therefore, the
charges during the year ended December 31, 2019 are primarily due
to a $17 million impairment charge for the three months ended June
30, 2019, which fully impaired the asset.During the twelve months
ended December 31, 2018, the Company recorded charges of $3 million
for the impairment of certain acquired indefinite-lived tradename
intangible assets in the Office Products segment. The impairment
resulted from lower expectations of future revenue to be derived
from those tradenames. (e) During the year ended December
31, 2019, the Company recorded net impairment charges of $10
million related to machinery and equipment associated with facility
closings in the Magazines, Catalogs and Logistics and Book
segments. During the twelve months ended December 31, 2018, the
Company recorded net impairment charges of $3 million related to
machinery and equipment associated with facility closings in the
Company's Magazines, Catalogs and Logistics segment. The impairment
in both periods was primarily due to volume declines. (f) As
a result of the 2019 annual impairment test for Book, the Company
fully impaired Book’s goodwill and recorded a $51 million goodwill
impairment charge as the carrying value of the reporting unit did
not exceed its estimated fair value. This was primarily due to the
negative revenue trends experienced in the fourth quarter of 2019
and lower revenue forecasts in future years. (g) For the
nine months ended September 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)
Gain related to the sale of fixed assets: During the year ended
December 31, 2019, the Company sold land and building associated
with the sale of a plant closure that resulted in a pre-tax gain of
$26 million ($19 million after-tax benefit). The gain was recorded
in cost of sales in the consolidated statement of operations.
(3)
Termination fee from Quad: On July 22, 2019, Quad and the Company
entered into a Letter Agreement, pursuant to which the parties
agreed to terminate the Merger Agreement. The Company received a
$45 million termination fee ($34 million after-tax) pursuant to the
Letter Agreement. The Companyincurred transaction costs of
approximately $26 million associated with the Merger Agreement, of
which $5 million was incurred in 2018.
(4)
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 a pre-tax non-cash
settlement charge of $135 million during the three months ended
March 31, 2019. There were additional immaterial lump-sum
settlements that resulted in non-cash settlement charges of $2
million during the year ended December 31, 2019. There were total
pre-tax non-cash settlement charges of $137 million ($102 million
after-tax) in settlement of retirement benefit obligations in the
consolidated statements of operations during the year ended
December 31, 2019.
(5)
Expenses related to acquisitions, the Merger Agreement and
dispositions: The year ended December 31, 2019 included pre-tax
charges of $23 million ($16 million after-tax) primarily related to
the Merger Agreement. The year ended December 31, 2018 included
pre-tax charges of $10 million ($8 million after-tax) related to
legal, accounting and other expenses associated with completed and
contemplated acquisitions, and the Merger Agreement.
(6)
Purchase accounting adjustments: The twelve months ended December
31, 2018 included pre-tax charges of $3 million ($2 million
after-tax) as a result of purchase accounting inventory step-up
adjustments and changes to purchase price allocations related to
prior acquisitions.
(7)
Income tax adjustments: The income tax adjustment for the year
ended December 31, 2019 primarily relates to a $67 million
valuation allowance recorded on the Company’s deferred tax assets.
The twelve months ended December 31, 2018 primarily included a $25
million non-cash provision primarily for the write-off of a
deferred tax asset related to the Company's disposition of its
European printing business. Additionally, the twelve months ended
December 31, 2018 included a $1 million adjustment for the one-time
transition tax and a $1 million adjustment for the remeasurement of
deferred taxes related to the Tax Act.The twelve months ended
December 31, 2019 and December 31, 2018 include $2 million and $1
million, respectively, 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,
Inc.
Total Company GAAP to Non-GAAP
Adjusted EBITDA and Margin Reconciliation
For the Periods Ended December
31, 2019, 2018 and 2017
(in millions)
(UNAUDITED)
Total LSC
Communications
FY 2019
Q4 2019
Q3 2019
Q2 2019
Q1 2019
FY 2018
Q4 2018
Q3 2018
Q2 2018
Q1 2018
FY 2017
Net sales
$
3,326
$
778
$
834
$
869
$
845
$
3,826
$
939
$
1,015
$
943
$
929
$
3,603
GAAP net (loss) income
(295
)
(169
)
24
(24
)
(126
)
(23
)
(16
)
(4
)
8
(11
)
(57
)
Restructuring, impairment and other charges - net
148
101
10
24
13
35
17
1
11
6
129
Gain related to the sale of fixed assets
(26
)
(26
)
-
-
-
-
-
-
-
-
-
Termination fee from Quad
(45
)
-
(45
)
-
-
-
-
-
-
-
-
Settlement of retirement benefit obligations
137
-
1
1
135
-
-
-
-
-
-
Expenses related to acquisitions, the Merger Agreement and
dispositions
23
1
10
5
7
10
6
2
1
1
5
Purchase accounting adjustments
-
-
-
-
-
3
(1
)
1
-
3
(1
)
Separation-related adjustments
-
-
-
-
-
-
-
-
-
-
4
Loss on debt extinguishment
-
-
-
-
-
-
-
-
-
-
3
Depreciation and amortization
120
29
29
31
31
138
32
34
34
38
160
Interest expense - net
76
18
20
19
19
80
21
21
18
20
72
Income tax expense (benefit)
7
47
-
(3
)
(37
)
33
(3
)
35
5
(4
)
13
Non-GAAP Adjusted EBITDA
$
145
$
1
$
49
$
53
$
42
$
276
$
56
$
90
$
77
$
53
$
328
Non-GAAP Adjusted EBITDA margin
4.4
%
0.1
%
5.9
%
6.1
%
5.0
%
7.2
%
6.0
%
8.9
%
8.2
%
5.7
%
9.1
%
Net cash (used in) provided by operating activities
($
4
)
($
93
)
$
86
$
27
($
24
)
$
162
$
188
$
-
($
2
)
($
24
)
$
205
Capital expenditures
(71
)
(11
)
(11
)
(21
)
(28
)
(63
)
(11
)
(15
)
(17
)
(20
)
(60
)
Free cash flow
($
75
)
($
104
)
$
75
$
6
($
52
)
$
99
$
177
($
15
)
($
19
)
($
44
)
$
145
LSC Communications, Inc. Segment GAAP to Non-GAAP Adjusted
EBITDA and Margin Reconciliation For the Periods Ended December 31,
2019, 2018 and 2017 (in millions) (UNAUDITED)
Magazines,
Catalogs and Logistics FY 2019 Q4 2019 Q3
2019 Q2 2019 Q1 2019 FY 2018 Q4
2018 Q3 2018 Q2 2018 Q1 2018 FY
2017 Net sales
$
1,559
$
384
$
392
$
380
$
403
$
1,767
$
476
$
463
$
401
$
427
$
1,583
(Loss) income from operations
($
114
)
($
35
)
($
6
)
($
42
)
($
31
)
($
31
)
($
12
)
$
1
($
6
)
($
14
)
($
73
)
Depreciation and amortization
54
13
13
13
15
62
15
16
15
16
72
Gain on the sale of fixed assets
(26
)
(26
)
-
-
-
-
-
-
-
-
-
Restructuring, impairment and other charges - net
67
32
4
20
11
20
10
-
6
4
86
Purchase accounting adjustments
-
-
-
-
-
-
-
-
-
-
1
Non-GAAP Adjusted EBITDA
($
19
)
($
16
)
$
11
($
9
)
($
5
)
$
51
$
13
$
17
$
15
$
6
$
86
Non-GAAP Adjusted EBITDA margin
(1.2
%)
(4.2
%)
2.8
%
(2.4
%)
(1.2
%)
2.9
%
2.7
%
3.7
%
3.7
%
1.4
%
5.4
%
Capital expenditures
$
35
$
7
$
6
$
12
$
10
$
24
$
4
$
6
$
5
$
9
$
24
Book FY 2019 Q4 2019 Q3 2019
Q2 2019 Q1 2019 FY 2018 Q4 2018 Q3
2018 Q2 2018 Q1 2018 FY 2017 Net
sales
$
1,011
$
206
$
256
$
289
$
260
$
1,055
$
258
$
282
$
266
$
249
$
1,022
(Loss) income from operations
($
36
)
($
72
)
$
5
$
18
$
13
$
58
$
9
$
21
$
19
$
9
$
62
Depreciation and amortization
49
12
12
13
12
52
13
12
13
14
60
Restructuring, impairment and other charges - net
66
62
2
1
1
6
1
1
3
1
15
Non-GAAP Adjusted EBITDA
$
79
$
2
$
19
$
32
$
26
$
116
$
23
$
34
$
35
$
24
$
137
Non-GAAP Adjusted EBITDA margin
7.8
%
1.0
%
7.4
%
11.1
%
10.0
%
11.0
%
8.9
%
12.1
%
13.2
%
9.6
%
13.4
%
Capital expenditures
$
30
$
2
$
4
$
7
$
17
$
31
$
6
$
7
$
9
$
9
$
13
Office Products FY 2019 Q4 2019 Q3
2019 Q2 2019 Q1 2019 FY 2018 Q4
2018 Q3 2018 Q2 2018 Q1 2018 FY
2017 Net sales
$
517
$
131
$
128
$
139
$
119
$
562
$
140
$
145
$
154
$
123
$
495
Income from operations
$
42
$
13
$
8
$
13
$
8
$
40
$
10
$
15
$
13
$
2
$
42
Depreciation and amortization
12
3
3
3
3
13
2
4
3
4
15
Restructuring, impairment and other charges - net
4
1
2
1
-
6
4
-
1
1
4
Purchase accounting adjustments
-
-
-
-
-
1
-
-
-
1
1
Non-GAAP Adjusted EBITDA
$
58
$
17
$
13
$
17
$
11
$
60
$
16
$
19
$
17
$
8
$
62
Non-GAAP Adjusted EBITDA margin
11.2
%
13.0
%
10.2
%
12.2
%
9.2
%
10.7
%
11.4
%
13.1
%
11.0
%
6.5
%
12.5
%
Capital expenditures
$
2
$
1
$
-
$
1
$
-
$
1
$
-
$
-
$
1
$
-
$
5
LSC Communications,
Inc.
Segment GAAP to Non-GAAP Adjusted
EBITDA and Margin Reconciliation
For the Periods Ended December
31, 2019, 2018 and 2017
(in millions)
(UNAUDITED)
Mexico FY 2019 Q4 2019 Q3 2019
Q2 2019 Q1 2019 FY 2018 Q4 2018 Q3
2018 Q2 2018 Q1 2018 FY 2017 Net
sales
$
91
$
18
$
25
$
25
$
23
$
97
$
24
$
25
$
24
$
24
$
98
Income from operations
$
14
$
3
$
4
$
4
$
3
$
13
$
3
$
4
$
3
$
3
$
14
Depreciation and amortization
4
1
1
1
1
4
1
1
1
1
3
Restructuring, impairment and other charges - net
-
-
-
-
-
-
-
-
-
-
1
Non-GAAP Adjusted EBITDA
$
18
$
4
$
5
$
5
$
4
$
17
$
4
$
5
$
4
$
4
$
18
Non-GAAP Adjusted EBITDA margin
19.8
%
22.2
%
10.3
%
20.0
%
17.4
%
17.5
%
16.7
%
20.0
%
16.7
%
16.7
%
18.4
%
Capital expenditures
$
1
$
-
$
-
$
-
$
1
$
1
$
-
$
-
$
-
$
1
$
0
Other FY 2019 Q4 2019 Q3 2019
Q2 2019 Q1 2019 FY 2018 Q4 2018 Q3
2018 Q2 2018 Q1 2018 FY 2017 Net
sales
$
149
$
40
$
33
$
36
$
40
$
347
$
43
$
100
$
98
$
106
$
405
Income from operations
$
7
$
1
$
1
$
4
$
1
$
13
$
0
$
5
$
4
$
4
$
14
Depreciation and amortization
1
1
-
-
-
6
1
1
1
3
8
Restructuring, impairment and other charges - net
-
-
-
-
-
1
1
-
-
-
6
Non-GAAP Adjusted EBITDA
$
8
$
2
$
1
$
4
$
1
$
20
$
2
$
6
$
5
$
7
$
28
Non-GAAP Adjusted EBITDA margin
5.4
%
5.0
%
10.3
%
11.1
%
2.5
%
5.8
%
4.7
%
6.0
%
5.1
%
6.6
%
6.9
%
Capital expenditures
$
-
$
-
$
-
$
-
$
-
$
2
$
-
$
1
$
1
$
0
$
1
Corporate FY 2019 Q4 2019 Q3
2019 Q2 2019 Q1 2019 FY 2018 Q4
2018 Q3 2018 Q2 2018 Q1 2018 FY
2017 Net sales
($
1
)
$
(1
)
$
-
$
-
$
-
$
(2
)
($
2
)
$
-
$
-
$
-
$
-
Operating expenses
($
70
)
($
23
)
($
21
)
($
13
)
($
13
)
($
51
)
($
21
)
($
5
)
($
15
)
($
10
)
($
78
)
Investment and other (income)-net
(37
)
(9
)
(9
)
(9
)
(10
)
(48
)
(13
)
(11
)
(13
)
(11
)
(47
)
Depreciation and amortization
-
(1
)
-
1
-
1
-
-
1
-
2
Restructuring, impairment and other charges - net
11
6
2
2
1
2
1
-
1
-
17
Expenses related to acquisitions, the MergerAgreement and
dispositions
23
1
10
5
7
10
6
2
1
1
5
Purchase accounting adjustments
-
-
-
-
-
2
(1
)
1
-
2
(3
)
Separation-related adjustments
-
-
-
-
-
-
-
-
-
-
4
Loss on debt extinguishment
-
-
-
-
-
-
-
-
-
-
3
Non-GAAP Adjusted EBITDA
$
1
($
8
)
$
0
$
4
$
5
$
12
($
2
)
$
9
$
1
$
4
($
3
)
Capital expenditures
$
3
$
1
$
1
$
1
$
-
$
4
$
1
$
1
$
1
$
1
$
8
LSC Communications, Inc. Consolidated Statements of Cash
Flows For the Year Ended December 31, 2019 and 2018 (in millions)
(UNAUDITED)
2019
2018
Net (loss)
$
(295
)
$
(23
)
Adjustment to reconcile net (loss) to net cash provided by
operating activities: Impairment charges
79
6
Depreciation and amortization
120
138
Provision for doubtful accounts receivable
7
7
Share-based compensation
7
12
Deferred income taxes
2
21
Settlement of retirement benefit obligations
137
-
Gain on sale of investments and other assets-net
(34
)
(3
)
Other
6
7
Changes in operating assets and liabilities - net of acquisitions:
Accounts receivable - net
137
103
Inventories
27
(6
)
Prepaid expenses and other current assets
(3
)
(2
)
Accounts payable
(177
)
(38
)
Income taxes receivable
(2
)
11
Accrued liabilities and other
(15
)
(71
)
Net cash (used in) provided by operating activities
$
(4
)
$
162
Capital expenditures
(71
)
(63
)
Acquisitions of businesses, net of cash acquired
(3
)
(48
)
Disposition of businesses
6
47
Net proceeds from sales and purchases of investments and other
assets
34
9
Net cash (used in) investing activities
$
(34
)
$
(55
)
Payments of current maturities and long-term debt
(44
)
(50
)
Net proceeds (payments) from credit facility borrowings
183
(9
)
Debt issuance costs
(2
)
(1
)
Payments for repurchase of common stock
-
(20
)
Dividends paid
(17
)
(35
)
Other financing activities
(1
)
(1
)
Net cash provided by (used in) financing activities
$
119
$
(116
)
Effect of exchange rate on cash and cash equivalents
1
(2
)
Net increase in cash, cash equivalents and restricted
cash
$
82
$
(11
)
Cash, cash equivalents and restricted cash at beginning of
year
24
35
Cash, cash equivalents and restricted cash at end of
period
$
106
$
24
Reconciliation to the Consolidated Balance Sheets
As of December 31,
2019
2018
Cash and cash equivalents
$
105
$
21
Restricted cash included in prepaid expenses and other current
assets
1
3
Total cash, cash equivalents and restricted cash shown in the
consolidated statements ofcash flows
$
106
$
24
LSC Communications, Inc. Reconciliation of Reported to Pro
Forma Net Sales For the Three Months Ended December 31, 2019 and
2018 (in millions) (UNAUDITED)
Magazines, Catalogs &
Logistics
Book
Office Products
Mexico
Other
Corporate
Total LSC
Q4 2018 Net Sales as Reported
$
476
$
258
$
140
$
24
$
43
($
2
)
$
939
Adjustments(1)
-
-
-
-
-
-
-
Q4 2018 Net Sales Pro Forma
$
476
$
258
$
140
$
24
$
43
($
2
)
$
939
Q4 2019 Net Sales as Reported
$
384
$
206
$
131
$
18
$
40
($
1
)
$
778
Adjustments(1)
-
-
-
-
-
-
-
Q4 2019 Net Sales Pro Forma
$
384
$
206
$
131
$
18
$
40
($
1
)
$
778
As Reported % Change
(19.2
%)
(20.2
%)
(6.9
%)
(25.2
%)
(5.7
%)
nm
(17.1
%)
Pro Forma % Change
(19.2
%)
(20.2
%)
(6.9
%)
(25.2
%)
(5.7
%)
nm
(17.1
%)
Non-GAAP Adjustments: Impact of changes in foreign
exchange rates ---% ---% ---%
1.9
%
---% ---%
0.1
%
Impact of pass-through paper sales
(3.6
%)
(1.9
%)
---%
0.3
%
(1.8
%)
---%
(2.4
%)
Impact of dispositions (2)
(1.3
%)
---% ---% ---% ---% ---%
(0.7
%)
Q4 2019 Organic % Change (3)
(14.3
%)
(18.3
%)
(6.9
%)
(27.4
%)
(3.9
%)
nm
(14.1
%)
The reported results of the Company
include the results of acquired businesses (if any during the
periods presented) from the acquisition date forward. The Company
has provided this schedule to reconcile reported net sales for the
three months ended December 31, 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 December 31, 2019 and 2018.
(2) Adjusted for the following
dispositions: Commingle operations on August 20, 2019.
(3) Adjusted for the impact of
dispositions, changes in FX rates, and pass-through paper
sales.
LSC Communications, Inc. Reconciliation of Reported to Pro
Forma Net Sales For the Year Ended December 31, 2019 and 2018 (in
millions) (UNAUDITED)
Magazines,Catalogs &Logistics
Book OfficeProducts Mexico Other
Corporate Total LSC Q4 2018 YTD Net Sales as
Reported
$
1,767
$
1,055
$
562
$
97
$
347
($
2
)
$
3,826
Adjustments(1)
85
-
-
-
-
-
85
Q4 2018 YTD Net Sales Pro Forma
$
1,852
$
1,055
$
562
$
97
$
347
($
2
)
$
3,911
Q4 2019 YTD Net Sales as Reported
$
1,559
$
1,011
$
517
$
91
$
149
($
1
)
$
3,326
Adjustments(1)
-
-
-
-
-
-
-
Q4 2019 YTD Net Sales Pro Forma
$
1,559
$
1,011
$
517
$
91
$
149
($
1
)
$
3,326
As Reported % Change
(11.7
%)
(4.2
%)
(8.1
%)
(5.7
%)
(57.0
%)
nm
(13.0
%)
Pro Forma % Change
(15.8
%)
(4.2
%)
(8.1
%)
(5.7
%)
(57.0
%)
nm
(14.9
%)
Non-GAAP Adjustments: Impact of changes in foreign
exchange rates ---% ---%
(0.2
%)
(0.3
%)
---
%
---%
---
%
Impact of pass-through paper sales
(1.9
%)
0.1
%
---% ---%
(2.9
%)
---%
(1.1
%)
Impact of dispositions (2)
(2.7
%)
---% ---% ---%
(51.4
%)
---%
(5.8
%)
Q4 2019 YTD Organic % Change (3)
(11.2
%)
(4.3
%)
(7.9
%)
(5.4
%)
(2.7
%)
nm
(8.0
%)
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 year ended December 31, 2019 and 2018 to
pro forma net sales as if the acquisition 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 year
ended December 31, 2019.
For the year ended December 31, 2018, the
adjustments for net sales of acquired businesses reflect the net
sales of Print Logistics (acquired July 2, 2018).
(2) Adjusted for the following
dispositions: Commingle operations on August 20, 2019, European
printing business on September 28, 2018 and retail offset printing
facilities on June 5, 2018.
(3) Adjusted for the impact of
acquisitions and dispositions, changes in FX rates, and
pass-through paper sales.
LSC Communications, Inc. Pension, Debt and Liquidity Summary
As of December 31, 2019 & 2018 (in millions) (UNAUDITED)
Cash, Debt & Liquidity December 31, 2019
December 31, 2018 Short-term and current portion of
long-term debt
$
465
$
108
Long-term debt
445
659
Total debt
$
910
$
767
Cash
$
105
$
21
Net debt
$
805
$
746
Unfunded Status of Pension Benefit
Plans Based on the fair value of assets and the discount
rate used to value benefit obligations as of December 31, 2019, the
unfunded status of the pension benefit plans is $162 million
compared to $137 million at December 31, 2018. Qualified
Non-Qualified & International Total Pension liabilities
$
2,159
$
97
$
2,256
Pension assets
2,090
4
2,094
Unfunded status at December 31, 2019
$
(69
)
$
(93
)
$
(162
)
Credit Agreement
Background: On September 30, 2016, the Company entered into
a $400 million senior secured revolving credit agreement (the
“Revolving Credit Facility”) which expires on September 30, 2021.
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. 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.
Noncompliance with Financial Covenants on December 31,
2019: Based on final results of operations for the year ended
December 31, 2019, the Company concluded it was not in compliance
with the Consolidated Leverage Ratio and Minimum Interest Ratio
contained in the Credit Agreement on December 31, 2019. The
noncompliance occurred on the last day of the fourth quarter due to
the following: the Company’s Consolidated Leverage Ratio exceeded
the maximum level permitted and the Company’s Minimum Interest
Ratio was below the minimum level permitted.
Waiver, Forbearance
Agreement and Fourth Amendment to Credit Agreement (the
"Agreement"): On March 2, 2020, LSC Communications entered into
the Agreement with lenders under the Company’s primary Credit
Agreement. The Agreement waives the defaults or events of default
that have occurred as a result of financial covenant noncompliance
of the Company’s Consolidated Leverage Ratio and Minimum Interest
Ratio on December 31, 2019. The Agreement also includes an
undertaking from lenders to forbear from exercising remedies for
certain potential future defaults or events of default through the
period ended May 14, 2020, subject to LSC Communications’
compliance with various undertakings in the Agreement.
Balances
as of December 31, 2019: As of December 31, 2019, the Company
had $249 million of borrowings and $51 million in outstanding
letters of credit issued under the Revolving Credit Facility, with
no availability to further draw.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200302005508/en/
Michael King, SVP Investor Relations & Finance E-mail:
investor.relations@lsccom.com Tel: 773.272.9275
LSC Communications (NYSE:LKSD)
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