July 2017 Investor Presentation vFINAL/media/Files/L/LSC-IR/reports-and... · This presentation contains certain non-GAAP measures. The Company believes that these non-GAAP measures,

LSC COMMUNICATIONS

Investor PresentationJuly 2017

SAFE HARBORLSC Communications Cautionary Statement Regarding Forward-Looking StatementsTo the extent any statements made in this presentation contain information that is not historical; these statements are forward-looking in nature and express the beliefs and expectations of management. Such statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause LSC Communications’ future results, performance, or achievements to differ significantly from the results, risks and uncertainties that could cause LSC Communications future results, performance, or achievements to differ significantly from the results, performance, or achievements expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: the competitive market for our products and industry fragmentation affecting our prices; changes in technology, including electronic substitution and migration of paper based documents to digital data formats; the volatility and disruption of the capital and credit markets, and adverse changes in the global economy; the effects of global market and economic conditions on our customers; the effects of economic weakness and constrained advertising; uncertainty about future economic conditions; increased competition as a result of consolidation among our competitors; our ability to successfully integrate future acquisitions; factors that affect customer demand, including changes in postal rates, postal regulations and service levels, changes in the capital markets, changes in advertising markets and customers’ budgetary constraints; vulnerability to adverse events as a result of becoming astand-alone company following separation from RRD; our ability to access debt and the capital markets due to adverse credit market conditions; the effects of seasonality on our core businesses; the effects of increases in capital expenditures; changes in the availability or costs of key materials (such as ink and paper) or in prices received for the sale of by-products; performance issues with key suppliers; our ability to maintain our brands and reputation; the retention of existing and continued attraction of additional customers and key employees; the effect of economic and political conditions on reputation; the retention of existing, and continued attraction of additional customers and key employees; the effect of economic and political conditions on a regional, national or international basis; the effects of operating in international markets, including fluctuations in currency exchange rates; changes in environmental laws and regulations affecting our business; the ability to gain customer acceptance of our new products and technologies; the effect of a material breach of security of any of our or our vendors’ systems; the failure to properly use and protect customer and employee information and data; lack of market for our common stock; potential tax liability of the distribution of our common stock to the RRD stockholders in the separation from RRD; lack of history as an operating company and costs associated with the separation from RRD; failure to achieve certain intended benefits of the Separation; y p g p y p ; p ;failure of RRD or Donnelley Financial to satisfy their respective obligations under transition services agreements and other risks and uncertainties detailed under “Risk Factors” in LSC Communications’ Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission.

Forward-looking statements speak only as to the date on which they are made, and LSC Communications undertakes no obligation to update publicly or

2 | LSC COMMUNICATIONS

revise any forward-looking statement, regardless of whether new information becomes available, future developments occur or otherwise.

NON-GAAP FINANCIAL INFORMATION

This presentation contains certain non-GAAP measures. The Company believes that these non-GAAP measures, such as non-GAAP adjusted EBITDA 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 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, y g g grestructuring, 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.


AGENDA

+ Business Overview

+ Investment Highlights

+ Financial Overview+ Financial Overview

+ Appendix


Business Overview


LSC COMMUNICATIONS: A GLOBAL LEADER

LSC AT A GLANCELSC AT A GLANCE

Global leader in traditional and digital print, print-related services

EXTENSIVE PRODUCTS & SERVICE CAPABILITIESEXTENSIVE PRODUCTS & SERVICE CAPABILITIES

Office Productsg p , pand office products

Serves the needs of publishers, merchandisers and retailers Service offering includes supply chain management, mail and

distribution services, and e-book formatting Serves over 3 000 customers

$3.65BN

Books30%

Europe7%

Directories3%

14%

Serves over 3,000 customers Strategically located operations with 49 production and

manufacturing facilities in the U.S., Europe and Mexico 19 acquisitions completed since 2004 $3.65BN of revenues with $370MM of EBITDA(1) in 2016

2016 Sales

Office Products

PrintMagazines, catalogs

& retail inserts45%

GLOBAL PLATFORM WITH SIGNIFICANT SCALEGLOBAL PLATFORM WITH SIGNIFICANT SCALE

UNITED STATES MEXICO POLAND


1. Non-GAAP adjusted EBITDA

41 Production Facilities

in the U.S.

8 International

ManufacturingFacilities

~20 million Square Feet of Owned Facility

Space

Print Locations Office Products Locations

VALUE CREATION STRATEGY

LSC IS UNIQUELY POSITIONED WITH A CLEAR STRATEGY FOR DELIVERING SIGNIFICANT VALUE TO ITS SHAREHOLDERS IN A DYNAMIC MARKET ENVIRONMENT

LSC IS UNIQUELY POSITIONED WITH A CLEAR STRATEGY FOR DELIVERING SIGNIFICANT VALUE TO ITS SHAREHOLDERS IN A DYNAMIC MARKET ENVIRONMENT

Leverage Scale

Disciplined M&A

Improve Operational Effi iEfficiency

Value Creation

New Revenue Streams

Grow Select Existing Revenue Streams


Streams

PRINT SEGMENT OVERVIEW

+ Print segment (86% of total revenues) produces magazines, catalogs, retail inserts, books and directories and provides print-related services

SEGMENT SNAPSHOTSEGMENT SNAPSHOT NET SALES ($MM)NET SALES ($MM)

$149 $144 $126

$3,353 $3,181 $3,127

+ Largest producer of books in the U.S.+ One of the largest producers of catalogs, magazines and retail inserts in

North America+ Offers a wide range of products and services to customers: Books: Produces hardcover and softcover books serving the $2 036 $1 807

$787 $925 $1,097

$381 $305 $272 $144 $126

Books: Produces hardcover and softcover books serving the education, trade, religious and testing sectors

Magazines, Catalogs & Retail Inserts: Produces catalogs, magazines & retail inserts to customers’ specifications using either offset or gravure printing processes in combination with either on-press finishing, saddle-stitch binding or patent binding

$2,036 $1,807 $1,632

2014 2015 2016Magazines, Catalogs & Retail Inserts Books Europe Directories

Directories: Produces directories which are mainly phone directories that support local and small business advertising

Print-related Services: Supply chain management offering includes procurement,

warehousing, distribution, and inventory management for book publishers

SELECT CUSTOMERSSELECT CUSTOMERS

publishers Mail services offering includes list processing and mail sortation

services that optimize postal costs for magazine and catalog customers

Other offerings include e-book formatting and distribution services

10 of the top 10 book publishers in North America

9 of the top 10 direct mail catalogers

9 of the top 10 magazine publishers



PRINT INDUSTRY TRENDS

THEMESTHEMES LSC’S ADVANTAGELSC’S ADVANTAGE

Excess Industry Despite a slight uptick in 2016, the overall industry’s Experienced management team with proven

Highly Competitive Despite recent consolidation, this highly

price-competitive segment continues to LSC continues to be one of the largest players

in its segments and an active consolidator in

Excess Industry Capacity capacity utilization remains low at 65%(1) strategy for identifying plant rationalization

opportunities in time-efficient manner

Environmentp p gremain fragmented

gthe industry with 19 acquisitions since 2004

Customers’ Focus Expectation for continued pricing pressure as

customers focus on total cost – including not only i b t t i l d di t ib ti t

LSC’s scale and services offerings allow its customers to benefit from postal and supply h i ffi i i l i th i llon Total Cost price, but materials and distribution costs chain efficiencies lowering their overall

total costs

e-book adoption rates are stabilizing and LSC has benefited from growing industry-wide print b k l i t

Changes in technology including electronic substitution and migration of paper based

book volume in recent years Service offerings represents significant growth

potential for LSC Continued investments in digital print

technology and focus on innovation initiatives h l ff d li

Technological Changes / Volume

Pressures

documents to digital data formats remain threats to the traditional print industry


1. Printing & Support capacity utilization per Federal Reserve as of December 2016.

help offset declines

OFFICE PRODUCTS SEGMENT OVERVIEW

+ Office Products segment (14% of total revenues), produces a wide range of branded and private label products in five core categories:

SEGMENT SNAPSHOTSEGMENT SNAPSHOT NET SALES ($MM)NET SALES ($MM)

$562range of branded and private label products in five core categories: filing products, note-taking products, binder products, forms and envelopes

+ Customers include office superstores, office supply wholesalers, independent contract stationers, mass merchandisers and retailers and e commerce resellers

$500$562 $527

and e-commerce resellers+ Expanded offering with Ampad, Oxford and Pendaflex brands

through the acquisition of Esselte’s North American operations in 2014

2014 2015 2016

SELECT CUSTOMERSSELECT CUSTOMERSKEY BRANDS & OFFERINGSKEY BRANDS & OFFERINGS

Filing Products

Note-taking Products

Private Label

Private Label

Product placement at 9 of the top 10 retailers

Services 5 of the top 10 eCommerce retailers

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

Note taking Products

Binder Products

Forms

Private Label

Private Label

Private Label


Envelopes Private Label

OFFICE PRODUCTS SEGMENT OVERVIEW

THEMESTHEMES LSC’S ADVANTAGELSC’S ADVANTAGE

Technological Information technology integration and continued t ti f di it l f d d t h d d

LSC's management team has a proven track d f i t tl t hi t t d d

Increasing As consumer preferences shift towards private label, A majority of LSC's business is currently in private

gAdvances Impact on

Overall Demand

penetration of digital forms and documents has reduced the usage of many paper-based products

record of consistently matching costs to demand trends

Increasing Prevalence of Private Label

p presellers have increased the pressure on suppliers to better differentiate often through product innovation, further improvement of private label products, and providing low cost solutions to end users

j y y plabel products, and management has strategically positioned product mix to take advantage of this trend while also consistently innovating our products to meet customer needs

The global market is fragmented ith the presence of LSC has a ide ariet of nationall recogni ed Fragmented Retailer

Market

The global market is fragmented with the presence of many global and local players, and the two major retailers represent only a fraction of total industry revenues

LSC has a wide variety of nationally recognized brands and strategic relationships with major office product wholesalers to effectively serve small and mid-size independent retailers

Shift to Online Channel / E-Commerce

Momentum in e-commerce expected to continue with both consumers and businesses shifting their buying from traditional office products retailers to e-commerce

LSC’s market-leading brands are well-positioned to capture growth in the e-commerce channel through its existing direct to e-commerce retailer and direct-to-consumer strategies


LONG-TERM REVENUE OUTLOOK: NEXT 5 YEARSLSC OUTLOOK BETTER THAN INDUSTRY DRIVEN BY CONTINUED GROWTH IN SERVICES AND INNOVATION INITIATIVESLSC OUTLOOK BETTER THAN INDUSTRY DRIVEN BY CONTINUED GROWTH IN SERVICES AND INNOVATION INITIATIVES

% of 2016 Net Sales Near-to-Medium Term Organic Growth Outlook(1) Commentary

O i hift i d ti d f i t t l t i diMagazine,

Catalog, Retail (7%) to (2%)

Ongoing shift in advertiser spend from print to electronic media Offset by share gain from investment in co-mail, sourcing, and premedia Catalog demand is expected to decline less rapidly than retail inserts and

magazine volume

B k

Modest declines from ongoing electronic substitution Offset by growth from supply chain services

45%

30%Books (2%) to 3% Offset by growth from supply chain services

Upside from innovation initiatives including Anti-Piracy and Channel Management

Europe (4%) to 1% Based on the mix of catalog, magazine, retail, and directory products along with premedia services

7%

Directory (15%) to (10%) Rapid electronic substitution for these products is expected to continue Continuing to look for new revenue streams to offset decline

Total Print Segment (4%) to (1%)

3%

Office Products (2%) to 3% Modest declines in demand for select office products Offset by growth in private label volume

Blended LSC Outlook: (3%) to 0%

Industry Outlook: Low to mid single digit decline

14%


Industry Outlook: Low-to-mid single digit decline1. Long-term revenue guidance reflects guidance in Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission, and is not being reaffirmed here.

Investment Highlights


INVESTMENT HIGHLIGHTS

1 Leading Player Within a Large, Highly Fragmented Market

2 Extensive Product & Service Profile

3 Long-Standing Relationships with a Premier Customer Base3 Long Standing Relationships with a Premier Customer Base

4 Strong M&A Track Record

5 Sharp Focus on Cost Structure with Additional Opportunities to Rationalize

6 Strong Cash Flow Profile With Attractive Dividend

7 Experienced Leadership Team


pe e ced eade s p ea

LEADING PLAYER WITHIN A LARGE, HIGHLY FRAGMENTED MARKET1

IN A HIGHLY FRAGMENTED PRINT INDUSTRY, ONLY A SMALL NUMBER OF PLAYERS HAVE THE SCALE TO EFFECTIVELY ADDRESS A CHANGING MARKET ENVIRONMENT

IN A HIGHLY FRAGMENTED PRINT INDUSTRY, ONLY A SMALL NUMBER OF PLAYERS HAVE THE SCALE TO EFFECTIVELY ADDRESS A CHANGING MARKET ENVIRONMENT

U.S. Print Industry Revenues in 2016 MARKET TRENDS LSC ADVANTAGE

Excess Industry CapacityExperienced Team Managing Facility Closures across US,

Mexico and EuropeLSC’s Core & Related Target Markets

are Significant

$85 Billion Total

p

Highly Competitive Environment

Industry Consolidator with Strong M&A Track Record

are Significant

Highly Fragmented Core Market

LSC Core Related Unrelated

$

Largest Players by Revenues in Core LSC Markets(1)

$ in billionsCustomers’ Focus on Total

Cost

Scale Enables Postal & Supply Chain Efficiencies for

Customers

Highly Fragmented Core Market

Top 2 Players Represent Only a Fraction of the Core Market

$4.3$3.1

QUAD LSC

Technological Changes / Volume Pressures

Exposure to Growing Book Segment, Services Offering and Industry Leading Digital Print Platform to Help Offset

Tech-driven Declines

Next largest company has less than $0.5BN in revenue


Source: IBISWorld, “Printing in the US”, November 2016. Company filings. 1. Represents latest fiscal year reported revenue. Sales reflect revenues from the entirety of Quad Graphics and LSC Communications’ Print segment.

1 LEADING PLAYER WITHIN A LARGE, HIGHLY FRAGMENTED MARKET

Illustrative Cost Breakdown for Catalogers and Magazine Publishing Customers

Postal Savings Based on Sortation Level(2)

LSC’S SCALE ENABLES ITS CO-MAIL SERVICES WHICH COMBINES THE DISTRIBUTION OF PRINTED PUBLICATIONS IN AN EFFICIENT MANNER TO PROVIDE POSTAL SAVINGSLSC’S SCALE ENABLES ITS CO-MAIL SERVICES WHICH COMBINES THE DISTRIBUTION OF PRINTED PUBLICATIONS IN AN EFFICIENT MANNER TO PROVIDE POSTAL SAVINGS

g

Postage~50%

Print & Print Materials

~50%

21%

48% 57% 63%

Significant opportunity for savings through co-mail

(1)~50%

5 Digit Carrier Route High Density SaturationSortation Level

LSC’s Growing Co-mail Business(3)+ Continuing investments to grow capability and capacity in co-mail services to support future growth

LSC MAKES CONTINUED INVESTMENTS TO LOWER TOTAL COSTS TO CUSTOMERSLSC MAKES CONTINUED INVESTMENTS TO LOWER TOTAL COSTS TO CUSTOMERS

+ Continued enhancement of mail-list optimization software+ Investments in materials and distribution to enable customer

efficiencies2006 2011 2016

Source: United States Postal Service.


1. Includes costs for paper, print & bind, and pre-media. 2. Cumulative savings versus piece rate cost for 3-Digit/SCF level. Based on postal rates for barcoded machinable flats for periodicals outside county. 3. Represents LSC’s co-mail units.

2 EXTENSIVE PRODUCT & SERVICE PROFILE

ALLOWS US TO PROVIDE UNIQUE SOLUTIONS THAT MORE NARROW COMPETITORS CANNOT EASILY DUPLICATEALLOWS US TO PROVIDE UNIQUE SOLUTIONS THAT MORE NARROW COMPETITORS CANNOT EASILY DUPLICATE

BOOK EXAMPLE: END-TO-END PRINT & SUPPLY CHAIN SERVICESVendor

Management Materials Manufacturing Book Fulfillment Services

Order-to-Cash LogisticsVendor

Management Materials Manufacturing Book Fulfillment Services

Order-to-Cash Logistics

S f f

SERVICE OFFERING SCALESERVICE OFFERING SCALE CLIENT BENEFITSCLIENT BENEFITSDIGITAL PRINT PLATFORMDIGITAL PRINT PLATFORM

Largest U.S. digital print platform for printing books

~13 billion pages of capacity(1)

Growing platform for quick-turn production

Significant savings on paper and procurement costs

Cash flow improvements

Quicker fulfillment rates to Platform for short-run markets (self-publishing)

TRADITIONAL BOOK PRODUCTION SCALETRADITIONAL BOOK PRODUCTION SCALE WAREHOUSING & FULFILLMENTWAREHOUSING & FULFILLMENT

Quicker fulfillment rates to customers

Increase in titles available for sale

Reduce total payroll costs 4.1 million square ft. of warehouses Full service offering includes:

High volume storage Returns Kitting

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

k i d l i ti biliti

p y

Fewer “out-of-stock” products

Less inventory obsolescence

Reduction in warehouse space


Kittingpackaging, and logistics capabilities

1. Calculated using expected go-forward annual digital print capacity after 2017 investment in HP Digital Production Technology.

Reduction in warehouse space

2 EXTENSIVE PRODUCT & SERVICE PROFILE

DESPITE CONTRIBUTING TO A MINIMAL PERCENTAGE OF REVENUES TODAY, LSC’S INNOVATION EFFORTS REPRESENT SIGNIFICANT UPSIDE OPPORTUNITY WITH POTENTIAL FOR STRONG GROWTH AND A HIGH MARGIN REVENUE STREAMDESPITE CONTRIBUTING TO A MINIMAL PERCENTAGE OF REVENUES TODAY, LSC’S INNOVATION EFFORTS REPRESENT SIGNIFICANT UPSIDE OPPORTUNITY WITH POTENTIAL FOR STRONG GROWTH AND A HIGH MARGIN REVENUE STREAM

BOOKS SECURITY & AUTHENTICATION SERVICESBOOKS SECURITY & AUTHENTICATION SERVICES

LSC has developed technologies for book publishers to allow for:

LSC’S INNOVATION FOCUSLSC’S INNOVATION FOCUS

Reputation as an industry leader for Reputation as an industry leader for

Counterfeit DetectionCounterfeit Detection End User RegistrationEnd User RegistrationReputation as an industry leader for quality and innovation

Reputation as an industry leader for quality and innovation

Counterfeit DetectionCounterfeit Detection

Return ValidationReturn Validation

Supply Chain VisibilitySupply Chain Visibility

End User RegistrationEnd User Registration

Textbook Rental ProgramsTextbook Rental Programs

Increased Sales of Additional Products & Services

Increased Sales of Additional Products & Services

BOOK ANTI-PIRACY EXAMPLEBOOK ANTI-PIRACY EXAMPLE

Work to develop advanced technologies and solutions to enhance efficiencies, reduce time-to-market and

deliver the best to our customers

Work to develop advanced technologies and solutions to enhance efficiencies, reduce time-to-market and

deliver the best to our customersLSC launches SIMS (Secure

Focus on recognizing customer needs and responding quickly

Focus on recognizing customer needs and responding quickly

“Piracy…is a serious issue for publishers. Book piracy, whether in print or digital form, is costing publishers around the world billions of dollars annually…”

-- International Publishers Association

LSC launches SIMS (Secure Identity Management System) New technologies to protect

clients’ IP “Know Your Customer”

applications could have


significant market potential

3 LONG-STANDING RELATIONSHIPS WITH A PREMIER CUSTOMER BASE

More than 3,000 customers across print and office product segments

B d b f bl hi t

PRINTPRINT

Broad base of blue-chip customers

Leading players in their industries

Top customers’ average relationship tenure of 45+ years

9 of the top 10 direct mail catalogers


10 of the top 10 book publishers in NA 10 of the top 10 book publishers in NA

OFFICE PRODUCTSOFFICE PRODUCTS

SELECT CUSTOMERSSELECT CUSTOMERS

Product placement at 9 of the top 10retailers

Services 5 of the top 10 eCommerce

55+ years 30+ years 50+ years

55+ years

20+ years

35+ years25+ years

80+ years

Services 5 of the top 10 eCommerce retailers

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

50+ years80+ years25+ years

15+ years


80+ years15+ years 35+ years

4 STRONG M&A TRACK RECORD

WE HAVE A PROVEN ABILITY TO STRATEGICALLY ACQUIRE, INTEGRATE AND RATIONALIZE QUICKLY AND OUR FUTURE TARGET UNIVERSE REMAINS ROBUST IN A FRAGMENTED MARKET

WE HAVE A PROVEN ABILITY TO STRATEGICALLY ACQUIRE, INTEGRATE AND RATIONALIZE QUICKLY AND OUR FUTURE TARGET UNIVERSE REMAINS ROBUST IN A FRAGMENTED MARKET

SIGNIFICANT TARGET MARKET THAT FITS CRITERIA SIGNIFICANT TARGET MARKET THAT FITS CRITERIA M&A CRITERIAM&A CRITERIA

Enhance existing product offeringsTop 400 Largest Printing Companies by

2016E Revenue(1)

SIGNIFICANT TARGET MARKET THAT FITS CRITERIA SIGNIFICANT TARGET MARKET THAT FITS CRITERIA M&A CRITERIAM&A CRITERIA

Companies in Relevant Target

Segments(2)>$25MM+

54%

Breakdown by Revenue Size

Expand technological capabilities

P id t iti

Segments( )

54%54%

Provide synergy opportunities

Attractive financial return on investment TARGET CHARACTERISTICSTARGET CHARACTERISTICS

Over 115 companies in relevant target sectors with more than $25MM in annual revenues

19 acquisitions completed since 2004 Private / Family-owned Sub-scale Niche customer bases

Regional players Unique capabilities Innovative solutions


Source: Company Management. 1. Printing Impressions, “Printing Impressions 400,” December 2016.2. Includes companies with primary specialties in book manufacturing, catalogs, directories, inserts and/or publications and periodicals.

5 SHARP FOCUS ON COST STRUCTURE AND EFFICIENCY IMPROVEMENT

EXPERIENCED TEAM PROACTIVELY MANAGING FACILITY COSTS AND RATIONALIZATION PROCESSEXPERIENCED TEAM PROACTIVELY MANAGING FACILITY COSTS AND RATIONALIZATION PROCESS

LSC’S FACILITY RATIONALIZATION PROCESSLSC’S FACILITY RATIONALIZATION PROCESS COMMITMENT TO EFFICIENCYCOMMITMENT TO EFFICIENCY

Rationalization Considerations:

Evaluation of new business wins and upcoming

LSC S FACILITY RATIONALIZATION PROCESSLSC S FACILITY RATIONALIZATION PROCESS COMMITMENT TO EFFICIENCYCOMMITMENT TO EFFICIENCY

Best-in-class Safety Metrics:

Injury rate 22% below the industry averageRFPs

Utilize proven facility rationalization model to understand annual P&L savings

Real estate value as an offset to restructuring cost

19 facilities with 1+ years/1million work hours without a Days Away Case

Real estate value as an offset to restructuring cost

Work to minimize customer disruption and need to move large presses / binding lines

Impact on distribution timing and cost

Continuous Productivity Improvement Initiatives

Plant overhead reviews resulting in identifiable cost reductions across the company

T h l i l l ti id tif i ti l t p g

Time of year for potential closing

13 facilities rationalized over last 5 years

Technological solutions identifying optimal ways to load assets and reduce labor costs

Six Sigma methodologies leading to process improvements focused on reducing inventory and

ll ki it l


overall working capital

6 STRONG CASH FLOW PROFILE WITH ATTRACTIVE DIVIDEND

DIVIDEND YIELD(1)DIVIDEND YIELD(1)

Di i li d h t it l dit d

CASH FLOW HIGHLIGHTSCASH FLOW HIGHLIGHTS

Disciplined approach to capital expenditures and cost management

Focus on capital efficiency driving strong cash flow conversion

4.8%

flow conversion

Ability to pursue M&A transactions within targeted leverage range of 1.75x to 2.25x

Stable cash flows enable deleveraging to

2.0%

Stable cash flows enable deleveraging to complement M&A strategy

Current quarterly dividend of $0.25 per share

B d f Di t t i di id d t lS&P 500

Board of Directors to review dividend quarterly


1. For LSC, dividend yield is calculated as the last quarter annualized dividend ($1.00) per share divided by the closing LKSD stock price as of July 7, 2017.

7 EXPERIENCED LEADERSHIP TEAM

Name / Position Years with RR Donnelley / LSC Years in Industry

LSC HAS AN EXPERIENCED MANAGEMENT TEAM WITH A PROVEN ABILITY TO EXECUTE OPERATIONALLY AND FINANCIALLY IN A DYNAMIC MARKET ENVIRONMENT

LSC HAS AN EXPERIENCED MANAGEMENT TEAM WITH A PROVEN ABILITY TO EXECUTE OPERATIONALLY AND FINANCIALLY IN A DYNAMIC MARKET ENVIRONMENT

Tom QuinlanPresident, Chief Executive Officer and Chairman of the Board of Directors 12+ years 25+ years

Drew CoxheadChief Financial Officer 21+ years 21+ years

Sue BettmanChi f Ad i i t ti Offi d G l C l 12+ years 12+ yearsChief Administrative Officer and General Counsel 12 years 12 years

Kent HansenChief Accounting Officer and Controller <1 year <1 year

Richard LaneChief Strategy and Supply Chain Officer 19+ years 27+ years

Da e Ho ckDave HouckChief Information Officer 10+ years 25+ years

Janet HalpinSenior Vice President, Treasurer & Investor Relations 8+ years 8+ years

Dave McCreePresident, Book and Directory 28+ years 28+ yearsPresident, Book and DirectoryDave CardonaSenior Vice President, Magazine Group 29+ years 29+ years

Jim EllwardPresident, Office Products 15+ years 15+ years

John Coyle 12+ 33+


yPresident, Group Sales 12+ years 33+ years

Financial Overview


HISTORICAL FINANCIAL PERFORMANCE SNAPSHOT

NET SALES ($MM)NET SALES ($MM) NON-GAAP ADJ. EBITDA ($MM)NON-GAAP ADJ. EBITDA ($MM)

$3,853 $3,743 $3,654 $3,550 - $3,650$4,000

$5,000$392 $398 $370 $346 - $374$400

$500

$0

$1,000

$2,000

$3,000

$0

$100

$200

$300

CAPITAL EXPENDITURES ($MM)CAPITAL EXPENDITURES ($MM) NON-GAAP FREE CASH FLOW ($MM)NON-GAAP FREE CASH FLOW ($MM)

$02014 2015 2016 2017E

$02014 2015 2016 2017E

% Reported Growth / (Decline) (2.9%) (2.4%) % Margin 10.2% 10.6% 9.75% – 10.25%3.0% 10.1%(2.8%) – (0.1%)

(1) (1)

( )( ) ( )( )

$60

$42$48

$60 - $65

$40

$60

$80

$100$247 $233

$183$125 - $155$150

$200

$250

$300

$0

$20

$40

2014 2015 2016 2017E$0

$50

$100

2014 2015 2016 2017E% of Sales 1.6% 1.3% % Conv.(2) 63.0% 58.5% 49.5%1.1% 1.6% - 1.8% 33% – 45%

(1) (1)

25 | LSC COMMUNICATIONS 1. Full year guidance as of 1Q 2016 Earnings Call on May 4, 2017 and is not being reaffirmed here.2. Represents free cash flow as a percent of Non-GAAP Adj. EBITDA.

% %

Note: Historical cash flows do not reflect interest payments, standalone costs and includes allocation of pension income. 2015 net sales included $184mm from the acquisition of Courier, representing net sales from close date of 6/8/2015 to 12/31/2015. See reconciliation of non-GAAP financials in appendix.

CAPITALIZATION

DEBT AND LEVERAGE ($MM) as of 3/31/2017DEBT AND LEVERAGE ($MM) as of 3/31/2017 TOTAL LIQUIDITY ($MM) as of 3/31/2017TOTAL LIQUIDITY ($MM) as of 3/31/2017

Capitalization Total Liquidityp

Cash & Cash Equivalents $89

Term Loan Facility due Sept. 2022 $303

8.75% Senior Secured Notes due Oct. 2023 450

C it l L Obli ti 6

q y

Cash $89

Stated Amount of Revolving Credit Facility $400

Less: Availability Reduction from Covenants –

Capital Lease Obligations 6

Unamortized Debt Issuance Costs (15)

Total Debt $744

Less: Current Portion (15)

Amount Available Under the Revolving Credit Facility $400

Usage

Borrowings Under the Credit Agreement –

Total Long-Term Debt 729

Net Debt $655

Q1 2017 Adj. EBITDA $339

Gross Leverage Ratio 2 2x

Impact on Availability Related to Outstanding LoC (13)

Net Available Liquidity $476

PENSION PLANS ($MM) as of 12/31/2016PENSION PLANS ($MM) as of 12/31/2016Gross Leverage Ratio 2.2x

On February 2, 2017, LSC paid in advance the full amount of required amortization payments, $50 million, for the year ended December 31, 2017 for the Term Loan F ilit

Qualified Non-Qualified Total

Benefit Obligation $2,439 $92 $2,531

Fair Value of Plan Assets 2,249 2 $2,251

U f d d St t ($190) ($90) ($280)


Facility Unfunded Status ($190) ($90) ($280)

FINANCIAL POLICY

LEVERAGE & LIQUIDITY

LEVERAGE & LIQUIDITY

Continuing to target 1.75x to 2.25x gross leverage(1)

Strong free cash flow(2) generation supports commitment to leverage targetLIQUIDITYLIQUIDITY Combination of pre-payable and long term debt provides ability to efficiently pay

down debt

PENSION PLANSPENSION PLANS US pension plans closed and frozen

D i ki ti d li bilit d i i t t t t d f d d t t PENSION PLANSPENSION PLANS De-risking actions and liability driven investment structure reduces funded status volatility while minimizing required contributions

CAPITAL EXPENDITURES

CAPITAL EXPENDITURES Approximately 1.5% to 2.0% of net salesEXPENDITURESEXPENDITURES Approximately 1.5% to 2.0% of net sales

MERGERS & ACQUISITIONS

MERGERS & ACQUISITIONS

Selectively pursue strategic acquisitions Strategy governed by target leverageACQUISITIONSACQUISITIONS Strategy governed by target leverage

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


1. Gross leverage defined as total debt / LTM non-GAAP adjusted EBITDA. 2. Free cash flow defined as net cash provided by operating activities less capital expenditures.

Board of Directors to review dividend quarterly

FULL YEAR 2017 GUIDANCE

($ millions) 2017 Guidance (1)

Net Sales $3.55 - $3.65 billion

Non-GAAP Adjusted EBITDA 9.75% - 10.25%

Depreciation and Amortization $155 - $165 million

Interest Expense- Net $68 - $72 million

Effective Tax Rate 33% - 36%

Capital Expenditures $60 - $65 million

Free Cash Flow $125 - $155 million

(1) Full year 2017 guidance as of Q1 2017 Earnings Call on May 4, 2017 and is not being reaffirmed here.

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.


Appendix


NON-GAAP FINANCIAL MEASURES($ millions)

Total LSC CommunicationsQ1 2017

TTM Q1 2017 FY 2016 Q4 2016 Q3 2016 Q2 2016 Q1 2016 FY 2015 FY 2014

Net sales $3,595 $821 $3,654 $919 $949 $906 $880 $3,743 $3,853Net sales $3,595 $821 $3,654 $919 $949 $906 $880 $3,743 $3,853

GAAP Net income (loss) 74 (1) 106 9 38 28 31 74 58

Restructuring, impairment and other charges, net

21 6 18 7 3 5 3 57 132

Spinoff related transaction expenses 6 1 5 4 1Spinoff-related transaction expenses 6 1 5 4 1 - - - -

Pension settlement charge 1 - 1 - - 1 - - -

Depreciation and amortization 165 40 171 41 40 44 46 181 181

Interest expense / (income)-net 35 17 18 18 1 (1) - (3) (4)

Income tax expense 37 2 51 1 18 16 16 64 30

Non-GAAP Adjusted EBITDA $339 $65 $370 $80 $101 $93 $96 $398 $391

Non-GAAP Adjusted EBITDA margin 9.4% 7.9% 10.1% 8.7% 10.6% 10.3% 10.9% 10.6% 10.1%

Net cash provided by operating activities $281 $64 $231 $95 $81 $41 $14 $275 $307

Capital expenditures (57) (21) (48) (13) (16) (7) (12) (42) (60)


Free cash flow $224 $43 $183 $82 $65 $34 $2 $233 $247

NON-GAAP FINANCIAL MEASURES (Cont’d)($ millions)Print Segment

Q1 2017 TTM Q1 2017 FY 2016 Q4 2016 Q3 2016 Q2 2016 Q1 2016 FY 2015 FY 2014

Magazines, catalogs and retail inserts $1,608 $383 $1,632 $441 $407 $377 $407 $1,807 $2,036

Book 1 093 239 1 097 256 310 288 243 925 787Book 1,093 239 1,097 256 310 288 243 925 787

Europe 258 56 272 63 72 67 70 305 381

Directories 126 32 126 29 33 32 32 144 149

Net sales $3,085 $710 $3,127 $789 $822 $764 $752 $3,181 $3,353

Income from operations 121 12 141 27 48 34 32 96 47



17 5 15 6 1 5 3 53 127

Purchase accounting inventory adjustments, net

- - - - - - - 11 -



Office Products SegmentQ1 2017

TTM Q1 2017 FY 2016 Q4 2016 Q3 2016 Q2 2016 Q1 2016 FY 2015 FY 2014

Net sales $510 $111 $527 $130 $127 $142 $128 $562 $500

Income from operations 49 9 54 16 11 13 14 47 40



1 1 - - - - - 4 5

Purchase accounting inventory adjustments, net

- - - - - - - - 2


j



ORGANIC GROWTH RATES

($ millions)

Magazines, Catalogs, and Retail Inserts

Books Europe Directories Total Print Total Office Products Total LSC

2015 FY Net Sales as Reported 1,807$ 925$ 305$ 144$ 3,181$ 562$ 3,743$

Adjustments(1) 50 118 - - 168 - 168 2015 FY Net Sales Pro Forma 1,857$ 1,043$ 305$ 144$ 3,349$ 562$ 3,911$

2016 FY Net Sales as Reported 1,632$ 1,097$ 272$ 126$ 3,127$ 527$ 3,654$

Adjustments(1) 44 - - - 44 - 44 2016 FY Net Sales Pro Forma 1,676$ 1,097$ 272$ 126$ 3,171$ 527$ 3,698$

As Reported % Change -9.7% 18.6% -10.8% -12.5% -1.7% -6.2% -2.4% Pro Forma % Change -9.7% 5.2% -10.8% -12.5% -5.3% -6.2% -5.4%

Non-GAAP Adjustments: Impact of pass-through paper sales -3.6% 3.4% 0.0% -6.3% -1.2% 0.0% -1.0% Impact of changes in foreign exchange rates -1.0% 0.0% -4.3% 0.0% -0.9% -0.5% -0.9%

2016 FY Organic % Change -5.1% 1.8% -6.5% -6.2% -3.2% -5.7% -3.5%

Q1 2016 Net Sales as Reported 407$ 243$ 70$ 32$ 752$ 128$ 880$

Adjustments(1) 14 - - - 14 - 14 Q1 2016 Net Sales Pro Forma 421$ 243$ 70$ 32$ 766$ 128$ 894$

Q1 2017 Net Sales as Reported 383$ 239$ 56$ 32$ 710$ 111$ 821$

Adjustments(1) 1 - - - 1 - 1 Q1 2017 Net Sales Pro Forma 384$ 239$ 56$ 32$ 711$ 111$ 822$

As Reported % Change -5.9% -1.6% -20.0% 0.0% -5.6% -13.3% -6.7%s epo ted % C a ge % % % % % % % Pro Forma % Change -8.8% -1.6% -20.0% 0.0% -7.2% -13.3% -8.1%

Non-GAAP Adjustments: Impact of changes in foreign exchange rates -0.7% 0.0% -1.4% 0.0% -0.5% 0.0% -0.4% Impact of pass-through paper sales -1.4% 0.8% 0.0% -3.1% -0.7% 0.0% -0.6%

Q1 2017 Organic % Change (2) -6.7% -2.4% -18.6% 3.1% -6.0% -13.3% -7.1%(1) Adj t d f t l f i d b i F th th th d d M h 31 2017 th dj t t t t l f i d b i fl t th t l f


(1) Adjusted for net sales of acquired businesses: For the three months ended March 31, 2017, the adjustment to net sales of an acquired business reflects the net sales of HudsonYards Studios ("HudsonYards"). For the three months ended March 31, 2016, the adjustments for net sales of acquired businesses reflect the net sales of HudsonYards and Continuum Management Company.(2) Adjusted for net sales of acquired businesses, the impact of changes in FX rates and pass-through paper sales.

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Documents

July 2017 Investor Presentation vFINAL/media/Files/L/LSC-IR/reports-and... · This presentation contains certain non-GAAP measures. The Company believes that these non-GAAP measures,