LSC COMMUNICATIONS 2018 Second Quarter Results August 2, 2018
LSC COMMUNICATIONS CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 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 forwardlooking 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 Form 10-K filed on February 22, 2018 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. 2 LSC COMMUNICATIONS
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, 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. 3 LSC COMMUNICATIONS
STRATEGIC FOCUS Highlights + Experienced favorable organic revenue trends and an improved sales mix + Monetized assets with two business unit divestures the sale of our retail offset facilities and the signing of a definitive agreement to sell our European printing business + Further strengthened our logistics platform + Invested in a groundbreaking content logistics company to solve the issues that all companies face of delivering their content to an ever-growing list of social platforms, devices and operating systems + Gained momentum in the Book division with our end-to-end supply chain services offering Key Initiatives + Closed the acquisition of RR Donnelley s print logistics business + Made an equity investment and signed a definitive reseller agreement with MAZ Systems Incorporated, a content logistics company that enables brands, media and publishers to publish any content to various output channels. + Signed multi-year Book agreements with Workman Publishing, Taylor & Francis, Harvard University Press, The MIT Press, and Yale University Press + Capitalized on data collection techniques to leverage online shopping data to tailor catalogs and other mailers towards specific consumer preferences and behaviors. + Leveraged our office products distribution platform and ability to manage multiple categories for clients to continue to position LSC for success 4 LSC COMMUNICATIONS
Q2 2018 FINANCIAL SUMMARY Q2 2018 Q2 2017 Organic Growth Rates (1) Net sales $943 $848 As reported % change 11.2% Organic % change (1) -2.0% Cost of sales 798 705 SG&A expenses (exclusive of D&A) 82 76 Restructuring, impairment, and other charges - net 11 21 0% -2% -4% -6.3% -7.1% -6.8% -6.6% -4.6% -1.7% -2.0% -1.7% Depreciation and amortization 34 39 Income from operations $18 $7 Interest expense - net 18 16-6% -8% Investment and other (income) - net (13) (12) Income before income taxes $13 $3 Income tax expense (benefit) 5 (2) Net income $8 $5 Non-GAAP adjusted EBITDA (1) $77 $82 + Improving organic growth trends + Investments in co-mail, premedia, print management and supply chain services having positive impact on organic sales, partially offsetting secular challenges Non-GAAP adjusted EBITDA margin (1) 8.2% 9.7% Non-GAAP earnings per diluted share (1) $0.48 $0.59 (1) Please refer to the Appendix for reconciliation of non-gaap measures 5 LSC COMMUNICATIONS
SEGMENT OVERVIEW Print Office Products ($ millions) Q2'18 Q2'17 Revenues $789 $723 As reported % change 9.1% Organic % change (1) -2.0% Non-GAAP Adj EBITDA (1) $59 $64 Non-GAAP Adj EBITDA Margin (1) 7.5% 8.9% ($ millions) Q2'18 Q2'17 Revenues $154 $125 As reported % change 23.2% Organic % change (1) -2.1% Non-GAAP Adj EBITDA (1) $17 $15 Non-GAAP Adj EBITDA Margin (1) 11.0% 12.0% + Print segment sales down 2.0% (1) on an organic basis in Q2 2018 mainly due to price pressures and lower volume MCR organic decline of 3.8% (1) reflects ongoing volume and price pressure, partially offset by growth in print management services and increased co-mail volume Book organic increase of 1.3% (1) driven by higher volume in both trade and education books + Office Products sales down 2.1% (1) on an organic basis in Q2 2018, a significant improvement in recent trends as inventories at key customers stabilized after their Q1 inventory reduction initiatives + Continue to experience very strong growth from the e-commerce distribution channel + Non-GAAP Adjusted EBITDA margin declined primarily due lower margins associated with the Quality Park acquisition + Non-GAAP Adjusted EBITDA margin declined primarily due to price pressures, as well as the lower margins associated with recent acquisitions Recent strategic transactions heighten focus on growing adjacency sales, synergy realization continues to improve margin Synergies, productivity improvement, and price increases on track to drive margin improvement (1) Please refer to the Appendix for reconciliation of non-gaap measures 6 LSC COMMUNICATIONS
STRONG LIQUIDITY AND RETURNS TO SHAREHOLDERS Q2 Free Cash Flow (1) Debt and Liquidity (1) $ millions Returns to Shareholders $ in millions $ in millions Q2'18 Q4'17 Total Debt $914 $822 8% 6.9% (4) $(17) $(20) Cash $22 $34 Stated amount of the Revolving Credit Facility 400 400 Less: availability reduction from covenants - - Amount available under the Revolving Credit Facility $400 $400 Usage Borrowings under Revolving Credit Facility (190) (75) 6% 4% 2% 1.8% Letters of Credit (40) (53) Net Available Liquidity (1) $192 $306 Net Pension Liability (2) $ (90) $ (187) 0% S&P 500 + Increased working capital driven by elevated inventory due to stronger book volumes and higher paper prices + Capital spending includes investments in additional co-mail services capacity and automation/productivity projects + 2.94x Non-GAAP Gross Leverage Ratio (1) as of June 30, 2018 + 2.57x Credit Agreement Consolidated Leverage Ratio (3) as of June 30, 2018 + Net pension liability estimated to have decreased $97 million since December 31, 2017 (3) + July 19, 2018: Board of Directors declared regular quarterly cash dividend of $0.26 payable September 5 for shareholders of record as of August 15 + May 31: Completed $20 million share repurchase program; repurchased 1.6 million shares at an average price of $12.23 (1) Please refer to the Appendix for reconciliation of non-gaap measures (2) Net Pension Liability represents reported value as of December 31, 2017 and management s estimated net pension liability as of June 30, 2018, respectively (3) The Consolidated Leverage Ratio as defined in the Credit Agreement dated September 30, 2016 was 2.57x at June 30, 2018 compared to a maximum permitted ratio under the Credit Agreement of 3.25x, which steps down to 3.00x on March 31, 2019. The full definition of Consolidated Leverage Ratio is included in our Credit Agreement filed as an exhibit to the quarterly report on Form 10-Q for the quarter ended June 30, 2018. (4) Dividend Yield is calculated as an annualized dividend ($1.04) per share divided by the closing LKSD stock price as of August 1, 2018 7 LSC COMMUNICATIONS
STRATEGIC TRANSACTIONS Retail Offset Sale RRD Print Logistics Purchase Europe Sale Transaction + Sale of retail offset printing facilities to Trend Offset Printing + Purchase of print logistics business from RR Donnelley + Sale of LSC European printing business to Walstead Group (2) Background + Five retail offset printing facilities throughout United States + Leading integrated logistics services provider to the print industry + ~ 500 employees with 8 locations in US (including 7 consolidation facilities) + Three web offset manufacturing facilities, a logistics and warehousing site, and one location dedicated to premedia services Financial Information + Proceeds: de minimis + Approximate Annual Sales: $90 million (1) + Purchase Price: $58 million + Approximate Annual Sales: $160 million (1) + Proceeds: $48 million + ~$12 million local cash + Approximate Annual Sales: $250 million (1) + Approximate Annual EBITDA: $12 million (1) Closing Date + June 5, 2018 + July 2, 2018 + Expected to close by end of 2018 Strategic Rationale + Enhance focus on growth opportunities in core business and adjacency opportunities + Adds scale and reach to LSC logistics offering + Strengthens logistics infrastructure to drive growth in print and non-print logistics + Significant synergy opportunities + Greater focus on North America operations and customers and increased financial flexibility (1) The approximate annual sales and EBITDA figures represent management s expectations for current annual financial performance for each business (2) The completion of the European sale is subject to customary closing conditions. 8 LSC COMMUNICATIONS
FULL YEAR 2018 GUIDANCE 2018 Guidance (1) Prior Guidance Net Sales $3.75 - $3.85 billion $3.8 - $3.9 billion Non-GAAP Adjusted EBITDA (2) $310 - $340 million $320 - $360 million Depreciation and Amortization $135 - $145 million $135 - $145 million Interest Expense- Net $76 - $78 million $72 - $76 million Non-GAAP Effective Tax Rate 27% - 31% 25% - 29% Capital Expenditures $65 - $75 million $65 - $75 million Free Cash Flow (3) $110 - $140 million $120 - $160 million Diluted Share Count (4) Approximately 34 million Approximately 35 million (1) Full year 2018 guidance is as of Q2 2018 Earnings Call on August 2, 2018 and is not being reaffirmed here. The Company s full-year guidance includes the estimated impact of its announced acquisition of the print logistics component of RRD Logistics (closed on July 2, 2018), announced sale of LSC Communications retail offset printing facilities platform (closed on June 5, 2018), announced sale of LSC Communications Europe reporting unit (expected to close by the end of 2018) and the completion of the $20 million share repurchase program (completed on May 31, 2018). The completion of the Europe transaction is subject to customary closing conditions. (2) Consistent with historical guidance and presentation, non-gaap adjusted EBITDA includes net pension income. Beginning in 2018, Accounting Standards Update No. 2017-07 requires companies to disaggregate the service cost component of net benefit cost from other components of net benefit cost and present the service cost component with other employee compensation costs. All other components of net benefit cost will need to be presented outside of income from operations. As a result, the Company expects to reclassify approximately $49 million, $46 million and $45 million of net pension income for years ended 2018, 2017 and 2016, respectively, out of income from operations to investment and other (income) - net, resulting in no impact to net income or non-gaap adjusted EBITDA. (3) Free cash flow is defined as net cash provided by operating activities less capital expenditures. (4) Current guidance includes impact from completion of $20 million share repurchase program completed May 31, 2018. Certain components of the guidance given in the table above are provided on a non-gaap basis only, without providing a reconciliation to guidance provided on a GAAP basis. Information is presented in this manner, consistent with SEC rules, because the preparation of such a reconciliation could not be accomplished without "unreasonable efforts. The Company does not have access to certain information that would be necessary to provide such a reconciliation, including non-recurring items that are not indicative of the Company's ongoing operations. Such items include, but are not limited to, restructuring charges, impairment charges, pension settlement charges, acquisition-related expenses, gains or losses on investments and business disposals, losses on debt extinguishment and other similar gains or losses not reflective of the Company's ongoing operations. The Company does not believe that excluding such items is likely to be significant to an assessment of the Company's ongoing operations, given that such excluded items are not indicators of business performance. 9 LSC COMMUNICATIONS
10 LSC COMMUNICATIONS Q&A
11 LSC COMMUNICATIONS Appendix
NON-GAAP FINANCIAL MEASURES ($ millions) Total LSC Communications Q2 2018 TTM Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017 FY 2017 FY 2016 FY 2015 Net sales $3,806 $943 $929 $999 $935 $848 $3,603 $3,654 $3,743 GAAP Net (loss) income (64) 8 (11) (58) (3) 5 (57) 106 74 Restructuring, impairment and other charges - net 119 11 6 42 60 21 129 18 57 Separation-related expenses 1 - - - 1 2 4 5 - Pension settlement charge - - - - - - - 1 - Acquisition-related expenses 6 1 1 2 2 1 5-14 Purchase accounting adjustments 2-3 (2) 1 - (1) - 11 Loss on debt extinguishment 3 - - 3 - - 3 - - Depreciation and amortization 153 34 38 42 39 39 160 171 181 Interest expense / (income)-net 77 18 20 20 19 16 72 18 (3) Income tax expense (benefit) 14 5 (4) 36 (23) (2) 13 51 64 Non-GAAP Adjusted EBITDA $311 $77 $53 $85 $96 $82 $328 $370 $398 Non-GAAP Adjusted EBITDA margin 8.2% 8.2% 5.7% 8.5% 10.3% 9.7% 9.1% 10.1% 10.6% Net cash provided by operating activities $101 ($2) ($24) $147 ($20) $14 $205 $231 $275 Capital expenditures (61) (17) (20) (9) (15) (15) (60) (48) (42) Free cash flow $40 ($19) ($44) $138 ($35) ($1) $145 $183 $233 12 LSC COMMUNICATIONS
NON-GAAP FINANCIAL MEASURES ($ millions) Print Segment Q2 2018 TTM Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017 FY 2017 FY 2016 FY 2015 Magazines, catalogs and retail inserts $1,879 $442 $468 $521 $448 $378 $1,730 $1,632 $1,807 Book 1,036 266 249 245 276 262 1,022 1,097 925 Europe 253 56 62 67 68 56 247 272 305 Directories 102 25 27 23 27 27 109 126 144 Net sales $3,270 $789 $806 $856 $819 $723 $3,108 $3,127 $3,181 Income from operations 5 20 2 (7) (10) 22 17 141 96 Depreciation and amortization 136 30 34 37 35 36 143 155 164 Restructuring, impairment and other charges - net 111 9 5 39 58 6 108 15 53 Purchase accounting adjustments 1 - - - 1-1 - 11 Non-GAAP Adjusted EBITDA $253 $59 $41 $69 $84 $64 $269 $311 $324 Non-GAAP Adjusted EBITDA margin 7.7% 7.5% 5.1% 8.1% 10.3% 8.9% 8.7% 9.9% 10.2% Office Products Segment Q2 2018 TTM Q2 2018 Q1 2018 Q4 2017 Q3 2017 Q2 2017 FY 2017 FY 2016 FY 2015 Net sales $536 $154 $123 $143 $116 $125 $495 $527 $562 Income from operations 36 13 2 10 11 12 42 54 47 Depreciation and amortization 15 3 4 4 4 3 15 15 16 Restructuring, impairment and other charges - net 5 1 1 3 - - 4-4 Purchase accounting adjustments 2-1 1 - - 1 - - Non-GAAP Adjusted EBITDA $58 $17 $8 $18 $15 $15 $62 $69 $67 Non-GAAP Adjusted EBITDA margin 10.8% 11.0% 6.5% 12.6% 12.9% 12.0% 12.5% 13.1% 11.9% 13 LSC COMMUNICATIONS
NON-GAAP FINANCIAL MEASURES ($ millions, except earnings per share) Total LSC Communications Q2 2018 Q1 2018 FY 2017 Q4 2017 Q3 2017 Q2 2017 Q1 2017 GAAP Net income (loss) $8 ($11) ($57) ($58) ($3) $5 ($1) Non-GAAP adjustments, net of tax: Restructuring, impairment and other charges - net 8 4 92 50 25 14 3 Separation-related expenses - - 3-1 1 1 Acquisition-related expenses 1-3 1 1 1 - Purchase accounting adjustments - 2 (1) (2) 1 - - Loss on debt extinguishment - - 2 2 - - - Income tax adjustments - 1 25 24 - - 1 Non-GAAP Net income (loss) $17 ($4) $67 $17 $25 $21 $4 Weighted average number of common shares outstanding: GAAP net income (loss) per diluted share Non-GAAP weighted average number of common shares outstanding: Non-GAAP net income (loss) per diluted share 34.3 34.7 33.8 34.6 34.2 33.8 32.6 $0.23 ($0.32) ($1.69) ($1.68) ($0.07) $0.12 ($0.02) 34.3 34.7 34.0 34.9 34.2 33.8 32.6 $0.48 ($0.11) $1.97 $0.50 $0.73 $0.59 $0.14 14 LSC COMMUNICATIONS
ORGANIC GROWTH RATES - Q2 2018 and Q2 YTD 2018 Magazines, Total Office Catalogs, and Books Europe Directories Total Print Products ($ millions) Retail Inserts Total LSC Q2 2017 Net Sales as Reported $378 $262 $56 $27 $723 $125 $848 Adjustments (1) 89 - - - 89 30 119 Q2 2017 Net Sales Pro Forma $467 $262 $56 $27 $812 $155 $967 Q2 2018 Net Sales as Reported $442 $266 $56 $25 $789 $154 $943 Adjustments (1) - - - - - - - Q2 2018 Net Sales Pro Forma $442 $266 $56 $25 $789 $154 $943 As Reported % Change 16.9% 1.5% 0.0% -7.4% 9.1% 23.2% 11.2% Pro Forma % Change -5.4% 1.5% 0.0% -7.4% -2.8% -0.6% -2.5% Non-GAAP Adjustments: Impact of changes in foreign exchange rates -0.2% 0.0% 6.7% 0.0% 0.3% 0.2% 0.3% Impact of pass-through paper sales 0.6% -1.2% -6.0% -0.6% -0.5% 0.0% -0.4% Impact of adoption of new revenue recognition standard -0.4% 1.4% 0.0% 1.2% 0.3% 1.3% 0.4% Impact of of sale of disposition (2) -1.6% 0.0% 0.0% 0.0% -0.9% 0.0% -0.8% Q2 2018 Organic % Change (3) -3.8% 1.3% -0.7% -8.0% -2.0% -2.1% -2.0% Q2 2017 YTD Net Sales as Reported $761 $501 $112 $59 $1,433 $236 $1,669 Adjustments (1) 181 - - - 181 59 240 Q2 2017 YTD Net Sales Pro Forma $942 $501 $112 $59 $1,614 $295 $1,909 Q2 2018 YTD Net Sales as Reported $910 $515 $118 $52 $1,595 $277 $1,872 Adjustments (1) - - - - - - - Q2 2018 YTD Net Sales Pro Forma $910 $515 $118 $52 $1,595 $277 $1,872 As Reported % Change 19.6% 2.8% 5.4% -11.9% 11.3% 17.4% 12.2% Pro Forma % Change -3.4% 2.8% 5.4% -11.9% -1.2% -6.1% -1.9% Non-GAAP Adjustments: Impact of changes in foreign exchange rates 0.1% 0.0% 12.2% 0.0% 0.9% 0.3% 0.8% Impact of pass-through paper sales 0.3% -0.4% -4.0% -3.7% -0.4% 0.0% -0.3% Impact of adoption of new revenue recognition standard -0.2% 0.9% 0.0% 0.6% 0.2% -2.7% -0.3% Impact of of sale of disposition (2) -0.8% 0.0% 0.0% 0.0% -0.5% 0.0% -0.4% Q2 2018 YTD Organic % Change (3) -2.8% 2.3% -2.8% -8.8% -1.4% -3.7% -1.7% The reported results of the Company include the results of acquired businesses from the acquisition date forward. The Company has provided this schedule to reconcile reported net sales for the three and six months ended June 30, 2018 and 2017 to pro forma net sales as if the acquisitions took place as of January 1, 2017 for purposes of this schedule. (1) There were no acquisitions during the three months ended June 30, 2018 or 2017, and there were no acquisitions during the six months ended June 30, 2018. For the three and six months ended June 30, 2017, the adjustments for net sales of acquired businesses reflect the net sales of The Clark Group (acquired November 29, 2017), Quality Park (acquired November 9, 2017), Publishers Press (acquired September 7, 2017), NECI, LLC (acquired August 21, 2017), CREEL Printing (acquired August 17, 2017), Fairrington Transportation Corp. (acquired July 28, 2017), and additionally for the six months ended June 30, 2017, HudsonYards Studios (acquired March 1, 2017). (2) Adjusted for the disposition of the Company s retail offset printing facilities on June 5, 2018. There were no dispositions during the three and six months ended June 30, 2017. (3) Adjusted for the impact of acquisitions and dispositions, changes in FX rates, pass-through paper sales and the Company s adoption of Accounting Standards Update No. 2014-09 Revenue from Contracts with Customers (Topic 606) ( ASC 606 ) during the three and six months ended June 30, 2018. 15 LSC COMMUNICATIONS
QUARTERLY ORGANIC GROWTH RATES Q1 2018 to Q4 2016 ($ millions) Q1 2018 (1) Q4 2017 (2) Q3 2017 (3) Q2 2017 (4) Q1 2017 (5) Q4 2016 (6) Prior Year Quarter Net Sales as Reported $821 $919 $949 $906 $880 $1,004 Adjustments 122 141 103 14 14 13 Prior Year Quarter Net Sales Pro Forma $943 $1,060 $1,052 $920 $894 $1,017 Current Year Quarter Net Sales as Reported $929 $999 $935 $848 $821 $919 Adjustments - 17 43-1 8 Current Year Quarter Net Sales Pro Forma $929 $1,016 $978 $848 $822 $927 As Reported % Change 13.2% 8.7% -1.5% -6.4% -6.7% -8.5% Pro Forma % Change -1.5% -4.2% -7.0% -7.8% -8.1% -8.8% Non-GAAP Adjustments: Impact of pass-through paper sales -0.1% -0.4% -1.0% -0.9% -0.6% -1.8% Impact of changes in foreign exchange rates 1.3% 0.8% 0.6% -0.1% -0.4% -0.7% Impact of adoption of new revenue recognition standard -1.0% 0.0% 0.0% 0.0% 0.0% 0.0% Current Quarter Organic % Change -1.7% -4.6% -6.6% -6.8% -7.1% -6.3% NOTE: 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 current quarter and to pro forma prior year quarter net sales as if the acquisitions took place as of the beginning of the prior year quarter for purposes of this schedule. For each period presented, adjusted for net sales of acquired businesses, the impact of changes in FX rates, pass-through paper sales and the Company s adoption of ASC 606 where applicable. (1) There were no acquisitions during the three months ended March 31, 2018. Adjusted for the net sales of acquired businesses: For the three months ended March 31, 2017, the adjustments for net sales of acquired businesses reflect the net sales of The Clark Group (acquired November 29, 2017), Quality Park (acquired November 9, 2017), Publishers Press (acquired September 7, 2017), NECI (acquired August 21, 2017), CREEL (acquired August 17, 2017), Fairrington (acquired July 28, 2017), and HudsonYards (acquired March 1, 2017). (2) Adjusted for net sales of acquired businesses: For the three months ended December 31, 2017, the adjustments for net sales of acquired businesses reflect the net sales of The Clark Group (acquired November 29, 2017) and Quality Park (acquired November 9, 2017). For the three months ended December 31, 2016, the adjustments for net sales of acquired businesses reflect the net sales of Publishers Press (acquired September 7, 2017), NECI (acquired August 21, 2017), CREEL (acquired August 17, 2017), Fairrington (acquired July 28, 2017), HudsonYards (acquired March 1, 2017) and Continuum (acquired December 2, 2016), in addition to the acquisitions noted for the three months ended December 31, 2017. (3) Adjusted for net sales of acquired businesses: For the three months ended September 30, 2017, the adjustments for net sales of acquired businesses reflect the net sales of Publishers Press (acquired September 7, 2017), NECI (acquired August 21, 2017), CREEL (acquired August 17, 2017), and Fairrington (acquired July 28, 2017). For the three months ended September 30, 2016, the adjustments for net sales of acquired businesses reflect the net sales of HudsonYards (acquired March 1, 2017) and Continuum (acquired December 2, 2016), in addition to the acquisitions noted for the three months ended September 30, 2017. (4) Adjusted for net sales of acquired businesses: There were no acquisitions during the three months ended June 30, 2017. For the three ended June 30, 2016, the adjustments for net sales of acquired businesses reflect the net sales HudsonYards (acquired March 1, 2017) and Continuum (acquired December 2, 2016). (5) Adjusted for net sales of acquired businesses: For the three months ended March 31, 2017, the adjustments for net sales of acquired businesses reflect the net sales of HudsonYards ( acquired March 1, 2017). For the three months ended March 31, 2016, the adjustments for net sales of acquired businesses reflect the net sales of HudsonYards and Continuum (acquired December 2, 2016). (6) Adjusted for net sales of acquired business: For the three months ended December 31, 2016 and 2015, the adjustments for net sales of acquired businesses reflect the net sales of Continuum (acquired December 2, 2016). 16 LSC COMMUNICATIONS
LIQUIDITY AND LEVERAGE Net Available Liqudity (1) Q2'18 Q4'17 Total Debt $914 $822 Cash $22 $34 Stated amount of the Revolving Credit Facility (2) 400 400 Less: availability reduction from covenants - - Amount available under the Revolving Credit Facility $400 $400 Usage Borrowings under Revolving Credit Facility (190) (75) Letters of Credit (40) (53) Net Available Liquidity (3) $192 $306 Leverage at June 30, 2018 $ millions Short-Term and Current Portion of Long-Term Debt $234 Long-Term Debt 680 Total Debt $914 Non-GAAP Adjusted EBITDA LTM 3/31/2018 $311 Non-GAAP Gross Leverage (4) 2.94x Credit Agreement Consolidated Leverage Ratio (5) 2.57x (1) Liquidity does not include uncommitted credit facilities, located outside of the U.S. (2) The Company has a $400 million senior secured revolving credit agreement (the Revolving Credit Facility ) which expires on September 30, 2021. The Revolving Credit Facility is subject to a number of covenants, including, but not limited to, a minimum Interest Coverage Ratio and a maximum Consolidated Leverage Ratio, as defined in and calculated pursuant to the Revolving Credit Facility, that, in part, restrict the Company s ability to incur additional indebtedness, create liens, engage in mergers and consolidations, make restricted payments and dispose of certain assets. There were $190 million and $75 million of borrowings under the Revolving Credit Facility as of June 30, 2018 and December 31, 2017, respectively. (3) The Company would have had the ability to utilize the entire $400 million Revolving Credit Facility and not have been in violation of the terms of the agreement as of June 30, 2018. Availability under the Revolving Credit Facility was reduced by $190 million in borrowings and $40 million related to the outstanding letters of credit. (4) The leverage ratio calculation includes non-gaap adjusted EBITDA since the respective closing date of each acquisition, and it does not include a full 12 months of non-gaap adjusted EBITDA. (5) The Consolidated Leverage Ratio as defined in the Credit Agreement dated September 30, 2016 was 2.57x at June 30, 2018 compared to a maximum permitted ratio under the Credit Agreement of 3.25x, which steps down to 3.00x on March 31, 2019. The full definition of Consolidated Leverage Ratio is included in the Credit Agreement filed as an exhibit to the quarterly report on Form 10-Q for the quarter ended June 30, 2018. 17 LSC COMMUNICATIONS
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