LSC COMMUNICATIONS Investor Presentation August 20 17 SAFE HARBOR - - PowerPoint PPT Presentation

LSC COMMUNICATIONS

Investor Presentation

August 20 17

SAFE HARBOR

2 | LSC COMMUNICATIONS

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 forward-looking statements. Words such as "believes," "anticipates," "estimates," "expects," "intends," "aims," "potential," "will," "would," "could," "considered," "likely," "estimate" and variations of these words and similar future or conditional expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. While LSC Communications believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond LSC Communications’ control. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend upon future circumstances that may or may not occur. Actual results may differ materially from LSC Communications’ current expectations depending upon a number of factors affecting the business and risks associated with the performance of the business. These factors include such risks and uncertainties detailed in LSC Communications’ Form 10-K filed on February 23, 2017 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.

NON-GAAP FINANCIAL INFORMATION

3 | LSC COMMUNICATIONS

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

• business. Non-GAAP adjusted EBITDA, non-GAAP net income and free cash flow allow investors to make a more meaningful comparison between the

Company’s core business operating results over different periods of time. The Company believes that non-GAAP adjusted EBITDA, non-GAAP net income and free cash flow, when viewed with the Company’s results under GAAP and the accompanying reconciliations, provides useful information about the Company’s business without regard to potential distortions. By eliminating potential differences in results of operations between periods caused by factors such as depreciation and amortization methods, historic cost and age of assets, financing and capital structures, taxation positions or regimes, restructuring, impairment and other charges and gain or loss on certain equity investments and asset sales, the Company believes that non-GAAP adjusted EBITDA and non-GAAP net income can provide useful additional basis for comparing the current performance of the underlying operations being

• evaluated. By adjusting for the level of capital investment in operations, the Company believes that free cash flow can provide useful additional basis for

understanding the Company’s ability to generate cash after capital investment and provides a comparison to peers with differing capital intensity.

AGENDA

4 | LSC COMMUNICATIONS

+ Business Overview + Investment Highlights + Financial Overview + Appendix

Business Overview

5 | LSC COMMUNICATIONS

LSC AT A GLANCE



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



Strategically located operations with 49 production and manufacturing facilities in the U.S., Europe and Mexico



20 acquisitions completed since 2004



$3.65BN of revenues with $370MM of EBITDA(1) in 2016

EXTENSIVE PRODUCTS & SERVICE CAPABILITIES GLOBAL PLATFORM WITH SIGNIFICANT SCALE

$3.65BN

2016 Sales

• 1. Non-GAAP adjusted EBITDA

UNITED STATES MEXICO POLAND

41

Production Facilities in the U.S.

8

International Manufacturing Facilities

~20 million

Square Feet of Owned Facility Space

Print Locations Office Products Locations Office Products Print

Books 30% Magazines, catalogs & retail inserts 45% Europe 7% Directories 3% Office Products 14%

LSC COMMUNICATIONS: A GLOBAL LEADER

6 | LSC COMMUNICATIONS

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 Efficiency New Revenue Streams Grow Select Existing Revenue Streams

Value Creation

VALUE CREATION STRATEGY

7 | LSC COMMUNICATIONS

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

education, trade, religious and testing sectors

• Magazines, Catalogs & Retail Inserts: Produces catalogs,

magazines & retail inserts to customers’ specifications using either

• ffset or gravure printing processes in combination with either on-

press finishing, saddle-stitch binding or patent binding

• 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 + 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

SEGMENT SNAPSHOT NET SALES ($MM)

$2,036 $1,807 $1,632 $787 $925 $1,097 $381 $305 $272

$149 $144 $126

$3,353 $3,181 $3,127 2014 2015 2016

Magazines, Catalogs & Retail Inserts Books Europe Directories

SELECT CUSTOMERS

PRINT SEGMENT OVERVIEW

8 | LSC COMMUNICATIONS

THEMES LSC’S ADVANTAGE Highly Competitive Environment + Despite recent consolidation, this highly

price-competitive segment continues to remain fragmented

+ LSC continues to be one of the largest players

in its segments and an active consolidator in the industry with 20 acquisitions since 2004

Excess Industry Capacity + Despite a slight uptick in 2016, the overall industry’s

capacity utilization remains low at 65%(1)

+ Experienced management team with proven

strategy for identifying plant rationalization

• pportunities in time-efficient manner

Customers’ Focus

• n Total Cost

+ Expectation for continued pricing pressure as

customers focus on total cost – including not only price, but materials and distribution costs

+ LSC’s scale and services offerings allow its

customers to benefit from postal and supply chain efficiencies lowering their overall total costs

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

+ e-book adoption rates are stabilizing and LSC

has benefited from growing industry-wide print book volume in recent years

+ Service offerings represents significant growth

potential for LSC

+ Continued investments in digital print

technology and focus on innovation initiatives help offset declines

Technological Changes / Volume Pressures + Changes in technology including electronic

substitution and migration of paper based documents to digital data formats remain threats to the traditional print industry

PRINT INDUSTRY TRENDS

9 | LSC COMMUNICATIONS

+ Office Products segment (14% of total revenues), produces a wide range 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 + Expanded offering with Ampad, Oxford and Pendaflex brands through the acquisition of Esselte’s North American operations in 2014

 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

SEGMENT SNAPSHOT NET SALES ($MM) SELECT CUSTOMERS

$500 $562 $527 2014 2015 2016

KEY BRANDS & OFFERINGS

Filing Products Note-taking Products Binder Products Forms Envelopes Private Label Private Label Private Label Private Label Private Label

OFFICE PRODUCTS SEGMENT OVERVIEW

10 | LSC COMMUNICATIONS

THEMES LSC’S ADVANTAGE Increasing Prevalence of Private Label

+ As consumer preferences shift towards private label,

resellers 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

+ A majority of LSC's business is currently in private

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

Technological Advances Impact on Overall Demand

+ Information technology integration and continued

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

+ LSC's management team has a proven track

record of consistently matching costs to demand trends

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

OFFICE PRODUCTS SEGMENT OVERVIEW

11 | LSC COMMUNICATIONS

LSC 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

Magazine, 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

Books

• (2%) to 3%

+ Modest declines from ongoing electronic substitution + 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

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%)

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

45% 30% 14% 7% 3% 1. 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.

LONG-TERM REVENUE OUTLOOK: NEXT 5 YEARS

12 | LSC COMMUNICATIONS

Investment Highlights

13 | LSC COMMUNICATIONS

1 Leading Player Within a Large, Highly Fragmented Market 2 Extensive Product & Service Profile 3 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

INVESTMENT HIGHLIGHTS

14 | LSC COMMUNICATIONS

LEADING PLAYER WITHIN A LARGE, HIGHLY FRAGMENTED MARKET

$4.3 $3.1 QUAD LSC

Largest Players by Revenues in Core LSC Markets(1)

$ in billions

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.

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

Excess Industry Capacity Experienced Team Managing Facility Closures across US, Mexico and Europe Highly Competitive Environment Industry Consolidator with Strong M&A Track Record Customers’ Focus on Total Cost Scale Enables Postal & Supply Chain Efficiencies for Customers Technological Changes / Volume Pressures Exposure to Growing Book Segment, Services Offering and Industry Leading Digital Print Platform to Help Offset Tech-driven Declines LSC’s Core & Related Target Markets are Significant Highly Fragmented Core Market

Top 2 Players Represent Only a Fraction of the Core Market

$85 Billion Total

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

LSC Core Related Unrelated

Next largest company has less than $0.5BN in revenue

1

15 | LSC COMMUNICATIONS

Illustrative Cost Breakdown for Catalogers and Magazine Publishing Customers Postal Savings Based on Sortation Level(2) Postage ~50% Print & Print Materials ~50% LSC’s Growing Co-mail Business(3)

+ Continuing investments to grow capability and capacity in co-mail services to support future growth + Continued enhancement of mail-list optimization software + Investments in materials and distribution to enable customer efficiencies

21% 48% 57% 63%

5 Digit Carrier Route High Density Saturation

Sortation Level Significant opportunity for savings through co-mail 2006 2011 2016

(1)

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

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.

LSC MAKES CONTINUED INVESTMENTS TO LOWER TOTAL COSTS TO CUSTOMERS

1

LEADING PLAYER WITHIN A LARGE, HIGHLY FRAGMENTED MARKET

16 | LSC COMMUNICATIONS

+ 4.1 million square ft. of warehouses + Full service offering includes:  High volume storage  Returns  Kitting

Vendor Management Materials Manufacturing Book Fulfillment Services Order-to- Cash Logistics

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

+ Largest U.S. digital print platform for printing books + ~13 billion pages of capacity(1) + Growing platform for quick-turn production + Platform for short-run markets (self- publishing) + 95 offset printing presses + 80 binding lines + 15 sheet-fed presses + Extensive component, finishing, packaging, and logistics capabilities

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

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

SERVICE OFFERING SCALE TRADITIONAL BOOK PRODUCTION SCALE WAREHOUSING & FULFILLMENT

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

CLIENT BENEFITS DIGITAL PRINT PLATFORM

2

EXTENSIVE PRODUCT & SERVICE PROFILE

17 | LSC COMMUNICATIONS

BOOKS SECURITY & AUTHENTICATION SERVICES  LSC has developed technologies for book publishers to allow for:

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 STREAM

LSC’S INNOVATION FOCUS BOOK ANTI-PIRACY EXAMPLE

Reputation as an industry leader for quality and innovation Work to develop advanced technologies and solutions to enhance efficiencies, reduce time-to-market and deliver the best to our customers 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

Counterfeit Detection Return Validation Supply Chain Visibility End User Registration Textbook Rental Programs Increased Sales of Additional Products & Services

LSC launches SIMS (Secure

Identity Management System)

New technologies to protect

clients’ IP

“Know Your Customer”

applications could have significant market potential

2

EXTENSIVE PRODUCT & SERVICE PROFILE

18 | LSC COMMUNICATIONS

 More than 3,000 customers across print and office

product segments

 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  9 of the top 10 magazine publishers  10 of the top 10 book publishers in NA

 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 U.S.

• ffice supply superstores

55+ years 30+ years 50+ years 55+ years 50+ years 20+ years 80+ years 80+ years 35+ years 25+ years 80+ years 25+ years 15+ years

PRINT OFFICE PRODUCTS SELECT CUSTOMERS

35+ years

3

LONG-STANDING RELATIONSHIPS WITH A PREMIER CUSTOMER BASE

19 | LSC COMMUNICATIONS

 Enhance existing product offerings  Expand technological capabilities  Provide synergy opportunities  Attractive financial return on investment  20 acquisitions completed since 2004

 Private / Family-owned  Sub-scale  Niche customer bases  Regional players  Unique capabilities  Innovative solutions

Top 400 Largest Printing Companies by 2016E Revenue(1)

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.

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 M&A CRITERIA TARGET CHARACTERISTICS

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

Companies in Relevant Target Segments(2) 54% >$25MM+ 54%

Breakdown by Revenue Size

4 STRONG M&A TRACK RECORD

20 | LSC COMMUNICATIONS

Rationalization Considerations:

 Evaluation of new business wins and upcoming

RFPs

 Utilize proven facility rationalization model to

understand annual P&L savings

 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  Time of year for potential closing  13 facilities rationalized over last 5 years

EXPERIENCED TEAM PROACTIVELY MANAGING FACILITY COSTS AND RATIONALIZATION PROCESS

LSC’S FACILITY RATIONALIZATION PROCESS COMMITMENT TO EFFICIENCY

5 SHARP FOCUS ON COST STRUCTURE AND EFFICIENCY IMPROVEMENT

Best-in-class Safety Metrics:

 Injury rate 22% below the industry average  19 facilities with 1+ years/1million work hours

without a Days Away Case Continuous Productivity Improvement Initiatives

 Plant overhead reviews resulting in identifiable cost

reductions across the company

 Technological solutions identifying optimal ways to

load assets and reduce labor costs

 Six Sigma methodologies leading to process

improvements focused on reducing inventory and

• verall working capital

21 | LSC COMMUNICATIONS

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 August 2, 2017.

DIVIDEND YIELD(1)

 Disciplined approach to capital expenditures and

cost management

 Focus on capital efficiency driving strong cash

flow conversion

 Ability to pursue M&A transactions within targeted

leverage range of 1.75x to 2.25x

 Stable cash flows enable deleveraging to

complement M&A strategy

 Current quarterly dividend of $0.25 per share  Board of Directors to review dividend quarterly

2.0%

S&P 500

CASH FLOW HIGHLIGHTS

6 STRONG CASH FLOW PROFILE WITH ATTRACTIVE DIVIDEND

5.1%

22 | LSC COMMUNICATIONS

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

Tom Quinlan President, Chief Executive Officer and Chairman of the Board of Directors

12+ years 25+ years

Drew Coxhead Chief Financial Officer

21+ years 21+ years

Sue Bettman Chief Administrative Officer and General Counsel

12+ years 12+ years

Kent Hansen Chief Accounting Officer and Controller

<1 year <1 year

Richard Lane Chief Strategy and Supply Chain Officer

19+ years 27+ years

Dave Houck Chief Information Officer

10+ years 25+ years

Janet Halpin Senior Vice President, Treasurer & Investor Relations

8+ years 8+ years

Dave McCree President, Book and Directory

28+ years 28+ years

Dave Cardona Senior Vice President, Magazine Group

29+ years 29+ years

Jim Ellward President, Office Products

15+ years 15+ years

John Coyle President, Group Sales

12+ years 33+ years

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

7 EXPERIENCED LEADERSHIP TEAM

23 | LSC COMMUNICATIONS

Financial Overview

24 | LSC COMMUNICATIONS

NET SALES ($MM) NON-GAAP ADJ. EBITDA ($MM) CAPITAL EXPENDITURES ($MM) NON-GAAP FREE CASH FLOW ($MM)

$3,853 $3,743 $3,654 $3,550 - $3,600

$0 $1,000 $2,000 $3,000 $4,000 $5,000 2014 2015 2016 2017E

$392 $398 $370 $341 - $360

$0 $100 $200 $300 $400 $500 2014 2015 2016 2017E

% Reported Growth / (Decline) (2.9%) (2.4%) % Margin 10.2% 10.6% 9.60% – 10.00% $60 $42 $48 $60 - $65

$0 $20 $40 $60 $80 $100 2014 2015 2016 2017E

$247 $233 $183 $125 - $155

$0 $50 $100 $150 $200 $250 $300 2014 2015 2016 2017E

% of Sales 1.6% 1.3% % Conv.(2) 63.0% 58.5% 49.5% 1.1%

1. Full year guidance as of 2Q 2017 Earnings Call on August 3, 2017 and is not being reaffirmed here. 2. Represents free cash flow as a percent of Non-GAAP Adj. EBITDA.

3.0% 10.1% (2.8%) – (1.5%) 1.7% - 1.8% 35% – 45%

(1) (1) (1) (1)

HISTORICAL FINANCIAL PERFORMANCE SNAPSHOT

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.

25 | LSC COMMUNICATIONS

DEBT AND LEVERAGE ($MM) as of 6/30/2017 TOTAL LIQUIDITY ($MM) as of 6/30/2017

Capitalization Cash & Cash Equivalents $98 Term Loan Facility due Sept. 2022 $303 8.75% Senior Secured Notes due Oct. 2023 450 Capital Lease Obligations 6 Unamortized Debt Issuance Costs (15) Total Debt $744 Less: Current Portion (26) Total Long-Term Debt 718 Net Debt $646 Q2 2017 LTM Adj. EBITDA $328 Gross Leverage Ratio 2.27x Total Liquidity Cash $98 Stated Amount of Revolving Credit Facility $400 Less: Availability Reduction from Covenants 31 Amount Available Under the Revolving Credit Facility $369 Usage Borrowings Under the Credit Agreement – Impact on Availability Related to Outstanding LoC (20) Net Available Liquidity $447

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 Facility

PENSION PLANS ($MM) as of 12/31/2016

Qualified Non-Qualified Total

Benefit Obligation $2,439 $92 $2,531 Fair Value of Plan Assets 2,249 2 $2,251 Unfunded Status ($190) ($90) ($280)

CAPITALIZATION

26 | LSC COMMUNICATIONS

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.

LEVERAGE & LIQUIDITY + Continuing to target 1.75x to 2.25x gross leverage(1) + Strong free cash flow(2) generation supports commitment to leverage target + Combination of pre-payable and long term debt provides ability to efficiently pay down debt PENSION PLANS + US pension plans closed and frozen + De-risking actions and liability driven investment structure reduces funded status volatility while minimizing required contributions CAPITAL EXPENDITURES + Approximately 1.5% to 2.0% of net sales MERGERS & ACQUISITIONS + Selectively pursue strategic acquisitions + Strategy governed by target leverage DIVIDEND POLICY + Current quarterly dividend of $0.25 per share + Board of Directors to review dividend quarterly

FINANCIAL POLICY

27 | LSC COMMUNICATIONS

($ millions) 2017 Guidance (1)

Net Sales $3.55 - $3.60 billion Non-GAAP Adjusted EBITDA 9.60% - 10.00% 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

FULL YEAR 2017 GUIDANCE

(1) Full year 2017 guidance as of Q2 2017 Earnings Call on August 3, 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

• ngoing operations, given that such excluded items are not indicators of business performance.

28 | LSC COMMUNICATIONS

Appendix

29 | LSC COMMUNICATIONS

NON-GAAP FINANCIAL MEASURES

($ millions)

Total LSC Communications

Q2 2017 TTM Q2 2017 FY 2016 Q1 2017 Q4 2016 Q3 2016 Q2 2016 FY 2015 FY 2014 Net sales $3,537 $848 $3,654 $821 $919 $949 $906 $3,743 $3,853 GAAP Net income (loss) 51 5 106 (1) 9 38 28 74 58 Restructuring, impairment and other charges, net 37 21 18 6 7 3 5 57 132 Separation-related transaction expenses 8 2 5 1 4 1

• Pension settlement charge
• 1
• 1
• Acquisition-related expenses

1 1

• 14

2 Purchase accounting inventory adj.

• 11

2 Depreciation and amortization 160 39 171 40 41 40 44 181 181 Gain on bargain purchase

• (9)

Interest expense / (income)-net 52 16 18 17 18 1 (1) (3) (4) Income tax expense (benefit) 19 (2) 51 2 1 18 16 64 30 Non-GAAP Adjusted EBITDA $328 $82 $370 $65 $80 $101 $93 $398 $392 Non-GAAP Adjusted EBITDA margin 9.3% 9.7% 10.1% 7.9% 8.7% 10.6% 10.3% 10.6% 10.2% Net cash provided by operating activities $254 $14 $231 $64 $95 $81 $41 $275 $307 Capital expenditures (65) (15) (48) (21) (13) (16) (7) (42) (60) Free cash flow $189 ($1) $183 $43 $82 $65 $34 $233 $247

30 | LSC COMMUNICATIONS

NON-GAAP FINANCIAL MEASURES (Cont’d)

($ millions)

Print Segment

Q2 2017 TTM Q2 2017 FY 2016 Q1 2017 Q4 2016 Q3 2016 Q2 2016 FY 2015 FY 2014 Magazines, catalogs and retail inserts $1,609 $378 $1,632 $383 $441 $407 $377 $1,807 $2,036 Book 1,067 262 1,097 239 256 310 288 925 787 Europe 247 56 272 56 63 72 67 305 381 Directories 121 27 126 32 29 33 32 144 149 Net sales $3,044 $723 $3,127 $710 $789 $822 $764 $3,181 $3,353 Income from operations 109 22 141 12 27 48 34 96 47 Depreciation and amortization 145 36 154 35 36 38 39 164 164 Restructuring, impairment and other charges, net 18 6 15 5 6 1 5 53 127 Purchase accounting inventory adjustments, net

• 11
• Non-GAAP Adjusted EBITDA

$272 $64 $310 $52 $69 $87 $78 $324 $338 Non-GAAP Adjusted EBITDA margin 8.9% 8.9% 9.9% 7.3% 8.7% 10.6% 10.2% 10.2% 10.1%

Office Products Segment

Q2 2017 TTM Q2 2017 FY 2016 Q1 2017 Q4 2016 Q3 2016 Q2 2016 FY 2015 FY 2014 Net sales $493 $125 $527 $111 $130 $127 $142 $562 $500 Income from operations 48 12 54 9 16 11 13 47 40 Depreciation and amortization 15 3 15 4 4 4 4 16 15 Restructuring, impairment and other charges, net 1

• 1
• 4

5 Purchase accounting inventory adjustments, net

• 2

Non-GAAP Adjusted EBITDA $64 $15 $69 $14 $20 $15 $17 $67 $62 Non-GAAP Adjusted EBITDA margin 13.0% 12.0% 13.1% 12.6% 15.4% 11.8% 12.0% 11.9% 12.4%

31 | LSC COMMUNICATIONS

ORGANIC GROWTH RATES

($ millions) Magazines, Catalogs, and Retail Inserts Books Europe Directories Total Print Total Office Products Total LSC Q2 2016 Net Sales as Reported 377 $ 288 $ 67 $ 32 $ 764 $ 142 $ 906 $ Adjustments (1) 14

• 14
• 14

Q2 2016 Net Sales Pro Forma 391 $ 288 $ 67 $ 32 $ 778 $ 142 $ 920 $ Q2 2017 Net Sales as Reported 378 $ 262 $ 56 $ 27 $ 723 $ 125 $ 848 $ Adjustments (1)

• Q2 2017 Net Sales Pro Forma

378 $ 262 $ 56 $ 27 $ 723 $ 125 $ 848 $ As Reported % Change 0.3%

• 9.0%
• 16.4%
• 15.6%
• 5.4%
• 12.0%
• 6.4%

Pro Forma % Change

• 3.3%
• 9.0%
• 16.4%
• 15.6%
• 7.1%
• 12.0%
• 7.8%

Non-GAAP Adjustments: Impact of pass-through paper sales 0.5%

• 2.4%

0.0%

• 9.4%
• 1.0%

0.0%

• 0.9%

Impact of changes in foreign exchange rates

• 0.3%

0.0% 0.0% 0.0%

• 0.1%

0.0%

• 0.1%

Q2 2017 Organic % Change (2)

• 3.5%
• 6.6%
• 16.4%
• 6.2%
• 6.0%
• 12.0%
• 6.8%

Q2 2016 YTD Net Sales as Reported 784 $ 531 $ 137 $ 64 $ 1,516 $ 270 $ 1,786 $ Adjustments (1) 29

• 29
• 29

Q2 2016 YTD Net Sales Pro Forma 813 $ 531 $ 137 $ 64 $ 1,545 $ 270 $ 1,815 $ Q2 2017 YTD Net Sales as Reported 761 $ 501 $ 112 $ 59 $ 1,433 $ 236 $ 1,669 $ Adjustments (1) 1

• 1
• 1

Q2 2017 YTD Net Sales Pro Forma 762 $ 501 $ 112 $ 59 $ 1,434 $ 236 $ 1,670 $ As Reported % Change

• 2.9%
• 5.6%
• 18.2%
• 7.8%
• 5.5%
• 12.6%
• 6.6%

Pro Forma % Change

• 6.3%
• 5.6%
• 18.2%
• 7.8%
• 7.2%
• 12.6%
• 8.0%

Non-GAAP Adjustments: Impact of pass-through paper sales

• 0.5%
• 0.9%

0.0%

• 6.3%
• 0.8%

0.0%

• 0.7%

Impact of changes in foreign exchange rates

• 0.5%

0.0%

• 0.7%

0.0%

• 0.3%

0.0%

• 0.3%

Q2 2017 YTD Organic % Change

• 5.3%
• 4.7%
• 17.5%
• 1.5%
• 6.1%
• 12.6%
• 7.0%

(1) Adjusted for net sales of acquired businesses: There were no acquisitions during the three months ended June 30, 2017. For the six months ended June 30, 2017, the adjustment to

net sales of an acquired business reflects the net sales of HudsonYards Studios ("HudsonYards") (acquired March 1, 2017). For the three and six months ended June 30, 2016, the adjustments for net sales of acquired businesses reflect the net sales of HudsonYards and Continuum Management Company, LLC ("Continuum") (acquired December 2, 2016).

(2) Adjusted for net sales of acquired businesses, the impact of changes in FX rates and pass-through paper sales.

32 | LSC COMMUNICATIONS

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