10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)      

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number

001-37729      

LSC Communications, Inc.

(Exact name of registrant as specified in its charter)

Delaware	36-4829580
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

191 N. Wacker Drive, Suite 1400

Chicago, IL 60606

(Address of principal executive offices, including zip code)

(773) 272-9200  

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☒	(Do not check if a smaller reporting company)	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒      

As of October 27, 2017, 34,845,077 shares of common stock were outstanding.      

LSC COMMUNICATIONS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017

TABLE OF CONTENTS

PART I

	Page
FINANCIAL INFORMATION
Item 1: Condensed Consolidated and Combined Financial Statements (unaudited)	3
Condensed Consolidated and Combined Balance Sheets as of September 30, 2017 and December 31, 2016	3
Condensed Consolidated and Combined Statements of Operations for the three and nine months ended September 30, 2017 and 2016	4
Condensed Consolidated and Combined Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016	5
Condensed Consolidated and Combined Statements of Cash Flows for the nine months ended September 30, 2017 and 2016	6
Notes to Condensed Consolidated and Combined Financial Statements	7
Item 2:  Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3: Quantitative and Qualitative Disclosures About Market Risk	45
Item 4: Controls and Procedures	45
Part II. Other Information	47
Item 1: Legal Proceedings	47
Item 1A: Risk Factors	47
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 4: Mine Safety Disclosures	47
Item 6: Exhibits	48
Signatures	52

2

ITEM 1. CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)

LSC COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS

(in millions, except share and per share data)

(UNAUDITED)

	September 30,			December 31,
	2017			2016
ASSETS
Cash and cash equivalents	$	23		$	95
Receivables, less allowances for doubtful accounts of $10 in 2017 (2016: $10)		741			667
Income taxes receivable		24			1
Inventories (Note 3)		237			193
Prepaid expenses and other current assets		25			20
Total current assets		1,050			976
Property, plant and equipment-net (Note 4)		612			608
Goodwill (Note 5)		82			84
Other intangible assets-net (Note 5)		158			131
Deferred income taxes		65			57
Other noncurrent assets		106			96
Total assets	$	2,073		$	1,952
LIABILITIES
Accounts payable	$	325		$	294
Accrued liabilities		237			237
Short-term and current portion of long-term debt (Note 13)		177			52
Total current liabilities		739			583
Long-term debt (Note 13)		707			742
Pension liabilities		237			279
Deferred income taxes		1			2
Other noncurrent liabilities		103			106
Total liabilities		1,787			1,712
Commitments and contingencies (Note 12)
EQUITY (Note 8)
Common stock, $0.01 par value
Authorized: 65,000,000 shares;
Issued: 34,446,778 shares in 2017 (2016: 32,449,669)		—			—
Additional paid-in-capital		813			770
(Accumulated deficit) retained earnings		(23	)		1
Accumulated other comprehensive loss (Note 10)		(503	)		(531	)
Treasury stock, at cost: 34,727 shares in 2017		(1	)		—
Total equity		286			240
Total liabilities and equity	$	2,073		$	1,952

See Notes to the Condensed Consolidated and Combined Financial Statements

3

LSC COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

(in millions, except per share data)  

(UNAUDITED)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016
Net sales	$	935		$	949	$	2,604		$	2,735
Cost of sales		778			783		2,175			2,250
Selling, general and administrative expenses (exclusive of depreciation      and amortization)		65			66		194			196
Restructuring, impairment and other charges-net (Note 6)		60			3		87			11
Depreciation and amortization		39			40		118			130
(Loss) income from operations		(7	)		57		30			148
Interest expense-net		19			1		52			—
Investment and other expense-net		—			—		—			1
(Loss) income before income taxes		(26	)		56		(22	)		147
Income tax (benefit) expense		(23	)		18		(23	)		50
Net (loss) income	$	(3	)	$	38	$	1		$	97
Net (loss) earnings per common share (Note 9):
Basic net (loss) earnings per share	$	(0.07	)	$	1.17	$	0.03		$	2.99
Diluted net (loss) earnings per share	$	(0.07	)	$	1.17	$	0.03		$	2.99
Dividends declared per common share	$	0.25		$	—	$	0.75		$	—
Weighted average number of common shares outstanding:
Basic	34.2			32.4		33.5			32.4
Diluted	34.2			32.4		33.8			32.4

See Notes to the Condensed Consolidated and Combined Financial Statements

4

LSC COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017		2016
Net (loss) income	$	(3	)	$	38		$	1	$	97
Other comprehensive income (loss), net of tax (Note 10)
Translation adjustments		2			(2	)		20		(3	)
Adjustments for net periodic pension plan cost		3			1			8		(1	)
Other comprehensive income (loss)		5			(1	)		28		(4	)
Comprehensive income	$	2		$	37		$	29	$	93

See Notes to the Condensed Consolidated and Combined Financial Statements

5

LSC COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(in millions)

(UNAUDITED)

	Nine Months Ended September 30,
	2017			2016
Cash Flows from Operating Activities
Net income	$	1		$	97
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment charges		55			—
Depreciation and amortization		118			130
Provision for doubtful accounts receivable		3			11
Share-based compensation		10			4
Deferred income taxes		(14	)		(14	)
Other		3			(3	)
Changes in operating assets and liabilities - net of acquisitions:
Accounts receivable- net		(48	)		(45	)
Inventories		(20	)		(12	)
Prepaid expenses and other current assets		(3	)		(4	)
Accounts payable		36			(11	)
Income taxes payable and receivable		(29	)		(2	)
Accrued liabilities and other		(54	)		(15	)
Net cash provided by operating activities		58			136
Cash Flows from Investing Activities
Capital expenditures		(51	)		(35	)
Acquisitions of businesses, net of cash acquired		(175	)		—
Net proceeds from sales and purchase of investments		1			—
Proceeds from sales of other assets		7			1
Transfers from restricted cash		—			9
Net cash used in investing activities		(218	)		(25	)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt		—			816
Payments of current maturities and long-term debt		(53	)		(4	)
Net proceeds from credit facility borrowings		140			—
Debt issuance costs		—			(18	)
Proceeds from issuance of common stock		18			—
Dividends paid		(25	)		—
Payments from RRD – net		3			—
Net transfers to Parent and affiliates		—			(945	)
Net cash provided by (used in) financing activities		83			(151	)
Effect of exchange rate on cash and cash equivalents		5			—
Net decrease in cash and cash equivalents		(72	)		(40	)
Cash and cash equivalents at beginning of year		95			95
Cash and cash equivalents at end of period	$	23		$	55
Supplemental non-cash disclosure:
Assumption of warehousing equipment related to customer contract	$	—		$	9
Issuance of approximately 1.0 million shares of LSC Communications, Inc. common stock for      acquisition of a business	$	20		$	—

See Notes to the Condensed Consolidated and Combined Financial Statements    

6

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

Note 1.  Overview and Basis of Presentation  

Description of Business and Separation

The principal business of LSC Communications, Inc., a Delaware corporation, and its direct or indirect wholly-owned subsidiaries (“LSC Communications,” “the Company,” “we,” “our” and “us”) is to offer a broad scope of traditional and digital print, print-related services and office products.  The Company serves the needs of publishers, merchandisers and retailers worldwide with a service offering that includes e-services, warehousing and fulfillment and supply chain management. The Company utilizes a broad portfolio of technology capabilities coupled with consultative attention to clients' needs to increase speed to market, reduce costs, provide postal savings to customers and improve efficiencies. The Company prints magazines, catalogs, retail inserts, books, and directories and its office products offerings include filing products, note-taking products, binder products, forms, and envelopes. 

On October 1, 2016 (the “separation date”), R. R. Donnelley & Sons Company (“RRD” or the “Parent”) completed the previously announced separation (the “separation”) into three separate independent publicly-traded companies: (i) its publishing and retail-centric print services and office products business (“LSC Communications”); (ii) its financial communications services business (“Donnelley Financial Solutions, Inc.” or “Donnelley Financial”) and (iii) a global, customized multichannel communications management company, which is the business of RRD after the separation.  To effect the separation, RRD undertook a series of transactions to separate net assets and legal entities.  RRD completed the distribution (the “distribution”) of 80.75%, of the outstanding common stock of LSC Communications and Donnelley Financial to RRD stockholders on October 1, 2016.  RRD retained a 19.25% ownership stake in both LSC Communications and Donnelley Financial.  On October 1, 2016, RRD stockholders of record as of the close of business on September 23, 2016 (“the record date”) received one share of LSC Communications common stock and one share of Donnelley Financial common stock for every eight shares of RRD common stock held as of the record date.  

On March 28, 2017, RRD completed the sale of approximately 6.2 million shares of LSC Communications common stock, representing its entire 19.25% retained ownership.  In connection with the over-allotment option granted to the underwriters as part of the secondary sale by RRD, LSC Communications also sold approximately 0.9 million shares of common stock, receiving proceeds of $18 million, which were used for general corporate purposes.      

In connection with the separation, LSC Communications, RRD and Donnelley Financial entered into commercial arrangements, transition services agreements and various other agreements related to the separation that remain in effect.  Final copies of such agreements are filed as exhibits to this quarterly report on Form 10-Q.

Basis of Presentation

The accompanying condensed consolidated and combined financial statements reflect the consolidated balance sheets and statements of operations of the Company as an independent, publicly traded company for the periods after the separation, and the condensed combined balance sheets and statements of operations of the Company as a combined reporting entity of RRD for the periods prior to the separation.  The condensed consolidated and combined financial statements include the balance sheets, statements of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”).  These unaudited condensed consolidated and combined interim financial statements include estimates and assumptions of management that affect the amounts reported in the condensed consolidated and combined financial statements. Actual results could differ from these estimates.  Certain prior year amounts were restated to conform to the Company’s current consolidated and combined statement of operations classifications.    

On October 1, 2016, the Company recorded certain separation-related adjustments primarily for certain assets and liabilities that were distributed as part of the separation from RRD. The adjustments primarily related to the assumption of certain pension obligations and plan assets in single employer plans for the Company’s employees and certain former employees and retirees of RRD.  Refer to Note 8, Equity, for information on the separation-related adjustments recorded during the nine months ended September 30, 2017.  Additional separation-related adjustments may be recorded in future periods.            

7

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

Prior to the Separation

The condensed combined financial statements were prepared on a stand-alone basis and were derived from RRD’s consolidated financial statements and accounting records. They include certain expenses of RRD that were allocated to LSC Communications for certain corporate functions, including healthcare and pension benefits, information technology, finance, legal, human resources, internal audit, treasury, tax, investor relations and executive oversight.  These expenses were allocated to the Company on the basis of direct usage, when available, with the remainder allocated on a pro rata basis by revenue, employee headcount, or other measures. The Company considered the allocation methodologies and results to be reasonable for all periods presented, however, these allocations may not be indicative of the actual expenses that LSC Communications would have incurred as an independent public company or the costs it may incur in the future.  The income tax amounts in these combined financial statements were calculated based on a separate income tax return methodology and presented as if the Company’s operations were separate taxpayers in the respective jurisdictions.  

All intercompany transactions and accounts have been eliminated.  All intracompany transactions between LSC Communications, RRD and Donnelley Financial are considered to be effectively settled in the condensed consolidated and combined financial statements at the time the transaction is recorded.  The total net effect of the settlement of these intracompany transactions is reflected in the condensed combined statement of cash flows as a financing activity.    

Note 2.  Business Combinations

2017 Acquisitions

On September 7, 2017, the Company acquired Publishers Press, a printing solutions provider with capabilities such as web-offset printing, prepress and distribution services for magazines and retail brands. The acquisition enhanced the Company’s printing capabilities.  The total purchase price was $70 million in cash, of which $1 million was recorded in goodwill.  For the three and nine months ended September 30, 2017, the Company’s condensed consolidated statement of operations included net sales of $11 million and a de minimis amount of income from operationsattributable to the acquisition of Publishers Press.

On August 21, 2017, the Company acquired the assets of NECI, LLC (“NECI”), a supplier of commodity and specialty filing supplies.  The acquisition enhanced the Company’s office products offerings.  The total purchase price was $5 million in cash, of which $1 million was recorded in goodwill.  For the three and nine months ended September 30, 2017, the Company’s condensed consolidated statement of operations included net sales of $1 million and a de minimis amount of loss from operations attributable to the acquisition of NECI.

OnAugust 17, 2017, the Company acquired CREEL Printing (“CREEL”), an offset and digital printing company.  The acquisition enhanced the capabilities of the Company’s offset and digital production platform and brought enhanced technologies to support our clients’ evolving needs, specifically in the magazine media and retail marketing industries.  CREEL’s capabilities include full-color web and sheetfed printing, regionally distributed variable digital production, large-format printing, and integrated digital solutions.  The purchase price, which included the Company’s estimate of contingent consideration, was $78 million in cash, of which $25 million was recorded in goodwill.  Contingent consideration in the form of cash payments up to $10 million will be due to the sellers if and to the extent certain financial targets are achieved.  As of the acquisition date, the Company estimated the fair value of the contingent consideration to be $1 million using a probability weighting of the potential payouts.  For the three and nine months ended September 30, 2017, the Company’s condensed consolidated statement of operations included net sales of $18 million and income from operations of $3 million attributable to the acquisition of CREEL.

On July 28, 2017, the Company acquired Fairrington Transportation Corp., F.T.C. Transport, Inc. and F.T.C. Services, Inc. (“Fairrington”), a full-service, printer-independent mailing logistics provider in the United States.  The acquisition enhanced the Company’s logistics service offering. The purchase price was $20 million in cash and approximately 1.0 million shares of LSC Communications common stock, for a total transaction value of $40 million.  Of the total purchase price, $22 million was recorded in goodwill.  For the three and nine months ended September 30, 2017, the Company’s condensed consolidated statement of operations included net sales of $11 million and a de minimis amount of income from operations attributable to the acquisition of Fairrington.

8

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

On March 1, 2017, the Company acquired HudsonYards Studios (“HudsonYards”), a digital and print premedia production company that provides high-quality creative retouching, computer-generated imagery, mechanical creation, press-ready file preparation, and interactive production services.  The acquisition enhanced the Company’s digital and premedia capabilities.  The purchase price for HudsonYards was $3 million in cash, of which $2 million was recorded in goodwill.  For the three months ended September 30, 2017, the Company’s condensed consolidated statement of operations included net sales of $2 million and a de minimis operating loss attributable to the acquisition of HudsonYards.  For the nine months ended September 30, 2017, the Company’s condensed consolidated statement of operations included net sales of $5 million and a loss from operations of $1 million attributable to the acquisition of HudsonYards.  

The operations of Publishers Press, CREEL, Fairrington, and HudsonYards are included in the Print segment; specifically the magazines, catalogs and retail inserts reporting unit.  The operations of NECI are included in the Office Products segment.  

The acquisitions were recorded by allocating the cost of the acquisitions to the assets acquired, including other intangible assets, based on their estimated fair values at the acquisition date.  The excess of the cost of the acquisitions over the net amounts assigned to the fair value of the assets acquired was recorded in goodwill. The goodwill is primarily attributable to the synergies expected to arise as a result of the acquisitions.   

The preliminary tax deductible goodwill related to the Publishers Press, NECI, CREEL, Fairrington, and HudsonYards acquisitions was $33 million.

Based on the acquisition-date valuations, the preliminary purchase price allocations for Publishers Press, CREEL and Fairrington in the Print segment are as follows:

	Publishers Press			CREEL			Fairrington
Accounts Receivable	$	25		$	13		$	6
Inventories		13			5			—
Prepaid expenses and other current assets		2			1			—
Property, plant and equipment		36			19			6
Other intangible assets		—			22			17
Other noncurrent assets		—			—			1
Goodwill		1			25			22
Accounts payable and accrued liabilities		(8	)		(7	)		(4	)
Deferred taxes-net		—			—			(9	)
Total purchase price, net of cash acquired		69			78			39
Less: value of common stock issued		—			—			20
Net cash paid:	$	69		$	78		$	19

Given the historical valuations of the magazines, catalogs and retail inserts reporting unit that have resulted in goodwill impairment in prior years, combined with the change in the composition of the carrying value of the reporting unit due to the recent acquisitions, the Company determined it necessary to perform an interim goodwill impairment review on this reporting unit as of September 30, 2017.  As a result, for the three months ended September, 2017, the Company recorded a non-cash charge of $55 million to recognize the impairment of goodwill for the magazines, catalogs and retail inserts reporting unit in the Print segment.  Refer to Note 6, Restructuring, Impairment and Other Charges, for further details on this non-cash charge.    

The purchase price allocations for Publishers Press, NECI, CREEL, and Fairrington are preliminary because the valuations necessary to assess the fair values of the net assets and liabilities acquired are still in process.  The primary areas that are not yet finalized relate to the valuation of certain assets and liabilities.  The final purchase price allocations may differ from what is currently reflected in the condensed consolidated financial statements, and could affect goodwill impairment in the future.

9

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

The fair values of other intangible assets and goodwill associated with the acquisitions were determined to be Level 3 under the fair value hierarchy. The following table presents the fair value, valuation techniques and related unobservable inputs for these Level 3 measurements:

	Fair Value		Valuation Technique	Unobservable Input	Range
Customer relationships	$	36	Relief-from-royalty-method	Growth rate	(3.0)% - 0.9%
				Attrition rate	6.0% - 6.5%
				Discount rate	15.0% - 23.0%
Trade names		3	Multi-period excess earnings method	Royalty rate	1.0% - 1.5%
				Discount rate	15.0% - 19.0%

The fair values of property, plant and equipment associated with the acquisitions were determined to be Level 3 under the fair value hierarchy. Property, plant and equipment values were estimated using either the cost or market approach, if a secondhand market existed.

For the three and nine months ended September 30, 2017, the Company recorded $2 million and $3 million of acquisition-related expenses associated with the completed and contemplated acquisitions described above within selling, general and administrative expenses in the condensed consolidated statements of operations.

2016 Acquisition  

On December 2, 2016, the Company acquired Continuum Management Company, LLC (“Continuum”), a print procurement and management business.  The acquisition enhanced the Company’s print management’s capabilities.  The Company paid $7 million in cash in 2016.  An additional $2 million in cash was paid during the three months ended March 31, 2017 as part of a final working capital adjustment for a total purchase price of $9 million, of which $5 million was recorded in goodwill.  The operations of Continuum are included in the Print segment.

There were no acquisition-related expenses during the three and nine months ended September 30, 2016.

Pro forma results  

The following unaudited pro forma financial information for the three and nine months ended September 30, 2017 and 2016 presents the condensed consolidated and combined statements of operations of the Company and the acquisitions described above, as if the acquisitions had occurred as of January 1 of the year prior to the acquisitions.

The unaudited pro forma financial information is not intended to represent or be indicative of the Company’s condensed consolidated and combined statements of operations that would have been reported had these acquisitions been completed as of the beginning of the period presented and should not be taken as indicative of the Company’s future condensed consolidated statements of operations.

	Three Months Ended					Nine Months Ended
	September 30					September 30
		2017			2016		2017			2016
Net sales	$	978		$	1,052	$	2,808		$	3,034
Net (loss) income		(6	)		40		(8	)		97
Net (loss) earnings per common share
Basic	$	(0.18	)	$	1.20	$	(0.24	)	$	2.90
Diluted	$	(0.18	)	$	1.20	$	(0.24	)	$	2.90

10

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

The following table outlines unaudited pro forma financial information for the three and nine months ended September 30, 2017 and 2016:

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2017		2016		2017		2016
Amortization of purchased intangibles	$	5	$	5	$	15	$	16

Additionally, the nonrecurring pro forma adjustments affecting net income for the three and nine months ended September 30, 2017 and 2016 were as follows:  

	Three Months Ended					Nine Months Ended
	September 30					September 30
	2017			2016		2017			2016
Acquisition-related expenses, pre-tax	$	(1	)	$	—	$	(1	)	$	—
Restructuring, impairment and other charges		—			—		(1	)		—
Inventory fair value adjustments, pre-tax		1			—		1			(1	)
Other pro forma adjustments, pre-tax		—			1		2			2
Income taxes		—			—		1			(1	)

Note: A negative number in the table above represents a decrease to income in pro forma net income.

Note 3.  Inventories

The components of the Company’s inventories, net of excess and obsolescence reserves for raw materials and finished goods, at September 30, 2017 and December 31, 2016 were as follows:    

	September 30,			December 31,
	2017			2016
Raw materials and manufacturing supplies	$	121		$	100
Work in process		74			58
Finished goods		99			93
Last in, First out reserve ("LIFO")		(57	)		(58	)
Total	$	237		$	193

Note 4.  Property, Plant and Equipment

The components of the Company’s property, plant and equipment at September 30, 2017 and December 31, 2016 were as follows:

	September 30,			December 31,
	2017			2016
Land	$	46		$	42
Buildings		783			762
Machinery and equipment		4,133			4,173
		4,962			4,977
Accumulated depreciation		(4,350	)		(4,369	)
Total	$	612		$	608

During the three and nine months ended September 30, 2017, depreciation expense was $34 million and$102 million, respectively.  During the three and nine months ended September 30, 2016, depreciation expense was $35 million and $112 million, respectively.

11

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

Note 5.  Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended September 30, 2017 were as follows:

	Print			Office Products			Total
Net book value as of December 31, 2016
Goodwill	$	852		$	109		$	961
Accumulated impairment losses		(798	)		(79	)		(877	)
Total		54			30			84
Acquisitions		52			1			53
Impairment charges		(55	)		—			(55	)
Net book value as of September 30, 2017
Goodwill		914			110			1,024
Accumulated impairment losses		(863	)		(79	)		(942	)
Total	$	51		$	31		$	82

During the three months ended September 30, 2017, the Company recorded a non-cash charge of $55 million to recognize the impairment of goodwill for the magazines, catalogs and retail inserts reporting unit in the Print segment.  See Note 6, Restructuring, Impairment and Other Charges, for further discussion regarding this impairment charge.  

The components of other intangible assets at September 30, 2017 and December 31, 2016 were as follows:

	September 30, 2017							December 31, 2016
	Gross  Carrying		Accumulated			Net Book		Gross  Carrying		Accumulated			Net Book
	Amount		Amortization			Value		Amount		Amortization			Value
Customer relationships	$	242	$	(120	)	$	122	$	205	$	(109	)	$	96
Trade names		7		(3	)		4		5		(2	)		3
Total amortizable other intangible assets		249		(123	)		126		210		(111	)		99
Indefinite-lived trade names		32		—			32		32		—			32
Total other intangible assets	$	281	$	(123	)	$	158	$	242	$	(111	)	$	131

The Company recorded additions to other intangible assets of $39 million for acquisitions during the three months ended September 30, 2017.  

The components of other intangible assets added during the three months ended September 30, 2017 were as follows:

	September 30, 2017
			Weighted-Average
			Amortization Period
	Amount		(years)
Customer relationships	$	36		10.6
Trade names (amortizable)		3		5.0
	$	39

During the three and nine months ended September 30, 2017, amortization expense for other intangible assets was $4 million and $12 million, respectively.  During the three and nine months ended September 30, 2016, amortization expense for other intangible assets was $4 million and $13 million, respectively.          

12

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

The following table outlines the estimated annual amortization expense related to other intangible assets:

For the year ending December 31,	Amount
2017	$	17
2018		15
2019		15
2020		14
2021		13
2022 and thereafter		64
Total	$	138

Note 6.  Restructuring, Impairment and Other Charges      

For the three months ended September 30, 2017 and 2016, the Company recorded the following net restructuring, impairment and other charges:    

Three Months Ended                         September 30, 2017	Employee Terminations		Other Restructuring Charges		Total Restructuring Charges		Impairment		Other Charges		Total
Print	$	—	$	2	$	2	$	55	$	1	$	58
Corporate		—		2		2		—		—		2
Total	$	—	$	4	$	4	$	55	$	1	$	60

Three Months Ended                           September 30, 2016	Employee Terminations		Other Restructuring Charges		Total Restructuring Charges		Impairment			Other Charges		Total
Print	$	—	$	1	$	1	$	(1	)	$	1	$	1
Corporate		2		—		2		—			—		2
Total	$	2	$	1	$	3	$	(1	)	$	1	$	3

For the nine months ended September 30, 2017 and 2016, the Company recorded the following net restructuring, impairment and other charges:  

Nine Months Ended                           September 30, 2017	Employee Terminations		Other Restructuring Charges		Total Restructuring Charges		Impairment		Other Charges		Total
Print	$	6	$	5	$	11	$	55	$	3	$	69
Office Products		1		—		1		—		—		1
Corporate		—		17		17		—		—		17
Total	$	7	$	22	$	29	$	55	$	3	$	87

Nine Months Ended                           September 30, 2016	Employee Terminations		Other Restructuring Charges		Total Restructuring Charges		Impairment		Other Charges		Total
Print	$	2	$	4	$	6	$	—	$	3	$	9
Corporate		2		—		2		—		—		2
Total	$	4	$	4	$	8	$	—	$	3	$	11

13

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

Restructuring and Impairment Charges      

For the three and nine months ended September 30, 2017, the Company incurred employee-related restructuring charges of a de minimis amount and $7 million for an aggregate of 516 employees, of whom 450 were terminated as of or prior to September 30, 2017.  These charges primarily related to one facility closure in the Print segment and the reorganization of certain business units.  The Company incurred other restructuring charges of $4 million and $22 million for the three and nine months ended September 30, 2017, respectively, primarily related to charges incurred as a result of a terminated supplier contract and the exit from certain operations and facilities.    

As explained in Note 2, Business Combinations, the Company completed several acquisitions during the three months ended September 30, 2017, three of which are now included in the Company’s magazines, catalogs and retail inserts reporting unit, which is part of the Print segment.  The goodwill arising from each acquisition was determined on a stand-alone basis for each particular transaction based on each transaction’s individual facts and circumstances, in accordance with ASC 805, Business Combinations.  Per the guidance in ASC 805, goodwill was recognized on each transaction given that the consideration transferred for each transaction was in excess of the net amounts of the identifiable assets acquired and the liabilities assumed.  Furthermore, the consideration transferred, the identifiable assets acquired and the liabilities assumed were all measured at the acquisition-date fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction, between market participants, at the acquisition date.

In accordance with ASC 350, Intangibles — Goodwill and Other, the Company is required to test its goodwill for impairment annually, or more often if there is an indication that goodwill might be impaired.  For purposes of the goodwill impairment test, goodwill is not tested based upon the individual transactions that gave rise to the goodwill, but rather based upon the reporting unit’s total goodwill and the characteristics of the reporting unit in which the goodwill resides.  Therefore, the level at which goodwill is tested for impairment is different from the level that originally created the goodwill.  In the Company’s case, the test is performed based upon the total carrying value of the magazines, catalogs and retail inserts reporting unit and that reporting unit’s total implied fair value.  Carrying value is determined based upon the net book value of assets and liabilities required for the operations of the magazines, catalogs and retail inserts reporting unit, while fair value is determined based upon a discounted cash flows analysis of the magazines, catalogs and retail inserts reporting unit.  If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

The Company’s policy is to perform its annual test of goodwill for impairment as of October 31 of each year.  Prior to the acquisitions completed within the last twelve months, the magazines, catalogs and retail inserts reporting unit had zero goodwill recorded, as goodwill associated with this reporting unit had been fully impaired in prior years.  Given the historical valuations of the magazines, catalogs and retail inserts reporting unit that have resulted in goodwill impairment in prior years, combined with the change in the composition of the carrying value of the reporting unit due to the recent acquisitions, the Company determined it necessary to perform an interim goodwill impairment review on this reporting unit as of September 30, 2017.    

As a result of the interim goodwill impairment test, and consistent with prior goodwill impairment tests, the magazines, catalogs and retail inserts reporting unit’s fair value continued to be at a value below its carrying value.  This is primarily due to the negative revenue trends experienced in recent years that are only partially offset by the impact of the new acquisitions.  As such, the Company recorded a non-cash charge of $55 million during the three and nine months ended September 30, 2017 to recognize the impairment of goodwill in this reporting unit.  The goodwill impairment charges were determined using Level 3 inputs, including discounted cash flow analyses, comparable marketplace fair value data and management’s assumptions.    

For the three and nine months ended September 30, 2016, the Company incurred other restructuring charges of $1 million and $4 million, respectively. Additionally, the three and nine months ended September 30, 2016 included net restructuring charges of $2 million and $4 million, respectively, for employee termination costs for an aggregate of 48 employees, substantially all of whom were terminated as of or prior to September 30, 2017. These charges primarily related to one facility closure in the Print segment and the reorganization of certain operations. The Company also recorded a reversal of previously recorded impairment charges of $1 million for the three months ended September 30, 2016.  There was also a de minimis amount of net impairment charges during the nine months ended September 30, 2016.  

14

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

Restructuring Reserve

The restructuring reserve as of December 31, 2016 and September 30, 2017, and changes during the nine months ended September 30, 2017, were as follows:

	December 31, 2016		Restructuring Charges		Foreign Exchange and Other		Cash Paid			September 30, 2017
Employee terminations	$	8	$	7	$	—	$	(11	)	$	4
Multiemployer pension plan withdrawal      obligations		18		1		—		(3	)		16
Lease terminations and other		2		16		—		(14	)		4
Total	$	28	$	24	$	—	$	(28	)	$	24

The current portion of restructuring reserves of $11 million at September 30, 2017 was included in accrued liabilities, while the long-term portion of $13 million, which primarily related to multiemployer pension plan withdrawal obligations related to facility closures and lease termination costs, was included in other noncurrent liabilities at September 30, 2017.    

The Company anticipates that payments associated with the employee terminations reflected in the above table will be substantially completed by September 30, 2018.    

Payments on all of the Company’s multiemployer pension plan withdrawal obligations are scheduled to be completed by 2034. Changes based on uncertainties in these estimated withdrawal obligations could affect the ultimate charges related to multiemployer pension plan withdrawals.  

The restructuring liabilities classified as “lease terminations and other” consisted of lease terminations and other facility closing costs. Payments on certain of the lease obligations are scheduled to continue until 2018. Market conditions and the Company’s ability to sublease these properties could affect the ultimate charges related to the lease obligations.  Any potential recoveries or additional charges could affect amounts reported in the Company’s condensed consolidated and combined financial statements.

Other Charges  

For the three and nine months ended September 30, 2017, the Company recorded other charges of $1 million and $3 million, respectively, for multiemployer pension plan withdrawal obligations unrelated to facility closures.  The total liability for the withdrawal obligations associated with the Company’s decision to withdraw from certain multiemployer pension plans included in accrued liabilities and other noncurrent liabilities are $6 million and $37 million, respectively, at September 30, 2017.  

The Company’s withdrawal liabilities could be affected by the financial stability of other employers participating in such plans and any decisions by those employers to withdraw from such plans in the future. While it is not possible to quantify the potential impact of future events or circumstances, reductions in other employers’ participation in multiemployer pension plans, including certain plans from which the Company has previously withdrawn, could have a material effect on the Company’s previously estimated withdrawal liabilities and condensed consolidated and combined balance sheets, statements of operations and cash flows.

For the three and nine months ended September 30, 2016, the Company recorded other charges of $1 million and $3 million, respectively, for multiemployer pension plan withdrawal obligations unrelated to facility closures.  

15

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

Note 7.  Retirement Plans

The Company is the sole sponsor of certain defined benefit pension plans, which have been reflected in the condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016. At the separation date, the Company assumed and recorded certain pension obligations and plan assets in single employer plans for the Company’s employees and certain former employees and retirees.  The Company recorded a net benefit plan obligation of $358 million as of October 1, 2016 related to these plans.  On June 30, 2017, the Company recorded a $6 million increase to this net obligation as a result of the final actuarial valuation of the Company’s qualified plan assets that was completed in June 2017.  Additionally, the Company’s United Kingdom pension plan was transferred to RRD at the separation date and, as a result, the Company recorded a reduction in its net benefit plan assets of $7 million as of October 1, 2016.        

The components of the estimated net pension benefits plan income for the three and nine months ended September 30, 2017 and 2016 are disclosed in the table below.  Amounts shown for the three and nine months ended September 30, 2017 include pension income for the Company’s qualified and non-qualified plans, certain plans in Mexico and plans acquired as a result of the acquisitions of Esselte Corporation (“Esselte”) and Courier Corporation (“Courier”). Amounts shown for the three and nine months ended September 30, 2016 include pension income for certain plans in the United Kingdom and Mexico and plans acquired as a result of the the acquisitions of Esselte and Courier.  

	Three Months Ended September 30, 2017					Nine Months Ended September 30, 2017
	Qualified			Non-Qualified & International		Qualified			Non-Qualified & International
Interest cost	$	22		$	—	$	65		$	2
Expected return on plan assets		(38	)		—		(114	)		—
Amortization, net		4			1		12			1
Net periodic benefit (income) loss	$	(12	)	$	1	$	(37	)	$	3

	Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
	Qualified			Non-Qualified & International			Qualified			Non-Qualified & International
Interest cost	$	2		$	2		$	5		$	5
Expected return on plan assets		(3	)		(2	)		(8	)		(7	)
Amortization, net		—			—			—			1
Settlement		—			—			1			—
Net periodic benefit income	$	(1	)	$	—		$	(2	)	$	(1	)

Prior to the separation, certain employees of the Company participated in certain pension and postretirement healthcare plans sponsored by RRD.  For RRD-sponsored defined benefit and postemployment plans, the Company recorded net pension and postretirement income of $8 million and $28 million for the three and nine months ended September 30, 2016 in addition to the amounts disclosed above.    

The Company recorded non-cash settlement charges of $1 million in selling, general and administrative expenses in the three months ended June 30, 2016 in connection with settlement payments from an early buyout of certain former Esselte employees.  These charges resulted from the recognition in earnings of a portion of the actuarial losses recorded in accumulated other comprehensive loss based on the proportion of the obligation settled. 

16

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

Note 8.  Equity

The Company’s equity as of December 31, 2016 and September 30, 2017 and changes during the nine months ended September 30, 2017 were as follows:

	Total Equity
Balance at December 31, 2016	$	240
Net income		1
Other comprehensive income		28
Share-based compensation		10
Issuance of share-based awards, net of withholdings and other		(1	)
Cash dividends paid		(25	)
Issuance of common stock		38
Separation-related adjustments		(5	)
Balance at September 30, 2017	$	286

On July 28, 2017, the Company issued approximately 1.0 million shares of common stock in conjunction with the Fairrington acquisition, which shares had a closing date value of $20 million.

On March 28, 2017, in connection with the over-allotment option granted to the underwriters as part of the secondary sale by RRD, LSC Communications also completed the sale of approximately 0.9 million shares of common stock with a value of $18 million.  

During the nine months ended September 30, 2017, the Company recorded certain separation-related adjustments due to the adjustment of assets and liabilities recorded as of the separation date.  

The Company’s equity as of December 31, 2015 and September 30, 2016 and changes during the nine months ended September 30, 2016 were as follows:

	Total Equity
Balance at December 31, 2015	$	1,277
Net income		97
Net transfers to parent company		(933	)
Other comprehensive loss		(4	)
Balance at September 30, 2016	$	437

During the three months ended September 30, 2016, the Company used the net proceeds from the debt issuances to fund an $806 million cash dividend to RRD in connection with the separation.  The cash dividend is included in net transfers to parent company balance.  Refer to Note 13, Debt, for more information.    

Note 9.  Earnings Per Share

During the three months ended September 30, 2017, the Company issued approximately 1.0 million shares of common stock in conjunction with the Fairrington acquisition.  During the nine months ended September 30, 2017, no shares of common stock were purchased by the Company, however, shares were withheld from employees for tax liabilities upon vesting of equity awards.    

On October 1, 2016 in connection with the separation, RRD distributed approximately 26.2 million shares of LSC Communications common stock to RRD stockholders and retained approximately 6.2 million shares.  On March 28, 2017, RRD completed the sale of its approximately 6.2 million shares of LSC Communications common stock.  Additionally, on March 28, 2017, in connection with the over-allotment option granted to the underwriters as part of the secondary sale by RRD, LSC Communications completed the sale of approximately 0.9 million shares of common stock.

17

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

Basic earnings per share (“EPS”) is calculated by dividing net earnings attributable to the Company’s stockholders by the weighted average number of common shares outstanding for the period. In computing diluted EPS, basic EPS is adjusted for the assumed issuance of all potentially dilutive share-based awards, including stock options, restricted stock, RSUs, and PSUs. The computations of basic and diluted EPS for periods prior to the separation were calculated using the shares distributed and retained by RRD on October 1, 2016.  The same number of shares was used to calculate basic and diluted earnings per share since there were no LSC Communications equity awards outstanding prior to the separation.      

The following table shows the calculation of basic and diluted EPS, as well as a reconciliation of basic shares to diluted shares:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2017			2016		2017		2016
Net (loss) earnings per common share:
Basic	$	(0.07	)	$	1.17	$	0.03	$	2.99
Diluted	$	(0.07	)	$	1.17	$	0.03	$	2.99
Dividends declared per common share	$	0.25		$	—	$	0.75	$	—
Numerator:
Net (loss) income	$	(3	)	$	38	$	1	$	97
Denominator:
Weighted average number of common shares outstanding		34.2			32.4		33.5		32.4
Dilutive options and awards		—			—		0.3		—
Diluted weighted average number of common shares outstanding		34.2			32.4		33.8		32.4

Note 10.  Comprehensive Income

The components of other comprehensive income (loss) and income tax expense allocated to each component for the three and nine months ended September 30, 2017 and 2016 were as follows:

	Three Months Ended September 30, 2017						Nine Months Ended September 30, 2017
	Before Tax Amount		Income Tax Expense		Net of Tax Amount		Before Tax Amount		Income Tax Expense		Net of Tax Amount
Translation adjustments	$	2	$	—	$	2	$	20	$	—	$	20
Adjustment for net periodic pension plan cost		5		2		3		13		5		8
Other comprehensive income	$	7	$	2	$	5	$	33	$	5	$	28

	Three Months Ended September 30, 2016								Nine Months Ended September 30, 2016
	Before Tax Amount			Income Tax Expense		Net of Tax Amount			Before Tax Amount			Income Tax Expense		Net of Tax Amount
Translation adjustments	$	(2	)	$	—	$	(2	)	$	(3	)	$	—	$	(3	)
Adjustment for net periodic pension plan cost		1			—		1			4			5		(1	)
Other comprehensive (loss) income	$	(1	)	$	—	$	(1	)	$	1		$	5	$	(4	)

During the nine months ended September 30, 2016, translation adjustments and income tax expense on pension plan cost were adjusted to reflect previously recorded deferred taxes at their historical exchange rates.    

18

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

Accumulated other comprehensive loss by component as of December 31, 2016 and September 30, 2017 and changes during the nine months ended September 30, 2017 were as follows:

	Pension Plan Cost			Translation Adjustments			Total
Balance at December 31, 2016	$	(462	)	$	(69	)	$	(531	)
Other comprehensive income before reclassifications		—			20			20
Amounts reclassified from accumulated other comprehensive loss		8			—			8
Net change in accumulated other comprehensive loss		8			20			28
Balance at September 30, 2017	$	(454	)	$	(49	)	$	(503	)

Accumulated other comprehensive loss by component as of December 31, 2015 and September 30, 2016 and changes during the nine months ended September 30, 2016, were as follows:  

	Pension Plan Cost			Translation Adjustments			Total
Balance at December 31, 2015	$	(46	)	$	(159	)	$	(205	)
Other comprehensive loss before reclassifications		—			(3	)		(3	)
Amounts reclassified from accumulated other comprehensive loss		(1	)		—			(1	)
Net change in accumulated other comprehensive loss		(1	)		(3	)		(4	)
Balance at September 30, 2016	$	(47	)	$	(162	)	$	(209	)

Reclassification from accumulated other comprehensive loss for the three and nine months ended September 30, 2017 and 2016 were as follows:    

	Three Months Ended September 30,					Nine Months Ended September 30,					Classification in the Condensed Consolidated & Combined
	2017		2016			2017		2016			Statements of Operations
Amortization of pension plan cost:
Net actuarial loss	$	5	$	—		$	13	$	1		(a)
Settlement		—		—			—		1
Reclassifications before tax		5		—			13		2
Income tax expense (benefit)		2		(1	)		5		3
Reclassifications, net of tax	$	3	$	1		$	8	$	(1	)

(a) These accumulated other comprehensive income components are included in the calculation of net periodic pension plan (income) expense that is recognized substantially all in selling, general and administrative expenses in the condensed consolidated and combined statements of operations (see Note 7, Retirement Plans).        

Note 11.  Segment Information

The Company’s segment and product and service offerings are summarized below:

Print  

The Print segment produces magazines, catalogs, retail inserts, books, and directories. The segment also provides supply-chain management and certain other print-related services, including mail-list management and sortation, e-book formatting and distribution.  The segment has operations in the U.S., Europe and Mexico.  The Print segment is divided into the magazines, catalogs and retail inserts, book, Europe and directories reporting units.    

19

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

Office Products

The Office Products segment manufactures and sells branded and private label products in five core categories: filing products, note-taking products, binder products, forms, and envelopes.   

Corporate

Corporate consists of unallocated selling, general and administrative activities and associated expenses including, in part, executive, legal, finance, communications, certain facility costs and LIFO inventory provisions.  In addition, certain costs and earnings of employee benefit plans, such as pension benefit plan income and share-based compensation, are included in Corporate and not allocated to the operating segments. Prior to the separation, many of these costs were based on allocations from RRD, however, the Company has incurred such costs directly after the separation.  

Information by Segment

The Company has disclosed income (loss) from operations as the primary measure of segment earnings (loss).  This is the measure of profitability used by the Company’s chief operating decision-maker and is most consistent with the presentation of profitability reported with the condensed consolidated and combined financial statements.

	Net Sales		Income (loss) from Operations			Depreciation and Amortization		Capital Expenditures
Three months ended September 30, 2017
Print	$	819	$	(10	)	$	35	$	9
Office Products		116		11			4		1
Total operating segments		935		1			39		10
Corporate		—		(8	)		—		5
Total operations	$	935	$	(7	)	$	39	$	15

	Net Sales		Income (loss) from Operations			Depreciation and Amortization		Capital Expenditures
Three months ended September 30, 2016
Print	$	822	$	48		$	36	$	14
Office Products		127		11			4		1
Total operating segments		949		59			40		15
Corporate		—		(2	)		—		1
Total operations	$	949	$	57		$	40	$	16

	Net Sales		Income (loss) from Operations			Assets of Operations		Depreciation and Amortization		Capital Expenditures
Nine months ended September 30, 2017
Print	$	2,252	$	24		$	1,667	$	106	$	41
Office Products		352		32			316		11		3
Total operating segments		2,604		56			1,983		117		44
Corporate		—		(26	)		90		1		7
Total operations	$	2,604	$	30		$	2,073	$	118	$	51

20

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

	Net Sales		Income (loss) from Operations			Assets of Operations		Depreciation and Amortization		Capital Expenditures
Nine months ended September 30, 2016
Print	$	2,338	$	114		$	1,602	$	118	$	28
Office Products		397		38			323		12		3
Total operating segments		2,735		152			1,925		130		31
Corporate		—		(4	)		23		—		4
Total operations	$	2,735	$	148		$	1,948	$	130	$	35

Restructuring, impairment and other charges by segment for the three and nine months ended September 30, 2017 and 2016 are disclosed in Note 6, Restructuring, Impairment and Other Charges.    

Note 12.  Commitments and Contingencies  

The Company is subject to laws and regulations relating to the protection of the environment. The Company accrues for expenses associated with environmental remediation obligations when such amounts are probable and can be reasonably estimated. Such accruals are adjusted as new information develops or circumstances change and are generally not discounted. The Company has been designated as a potentially responsible party or has received claims in ten active federal and state Superfund and other multiparty remediation sites. In addition to these sites, the Company may also have the obligation to remediate four other previously and currently owned facilities. At the Superfund sites, the Comprehensive Environmental Response, Compensation and Liability Act provides that the Company’s liability could be joint and several, meaning that the Company could be required to pay an amount in excess of its proportionate share of the remediation costs.  

The Company’s understanding of the financial strength of other potentially responsible parties at the multiparty sites and of other liable parties at the previously owned facilities has been considered, where appropriate, in the determination of the Company’s estimated liability. The Company established reserves, recorded in accrued liabilities and other noncurrent liabilities, that it believes are adequate to cover its share of the potential costs of remediation at each of the multiparty sites and the previously and currently owned facilities. It is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future. However, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material effect on the Company’s condensed consolidated and combined balance sheets, statements of operations and cash flows.

From time to time, the Company’s customers and others file voluntary petitions for reorganization under United States bankruptcy laws. In such cases, certain pre-petition payments received by the Company from these parties could be considered preference items and subject to return. In addition, the Company may be party to certain litigation arising in the ordinary course of business. Management believes that the final resolution of these preference items and litigation will not have a material effect on the Company’s condensed consolidated and combined balance sheets, statements of operations and cash flows.    

Note 13.  Debt

The Company’s debt at September 30, 2017 and December 31, 2016 consisted of the following:

	September 30, 2017			December 31, 2016
Borrowings under the Revolving Credit Facility	$	140		$	—
Term Loan Facility due September 30, 2022 (a)		304			353
8.75% Senior Secured Notes due October 15, 2023		450			450
Capital lease obligations		3			6
Unamortized debt issuance costs		(13	)		(15	)
Total debt		884			794
Less: current portion		(177	)		(52	)
Long-term debt	$	707		$	742

21

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

(a) The borrowings under the Term Loan Facility are subject to a variable interest rate. As of September 30, 2017 and December 31, 2016, the interest rate was 7.24% and 7.00%, respectively.

__________________________________

On September 30, 2016, the Company issued $450 million of 8.75% Senior Secured Notes (the “Senior Notes”) due October 15, 2023.  Interest on the Senior Notes is due semi-annually on April 15 and October 15, commencing on April 15, 2017.  Net proceeds from the offering of the Senior Notes (the “Notes Offering”) were distributed to RRD in the form of a dividend.  The Company did not retain any proceeds from the Notes Offering.  

The Senior Notes were issued pursuant to an indenture where certain wholly-owned domestic subsidiaries of the Company guarantee the Senior Notes (the “Guarantors”).  The Senior Notes are fully and unconditionally guaranteed, on a senior secured basis, jointly and severally, by the Guarantors, which are comprised of each of the Company’s existing and future direct and indirect wholly-owned U.S. subsidiaries that guarantee the Company’s obligations. The Senior Notes are not guaranteed by the Company’s foreign subsidiaries or unrestricted subsidiaries.  The Senior Notes and the related guarantees are secured on a first-priority lien basis by the collateral, subject to certain exceptions and permitted liens. The Indenture governing the Senior Notes contains certain covenants applicable to the Company and its restricted subsidiaries, including limitations on: (1) liens; (2) indebtedness; (3) mergers, consolidations and acquisitions; (4) sales, transfers and other dispositions of assets; (5) loans and other investments; (6) dividends and other distributions, stock repurchases and redemptions and other restricted payments; (7) restrictions affecting subsidiaries; (8) transactions with affiliates; and (9) designations of unrestricted subsidiaries. Each of these covenants is subject to important exceptions and qualifications.    

On September 30, 2016 the Company entered into a credit agreement (the “Credit Agreement”) which provides for (i) a new senior secured term loan B facility in an aggregate principal amount of $375 million (the “Term Loan Facility”) and (ii) a new senior secured revolving credit facility in an aggregate principal amount of $400 million (the “Revolving Credit Facility”). The interest rate per annum applicable to the Term Loan Facility is equal to, at the Company’s option, either a base rate plus a margin of 5.00% or LIBOR plus a margin of 6.00%. The LIBOR rate is subject to a “floor” of 1%.  The interest rate per annum applicable to the Revolving Credit Facility is equal to a base rate plus a margin ranging from 1.75% to 2.25%, or LIBOR plus a margin ranging from 2.75% to 3.25%, in either case based upon the Consolidated Leverage Ratio of the Company and its restricted subsidiaries. Interest on the Credit Agreement is due at least quarterly and commenced on December 31, 2016.  The Term Loan Facility will amortize in quarterly installments of $13 million for the first eight quarters and $11 million for subsequent quarters.  The debt issuance costs and original issue discount are being amortized over the life of the facilities using the effective interest method. The Term Loan Facility will mature on September 30, 2022 and the Revolving Credit Facility will mature on September 30, 2021.    

The proceeds of any collection or other realization of collateral received in connection with the exercise of remedies and any distribution in respect of collateral in any bankruptcy proceeding will be applied first to repay amounts due under the Revolving Credit Facility before the lenders under the Term Loan Facility or the holders of the Senior Notes receive such proceeds.

The Credit Agreement is subject to a number of covenants, including, but not limited to, a minimum Interest Coverage Ratio and a Consolidated Leverage Ratio, as defined in and calculated pursuant to the Credit Agreement, 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. The Credit Agreement generally allows annual dividend payments of up to $50 million in aggregate, though additional dividends may be allowed subject to certain conditions. Each of these covenants is subject to important exceptions and qualifications.

The Company used the net proceeds from the Term Loan Facility to fund a cash dividend to RRD and to pay fees and expenses both related to the separation from RRD in October 2016.  The Company intends to use any additional borrowings under the Credit Facilities for general corporate purposes, including the financing of permitted investments.

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

The fair values of the Senior Notes and Term Loan Facility, which were determined using the market approach based upon interest rates available to the Company for borrowings with similar terms and maturities, were determined to be Level 2 under the fair value hierarchy. The fair value of the Company’s debt was greater than its book value by approximately $24 million and $22 million at September 30, 2017 and December 31, 2016, respectively.  

22

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

There was $19 million and $52 million of net interest expense during the three and nine months ended September 30, 2017, respectively.  There was $1 million and a de minimis amount of net interest expense during the three and nine months ended September 30, 2016, respectively.      

There were $140 million of borrowings under the Revolving Credit Facility as of September 30, 2017 and no borrowings as of December 31, 2016.  The weighted average interest rate on borrowings under the Credit Agreement was 4.31% during the nine months ended September 30, 2017.  

Note 14.  Related Parties  

On March 28, 2017, RRD completed the sale of approximately 6.2 million shares of LSC Communications common stock, representing its entire 19.25% retained ownership.    

Prior to the separation, the Company had not historically operated as a stand-alone business.  In connection with the separation, the Company entered into commercial arrangements with RRD. Under the terms of the commercial arrangements, RRD continues to provide, among other things, logistics, premedia, production and sales services to LSC Communications.  In addition, LSC Communications continues to provide sales support services to RRD’s Asia and Mexico print and graphics management businesses in order to facilitate the importing of books and related products to the U.S. RRD also provides LSC Communications certain global outsourcing, technical support and other services.      

Allocations from RRD

Prior to the separation, RRD provided LSC Communications certain services, which included, but were not limited to, information technology, finance, legal, human resources, internal audit, treasury, tax, investor relations and executive oversight. RRD charged the Company for these services based on direct usage, when available, with the remainder allocated on a pro rata basis by revenue, headcount, or other measures.  These allocations were reflected as follows in the condensed combined statements of operations for the three and nine months ended September 30, 2016:

	Three Months Ended September 30, 2016		Nine Months Ended September 30, 2016
Costs of goods sold	$	25	$	67
Selling, general and administrative		42		114
Depreciation and amortization		1		5
Total allocations from RRD	$	68	$	186

The Company considered the expense methodologies and financial results to be reasonable for all periods presented.  However, these allocations may not be indicative of the actual expenses that may have been incurred as an independent public company or the costs LSC Communications may incur in the future.

After the separation, the Company no longer receives or records allocations from RRD. The Company records transactions with RRD as external arms-length transactions in the Company’s condensed consolidated financial statements.

23

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

Transactions with RR Donnelley

Revenues and Purchases    

Given that RRD sold its remaining stake in LSC Communications on March 28, 2017, the following information is presented through March 31, 2017 only. 

LSC Communications generates net revenue from sales to RRD’s subsidiaries.  Net revenues from related party sales were $32 million for the three months ended March 31, 2017.  Net revenues from related party sales were $19 million and $40 million for the three and nine months ended September 30, 2016, respectively.  These amounts are included in the condensed consolidated and combined statements of operations.

LSC Communications utilizes RRD for freight, logistics and premedia services.  Included in the condensed consolidated and combined financial statements were costs of sales related to freight, logistics and premedia services purchased from RRD of $51 million for the three months ended March 31, 2017.  Such amounts were $43 million and $135 million for the three and nine months ended September 30, 2016, respectively.  

Note 15.  New Accounting Pronouncements      

In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2017-07 “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”). This ASU requires entities to disaggregate the service cost component from other components of net benefit cost and present it with other employee compensation costs.  All other components of net benefit cost will need to be presented elsewhere on the income statement outside of income from operations. Only the service cost component would be eligible for capitalization into inventory. The standard is effective in the first quarter 2018.  As a result of the adoption of ASU 2017-07, the Company expects to reclassify approximately $46 million and $45 million related to the years ended December 31, 2017 and 2016, respectively, of net pension income out of income from operations to a line item outside of income from operations, resulting in no impact to net income.          

In January 2017, the FASB issued Accounting Standards Update No. 2017-04 “Intangibles – Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”).  The standard eliminates Step 2 of the goodwill impairment test, and instead, recognizes an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value not to exceed the total amount of goodwill allocated.  The standard is effective in the first quarter of 2020, with early adoption permitted on testing dates after January 1, 2017.  The Company adopted ASU 2017-04 during the third quarter of 2017 and applied the standard to the interim goodwill impairment review of the magazines, catalogs and retail inserts reporting unit included in the Print segment as of September 30, 2017.

In January 2017, the FASB issued Accounting Standards Update No. 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of a Business" (“ASU 2017-01”) in order to clarify the definition of a business as it relates to whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard becomes effective in the first quarter of 2018. The Company plans to adopt the standard in the first quarter of 2018.  The impact is not expected to be material.  

In August 2016, the FASB issued Accounting Standards Update No. 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), which provided guidance on eight specific cash flow classification issues to reduce existing diversity in practice. The standard becomes effective in the first quarter of 2018.  Early adoption of ASU 2016-15 is permitted, however, the Company plans to adopt the standard in the first quarter of 2018. The Company does not expect a significant impact to presentation on its condensed consolidated and combined statements of cash flows.  

24

LSC Communications, Inc.

Notes to Condensed Consolidated and Combined Financial Statements (Unaudited)

For the Three and Nine Months Ended September 30, 2017 and 2016

(tabular amounts in millions, except per share data)

In March 2016, the FASB issued Accounting Standards Update No. 2016-09 “Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”) which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory withholding requirements, as well as the classification of share-based payment transactions on the statement of cash flows. The standard became effective in the first quarter of 2017.  As early adoption of ASU 2016-09 is permitted, the Company adopted the standard in the fourth quarter of 2016. The election to early adopt ASU 2016-09 requires any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption, to be reflected. The requirements of ASU 2016-09 did not have a material impact to any of the periods presented.     

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 “Leases (Topic 842) Section A—Leases: Amendments to the FASB Accounting Standards Codification” (“ASU 2016-02”), which requires lessees to put most leases on the balance sheet but recognize expense on the income statement in a manner similar to current accounting. For lessors, ASU 2016-02 also modifies the classification criteria and the accounting for sales-type and direct financing leases. The standard requires a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements and is effective in the first quarter of 2019. Early adoption of ASU 2016-02 is permitted, however, the Company plans to adopt the standard in the first quarter of 2019. The Company is evaluating the impact of ASU 2016-02.    

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which outlines a single comprehensive model for entities to use in accounting for revenue using a five-step process that supersedes virtually all existing revenue guidance. ASU 2014-09 also requires additional quantitative and qualitative disclosures. In August 2015, the FASB issued Accounting Standards Update No. 2015-14 “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (“ASU 2015-14”), which defers the effective date of ASU 2014-09 to January 1, 2018. Early adoption of ASU 2014-09 is permitted in the first quarter of 2017.    

The Company plans to adopt the standard in the first quarter of 2018. The standard allows the option of either a full retrospective adoption, meaning the standard is applied to all periods presented, or a modified retrospective adoption approach, meaning the standard is applied only to the most current period. The Company currently anticipates adopting the standard using the modified retrospective adoption approach.

During the second quarter of 2017, the Company completed the evaluation of whether the accounting for revenue of customized products should be over time or at a point in time under the new standard. Based on analysis of specific terms associated with current customer contracts, the Company has concluded that revenue should be recognized at a point in time for customized products. This treatment is consistent with revenue recognition under the current guidance, where revenue is recognized when the products are completed and shipped to the customer (dependent upon specific shipping terms). The Company will continue its evaluation of any new or amended contracts entered into through the date of adoption, including contracts that the Company might assume as a result of acquisition activity.  

The Company is continuing to assess all other potential impacts of the standard, including disclosure requirements and the accounting for inventory billed but not yet shipped. Under the current guidance, the Company defers revenue for inventory billed but not yet shipped. Under the new standard, in certain situations the Company may be able to recognize revenue for inventory billed but not yet shipped, which could accelerate the timing, but not the total amount, of revenue recognized and would not impact the timing of cash flows.

The Company anticipates it will be able to complete its analysis of all potential impacts of the standard, implement any system and process changes that might be necessary and educate the appropriate employees with respect to the new standard in order to effectively adopt the standard beginning in the first quarter of 2018.

25

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  

The following is management’s discussion and analysis of the financial condition of LSC Communications, Inc. as of September 30, 2017 and December 31, 2016 and the results of operations for the three and nine months ended September 30, 2017 and 2016. This commentary should be read in conjunction with the condensed consolidated and combined financial statements and accompanying notes included in Item 1. Condensed Consolidated and Combined Financial Statements.  Refer to the Company’s annual report on Form 10-K, as filed with the Securities and Exchange Commission on February 23, 2017, for management’s discussion and analysis of the financial condition of the company as of December 31, 2016 and December 31, 2015, and the results of operations for the years ended December 31, 2016, 2015 and 2014.                          

Company Overview

The principal business of LSC Communications, Inc., a Delaware corporation, and its direct or indirect wholly-owned subsidiaries (“LSC Communications,” “the Company,” “we,” “our” and “us”) is to offer a broad scope of traditional and digital print, print-related services and office products.  The Company serves the needs of publishers, merchandisers and retailers worldwide with a service offering that includes e-services, warehousing and fulfillment and supply chain management. The Company utilizes a broad portfolio of technology capabilities coupled with consultative attention to clients' needs to increase speed to market, reduce costs, provide postal savings to customers and improve efficiencies. The Company prints magazines, catalogs, retail inserts, books, and directories and its office products offerings include filing products, note-taking products, binder products, forms, and envelopes.       

On October 1, 2016 (the “separation date”), R. R. Donnelley & Sons Company (“RRD” or the “Parent”) completed the previously announced separation (the “separation”) into three separate independent publicly-traded companies: (i) its publishing and retail-centric print services and office products business (“LSC Communications”); (ii) its financial communications services business (“Donnelley Financial Solutions, Inc.” or “Donnelley Financial”) and (iii) a global, customized multichannel communications management company, which is the business of RRD after the separation.  To effect the separation, RRD undertook a series of transactions to separate net assets and legal entities.  RRD completed the distribution (the “distribution”) of 80.75%, of the outstanding common stock of LSC Communications and Donnelley Financial to RRD stockholders on October 1, 2016.  RRD retained a 19.25% ownership stake in both LSC Communications and Donnelley Financial.  On October 1, 2016, RRD stockholders of record as of the close of business on September 23, 2016 (“the record date”) received one share of LSC Communications common stock and one share of Donnelley Financial common stock for every eight shares of RRD common stock held as of the record date.

On March 28, 2017, RRD completed the sale of approximately 6.2 million shares of LSC Communications common stock, representing its entire 19.25% retained ownership.  In connection with the over-allotment option granted to the underwriters as part of the secondary sale by RRD, LSC Communications also sold approximately 0.9 million shares of common stock, receiving proceeds of $18 million, which were used for general corporate purposes.

In connection with the separation, LSC Communications, RRD and Donnelley Financial entered into commercial arrangements, transition services agreements and various other agreements related to the separation that remain in effect.  Final copies of such agreements are filed as exhibits to this quarterly report on Form 10-Q.

Segment Descriptions

The Company’s segments and their product offerings are summarized below:

Print

We are the largest producer of books in the U.S. and one of the largest producers of catalogs, magazines and retail inserts in North America. The Print segment produces magazines, catalogs, retail inserts, books, and directories. The segment also provides supply-chain management and certain other print-related services, including mail-list management and sortation, e-book formatting and distribution.  The segment has operations in the U.S., Europe and Mexico.  The Print segment is divided into the magazines, catalogs and retail inserts, book, Europe and directories reporting units.

26

Office Products 

The Office Products segment manufactures and sells branded and private label products in five core categories: filing products, note-taking products, binder products, forms, and envelopes.

Corporate

Corporate consists of unallocated selling, general and administrative activities and associated expenses including, in part, executive, legal, finance, communications, certain facility costs and Last-in, First-out (“LIFO”) inventory provisions.  In addition, certain costs and earnings of employee benefit plans, such as pension benefit plan income and share-based compensation, are included in Corporate and not allocated to the operating segments. Prior to the separation, many of these costs were based on allocations from RRD, however, the Company has incurred such costs directly after the separation.  

Business Combinations

On September 7, 2017, the Company acquired Publishers Press, a printing and digital solutions provider with capabilities such as web-offset printing, prepress and distribution services for magazines and retail brands.  The total purchase price was $70 million in cash.

On August 21, 2017, the Company acquired the assets of NECI, LLC (“NECI”), a supplier of commodity and specialty filing supplies.  The total purchase price was $5 million in cash.

On August 17, 2017, the Company acquired CREEL Printing (“CREEL”), an offset and digital printing company. The total purchase price was $78 million in cash.

On July 28, 2017, the Company acquired Fairrington Transportation Corp., F.T.C. Transport, Inc. and F.T.C. Services, Inc. (“Fairrington”), a full-service, printer-independent mailing logistics provider in the United States.  The purchase price was $20 million in cash and approximately 1.0 million shares of LSC Communications common stock, for a total transaction value of $40 million.    

On March 1, 2017, the Company acquired HudsonYards Studios (“HudsonYards”), a digital and print premedia production company that provides high-quality creative retouching, computer-generated imagery, mechanical creation, press-ready file preparation, and interactive production services, for $3 million in cash.  

On December 2, 2016, the Company acquired Continuum Management Company, LLC (“Continuum”), a print procurement and management business, for $7 million in cash.  An additional $2 million was paid during the three months ended March 31, 2017 as part of a final working capital adjustment for a total purchase price of $9 million in cash.    

For further information on the above acquisitions, see Note 2, Business Combinations, to the condensed consolidated and combined financial statements.

OUTLOOK

Competitive Environment

According to the June 2017 IBIS World industry report “Printing in the U.S.,” estimated total annual printing industry revenue is approximately $77 billion, of which approximately $13 billion relates to our core segments of the print market and an additional approximately $31 billion relates to related segments of the print market in which we are able to offer certain products. Despite consolidation in recent years, including several acquisitions completed by LSC Communications, the industry remains highly fragmented and LSC Communications is one of the largest players in our segment of the print market. The print and related services industry, in general, continues to have excess capacity and LSC Communications remains diligent in proactively identifying plant consolidation opportunities to keep our capacity in line with demand. Across the Company’s range of Print segment products and services, competition is based primarily on the ability to deliver products for the lowest total cost, a factor driven not only by price, but also by materials and distribution costs. We expect that prices for print products and services will continue to be a focal point for customers in coming years.

27

Value-added services, such as LSC Communications’ co-mail and supply chain management offerings, enable customers to lower their total costs. Technological changes, including the electronic distribution of documents and data, online distribution and hosting of media content, and advances in digital printing, print-on-demand and internet technologies, continue to impact the market for our products and services. The impact of digital technologies has been felt in many print products. Digital technologies have impacted printed magazines as some advertising spending has moved from print to electronic media. In addition, catalogs and retail inserts have experienced volume reductions as our customers allocate more of their spending to online resources and also face stiff competition from online retailers resulting in retailer compression and store closures. Electronic communication and transaction technology has also continued to drive electronic substitution in directory printing, in part driven by cost pressures at key customers. E-book substitution has impacted overall consumer print trade book volume, although e-book adoption rates are stabilizing and industry-wide print book volume has been growing in recent years.  Educational books within the college market continue to be impacted by electronic substitution and other trends.  The K-12 educational market continues to be focused on increasing digital distribution but there has been inconsistent progress across school systems.

The future impact of technology on our business is difficult to predict and could result in additional expenditures to restructure impacted operations or develop new technologies. In addition, we have made targeted acquisitions and investments in our existing business to offer customers innovative services and solutions. Such acquisitions and investments include the acquisitions of Publishers Press, NECI, CREEL, Fairrington, and HudsonYards in 2017, which expanded our printing, digital, office products, and premedia capabilities, and Continuum in 2016, which expanded our print management capabilities. These and other targeted acquisitions and investments further secure our position as a technology leader in the industry.

Technological advancement and innovation has affected the overall demand for most of the products in our Office Products segment. While these changes continue to impact demand, the overall market for our products remains large and we believe share growth is attainable. We compete against a range of both domestic and international competitors in each of our product categories within the segment. Due to the increasing percentage of private label products in the market, resellers have created a highly competitive environment where purchasing decisions are based largely on price, quality and the supplier’s ability to service the customer. As consumer preferences shift towards private label, resellers have increased the pressure on suppliers to better differentiate their product offering, oftentimes through product exclusivity, product innovation and development of private label products.

LSC Communications has implemented a number of strategic initiatives to reduce its overall cost structure and improve efficiency, including the restructuring, reorganization and integration of operations and streamlining of administrative and support activities. Future cost reduction initiatives could include the reorganization of operations and the consolidation of facilities. Implementing such initiatives might result in future restructuring or impairment charges, which may be substantial.  Management also reviews LSC Communications’ operations and management structure on a regular basis to appropriately balance risks and opportunities to maximize efficiencies and to support the Company’s long-term strategic goals. 

Seasonality

Advertising and consumer spending trends affect demand in several of the end-markets served by LSC Communications. Historically, demand for printing of magazines, catalogs, retail inserts, books and office products is higher in the second half of the year, driven by increased advertising pages within magazines, holiday volume in catalogs and retail inserts, and back-to-school demand in books and office products. These typical seasonal patterns can be impacted by overall trends in the U.S. and world economy.  The Company expects the seasonal impact in 2017 to be in line with historical patterns.

Raw Materials

The primary raw materials we use in our Print segment are paper and ink. We negotiate with leading paper suppliers to maximize our purchasing efficiencies and use a wide variety of paper grades and formats. In addition, a substantial amount of paper used in our print business is supplied directly by customers. Variations in the cost and supply of certain paper grades used in the manufacturing process may affect our consolidated and combined financial results. Generally, customers directly absorb the impact of changing prices on customer-supplied paper. For paper that we purchase, we have historically passed most changes in price through to our customers. Contractual arrangements and industry practice should support our continued ability to pass on any future paper price increases, but there is no assurance that market conditions will continue to enable us to successfully do so. Higher paper prices and tight paper supplies may have an impact on customers’ demand for printed products. We also resell waste paper and other print-related by-products and may be impacted by changes in prices for these by-products.

28

We negotiate with leading suppliers to maximize our purchasing efficiencies and use a wide variety of ink formulations and colors. Variations in the cost and supply of certain ink formulations used in the manufacturing process may affect our consolidated and combined financial results. We have undertaken various strategic initiatives to try to mitigate any foreseeable supply disruptions with respect to our ink requirements, including entering into a long term supply arrangement with a single supplier for a substantial portion of our ink supply. Certain contractual protections exist in our relationship with such supplier, such as price and quality protections and an ability to seek alternative sources of ink if the supplier breaches or is unable to perform certain of its obligations, which are intended to mitigate the risk of ink-related supply disruptions.

The primary materials used in the Office Products segment are paper, steel and polypropylene substrates. We negotiate with leading paper, plastic and steel suppliers to maximize our purchasing efficiencies.  All of these materials are available from a number of domestic and international suppliers and we are not dependent upon any single supplier for any of these materials. We believe that adequate supply is available for each of these materials for the foreseeable future.

Except for our long-term supply arrangement regarding ink, we do not consider ourselves to be dependent upon any single vendor as a source of supply for our businesses, and we believe that sufficient alternative sources for the same, similar or alternative products are available.

Changes in the price of raw materials, crude oil and other energy costs impact our ink suppliers and manufacturing costs. Crude oil and energy prices continue to be volatile. Should prices increase, we generally cannot pass on to customers the impact of higher energy prices on our manufacturing costs. We do enter into fixed price contracts for a portion of our natural gas purchases to mitigate the impact of changes in energy prices. We cannot predict sudden changes in energy prices and the impact that possible future changes in energy prices might have upon either future operating costs or customer demand and the related impact either will have on the Company’s condensed consolidated balance sheets, statements of operations and cash flows.  

Variations in the cost and supply of certain paper grades, polypropylene and steel used in the manufacturing process of our office products may affect our consolidated and combined financial results. Contractual arrangements and industry practice should support our continued ability to pass on any future paper price increases, but there is no assurance that market conditions will continue to enable us to successfully do so.

Pension Benefit Plans

The funded status of the Company’s pension benefits plans is dependent upon many factors, including returns on invested assets and the level of certain market interest rates. Market conditions may lead to changes in the discount rates (used to value the year-end benefit obligations of the plans) and the market value of the securities held by the plans, which could significantly increase or decrease the funded status of the plans. The Company reviews its actuarial assumptions on an annual basis as of December 31. Based on current estimates, the Company expects to make cash contributions of approximately $5 million to $7 million to its pension benefit plans for the full year 2017, of which $4 million has been contributed during the nine months ended September 30, 2017.  

See Note 7, Retirement Plans, for more information on the Company’s pension benefit plans and the activity recorded at the separation date.

Financial Review

In the financial review that follows, the Company discusses its condensed consolidated and combined balance sheets, statements of operations, cash flows and certain other information. This discussion should be read in conjunction with the Company’s condensed consolidated and combined financial statements and the related notes.

29

Results of Operations for the Three Months Ended September 30, 2017 as Compared to the Three Months Ended September 30, 2016

The following table shows the results of operations for the three months ended September 30, 2017 and 2016, which reflects the results of the acquired businesses from the relevant acquisition dates:

	Three Months Ended September 30,
	2017			2016			$ Change			% Change
	(in millions, except percentages)
Net sales	$	935		$	949		$	(14	)		(1.5	%)
Cost of sales		778			783			(5	)		(0.6	%)
Cost of sales as a % of net sales		83.2	%		82.5	%
Selling, general and administrative expenses (exclusive of depreciation and      amortization)		65			66			(1	)		(1.5	%)
Selling, general and administrative expenses as a % of net sales		7.0	%		7.0	%
Restructuring, impairment and other charges-net		60			3			57		nm
Depreciation and amortization		39			40			(1	)		(2.5	%)
Net (loss) income from operations	$	(7	)	$	57		$	(64	)		(112.3	%)

nm – not meaningful

Consolidated and Combined Results            

Net sales for the three months ended September 30, 2017 were $935 million, a decrease of $14 million, or 1.5% compared to the three months ended September 30, 2016.  Net sales were impacted by:

• Decreases resulting from lower volume in the Print and Office Products segments, price pressures, a $11 million decrease in pass-through paper sales;

• Increases due to the acquisitions of CREEL, Publishers Press, Fairrington, HudsonYards, and NECI in 2017 and Continuum in December 2016 (“the acquired companies”);

• A $6 million increase due to changes in foreign exchange rates, primarily in Polish zloty; and

• Higher revenue from digital services provided to customers in the Print segment.

Additionally, on a pro forma basis, the Company’s net sales decreased by approximately $74 million or 7.0% (see Note 2, Business Combinations, to the condensed consolidated and combined financial statements).    

Total cost of sales decreased $5 million, or 0.6%, for the three months ended September 30, 2017 compared to the three months ended September 30, 2016.  Cost of sales decreased due to lower volume in the Print and Office Products segments, lower pass-through paper sales, a $6 million increase due to changes in foreign exchange rates, and cost control initiatives. This was partially offset by costs of sales incurred by the acquired companies.

Selling, general and administrative expenses decreased $1 million to $65 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 primarily driven by lower selling expense, that was partially offset by increases in costs to operate as an independent public company due to the separation and selling, general and administrative expenses incurred by the acquired companies.

For the three months ended September 30, 2017, the Company recorded restructuring, impairment and other charges of $60 million. The charges included:

• A non-cash charge of $55 million to recognize the impairment of goodwill in the magazines, catalogs and retail inserts reporting unit included in the Print segment.  Given the historical valuations of the magazines, catalogs and retail inserts reporting unit that have resulted in goodwill impairment in prior years, combined with the change in the composition of the carrying value of the reporting unit due to the recent acquisitions, the Company determined it necessary to perform an interim goodwill impairment review on this reporting unit as of September 30, 2017.  

30

For purposes of the goodwill impairment test, goodwill is not tested based upon the individual transactions that gave rise to the goodwill, but rather based upon the reporting unit’s total goodwill and the characteristics of the reporting unit in which the goodwill resides.  Therefore, the level at which goodwill is tested for impairment is different from the level that originally created the goodwill.  In the Company’s case, the test is performed based upon the total carrying value of the magazines, catalogs and retail inserts reporting unit and that reporting unit’s total implied fair value.  If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.  As a result of the interim goodwill impairment test, and consistent with prior goodwill impairment tests, the magazines, catalogs and retail inserts reporting unit’s fair value continued to be at a value below the carrying value.  This is primarily due to the negative revenue trends experienced in recent years that are only partially offset by the impact of the new acquisitions.  See Note 6, Restructuring, Impairment and Other Charges, for more information;

• Other restructuring charges of $4 million;

• $1 million for multiemployer pension plan withdrawal obligations unrelated to facility closures; and

• There was a de minimis amount of net restructuring charges for employee termination costs for an aggregate of 12 employees, of whom 7 were terminated as of or prior to September 30, 2017, primarily related to the reorganization of certain operations.

For the three months ended September 30, 2016, the Company recorded restructuring, impairment and other charges of $3 million. The charges included:

• Net restructuring charges of $2 million for employee termination costs for 11 employees, substantially all of whom were terminated as of or prior to September 30, 2017, primarily related to one facility closure in the Print segment and the reorganization of certain operations;

• Other restructuring charges of $1 million;

• $1 million for multiemployer pension plan withdrawal obligations unrelated to facility closures; and

• A reversal of previously recorded impairment charges of $1 million.

Depreciation and amortization decreased $1 million to $39 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 due to decreased capital spending in recent years compared to historical levels, partially offset by depreciation and amortization incurred by the acquired companies.  

Net loss from operations for the three months ended September 30, 2017 was $7 million compared to net income from operations of $57 million for the three months ended September 30, 2016.  The decrease was due to higher restructuring, impairment and other charges, lower volume in the Print and Office Product segments and price declines.  

	Three Months Ended September 30,
	2017		2016		$ Change
	(in millions)
Interest expense-net	$	19	$	1	$	18

Net interest expense increased by $18 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 due to the debt incurred in relation to the separation.  

	Three Months Ended September 30,
	2017			2016			$ Change
	(in millions)
(Loss) income before income taxes	$	(26	)	$	56		$	(82	)
Income tax (benefit) expense		(23	)		18			(41	)
Effective income tax rate		90.5	%		32.1	%

The effective income tax rate for the three months ended September 30, 2017 was 90.5% compared to 32.1% for the three months ended September 30, 2016.The effective income tax rate for the three months ended September 30, 2017 reflects the impact of non-deductible goodwill impairment charges.  The non-deductible goodwill impairment charges effectively increase the Company’s tax provision, which in turn increases the effective tax rate.

31

Information by Segment

The following tables summarize net sales, income (loss) from operations and certain items impacting comparability within each of the reportable segments and Corporate.  The descriptions of the reporting units generally reflect the primary products provided by each reporting unit.  

Print

	Three Months Ended September 30,
	2017			2016
	(in millions, except percentages)
Net sales	$	819		$	822
(Loss) income from operations		(10	)		48
Operating margin		(1.2	%)		5.8	%
Restructuring, impairment and other charges-net		58			1
Purchase accounting inventory adjustments		1			—

	Net Sales for the Three Months Ended September 30,
Reporting unit	2017		2016		$ Change			% Change
	(in millions, except percentages)
Magazines, catalogs and retail inserts	$	448	$	407	$	41			10.1	%
Book		276		310		(34	)		(11.0	%)
Europe		68		72		(4	)		(5.6	%)
Directories		27		33		(6	)		(18.2	%)
Total Print	$	819	$	822	$	(3	)		(0.4	%)

Net sales for the Print segment for the three months ended September 30, 2017 were $819 million, a decrease of $3 million, or 0.4%, compared to the three months ended September 30, 2016.  Print segment net sales were impacted by the net sales of its reporting units:

• Magazines, catalogs and retail inserts: Sales increased due to the acquisitions of CREEL, Publishers Press, Fairrington, and HudsonYards in 2017 and Continuum in December 2016, a $5 million increase in pass-through paper sales, and a $1 million increase due to changes in foreign exchange rates, partially offset by lower volume and price pressures.

• Book: Sales decreased due to lower volume within the educational and religious markets, a $14 million decrease in pass-through paper sales and lower volume from procurement services provided to customers, partially offset by higher revenue from digital services.

• Europe: Sales decreased primarily due to lower volume, including the impact of certain customer contracts previously managed by European operations that were assigned to RRD entities as of the separation, partially offset by a $5 million increase due to changes in foreign exchange rates, primarily in Polish zloty.

• Directories: Sales decreased due to lower volume and a $2 million decrease in pass-through paper sales.

Print segment income from operations decreased $58 million for the three months ended September 30, 2017 primarily due to higher restructuring, impairment and other charges as a result of non-cash charges of $55 million for goodwill impairment recorded in the magazines, catalogs and retail inserts reporting unit.  See the Consolidated and Combined Results section above for more information. Income from operations also decreased due to lower volume and price declines, partially offset by earnings from the acquisitions.  Operating margins decreased from 5.8% for the three months ended September 30, 2016 to (1.2%) for the three months ended September 30, 2017 primarily due to higher restructuring, impairment and other charges, lower volume and price declines.    

32

Office Products

	Three Months Ended September 30,
	2017			2016
	(in millions, except percentages)
Net sales	$	116		$	127
Income from operations		11			11
Operating margin		9.5	%		8.7	%

Net sales for the Office Products segment for the three months ended September 30, 2017 were $116 million, a decrease of $11 million, or 8.7% compared to the three months ended September 30, 2016, largely as a result of lower volume, primarily in notetaking, filing and binder products, as well as price declines, partially offset by the acquisition of NECI in 2017.  

Office Products segment income from operations remained consistent at $11 million for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 as the impact of lower volume and price pressures was offset by cost control initiatives.  Operating margins increased from 8.7% for the three months ended September, 2016 to 9.5% for the three months ended September 30, 2017 due to cost control initiatives, partially offset by price pressures.

Corporate

The following table summarizes unallocated operating expenses and certain items impacting comparability within the activities presented as Corporate:

	Three Months Ended September 30,
	2017		2016
	(in millions)
Total operating expenses	$	8	$	2
Significant components of total operating expenses:
Restructuring, impairment and other charges-net		2		2
Separation-related transaction expenses		1		1
Share-based compensation expenses		3		1
Acquisition-related expenses		2		—

Corporate operating expenses for the three months ended September 30, 2017 were $8 million, as compared to $2 million for the three months ended September 30, 2016.  The most significant charges are shown above and were partially offset by reductions in other corporate expenses.  Additionally, the expense for the three months ended September 30, 2017 was partially offset by higher pension income as compared to the three months ended September 30, 2016.      

33

Results of Operations for the Nine Months Ended September 30, 2017 as Compared to the Nine Months Ended September 30, 2016

The following table shows the results of operations for the nine months ended September 30, 2017 and 2016, which reflects the results of the acquired businesses from the relevant acquisition dates:

	Nine Months Ended September 30,
	2017			2016			$ Change			% Change
	(in millions, except percentages)
Net sales	$	2,604		$	2,735		$	(131	)		(4.8	%)
Cost of sales		2,175			2,250			(75	)		(3.3	%)
Cost of sales as a % of net sales		83.5	%		82.3	%
Selling, general and administrative expenses (exclusive of depreciation and      amortization)		194			196			(2	)		(1.0	%)
Selling, general and administrative expenses as a % of net sales		7.5	%		7.2	%
Restructuring, impairment and other charges-net		87			11			76			690.9	%
Depreciation and amortization		118			130			(12	)		(9.2	%)
Income from operations	$	30		$	148		$	(118	)		(79.7	%)

Consolidated and Combined Results          

Net sales for the nine months ended September 30, 2017 were $2,604 million, a decrease of $131 million, or 4.8%, compared to the nine months ended September 30, 2016.  Net sales were impacted by:

• Decreases resulting from lower volume in the Print and Office Products segments, pricing pressures, a $24 million decrease in pass-through paper sales;

• Increases due to the net sales of the acquired companies, higher digital and supply chain management and fulfillment volume in the Print segment; and

• A $1 million increase due to changes in foreign exchange rates.

Additionally, on a pro forma basis, the Company’s net sales decreased by approximately $226 million or 7.4% (see Note 2, Business Combinations, to the condensed consolidated and combined financial statements).    

Total cost of sales decreased $75 million, or 3.3%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, due to lower volume in the Print and Office Products segments, lower pass-through paper sales, productivity improvements, a $2 million increase due to changes in foreign exchange rates, gains recognized from the sale of assets, and cost control initiatives. This was partially offset by cost of sales incurred by the acquired companies.

Selling, general and administrative expenses decreased $2 million to $194 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily driven by lower selling expense and higher pension income, partially offset by increases in costs to operate as an independent public company due to the separation, as well as expenses incurred by the acquired companies.  

As a percentage of net sales, selling, general and administrative expenses increased from 7.2% for the nine months ended September 30, 2016 to 7.5% for the nine months ended September 30, 2017 primarily due to lower sales.

For the nine months ended September 30, 2017, the Company recorded restructuring, impairment and other charges of $87 million. The charges included:  

• A non-cash charge of $55 million to recognize the impairment of goodwill in the magazines, catalogs and retail inserts reporting unit included in the Print segment. Given the historical valuations of the magazines, catalogs and retail inserts reporting unit that have resulted in goodwill impairment in prior years, combined with the change in the composition of the carrying value of the reporting unit due to the recent acquisitions, the Company determined it necessary to perform an interim goodwill impairment review on this reporting unit as of September 30, 2017.  

34

For purposes of the goodwill impairment test, goodwill is not tested based upon the individual transactions that gave rise to the goodwill, but rather based upon the reporting unit’s total goodwill and the characteristics of the reporting unit in which the goodwill resides. Therefore, the level at which goodwill is tested for impairment is different from the level that originally created the goodwill.  In the Company’s case, the test is performed based upon the total carrying value of the magazines, catalogs and retail inserts reporting unit and that reporting unit’s total implied fair value.  If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.  As a result of the interim goodwill impairment test, and consistent with prior goodwill impairment tests, the magazines, catalogs and retail inserts reporting unit’s fair value continued to be at a value below the carrying value.  This is primarily due to the negative revenue trends experienced in recent years that are only partially offset by the impact of the new acquisitions.  See Note 6, Restructuring, Impairment and Other Charges, for more information;

• Other restructuring charges of $22 million primarily related to charges incurred as a result of a terminated supplier contract and the exit from certain operations and facilities;

• Employee termination costs of $7 million for an aggregate of 516 employees, of whom 450 were terminated as of or prior to September 30, 2017.  These charges primarily related to one facility closure in the Print segment and the reorganization of certain business units; and  

• Other charges of $3 million primarily related to multiemployer pension withdrawal obligations unrelated to facility closures.  

For the nine months ended September 30, 2016, the Company recorded restructuring, impairment and other charges of $11 million. The charges included:

• Other restructuring charges of $4 million;

• Net restructuring charges of $4 million for employee termination costs for 48 employees, substantially all of whom were terminated as of or prior to September 30, 2017, related to one facility closure in the Print segment and the reorganization of certain operations;

• Other charges of $3 million primarily related to multiemployer pension withdrawal obligations unrelated to facility closures; and

• There was a de minimis amount of net impairment charges.  

Depreciation and amortization decreased $12 million to $118 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 due to decreased capital spending in recent years compared to historical levels.  

Income from operations for the nine months ended September 30, 2017 was $30 million compared to $148 million for the nine months ended September 30, 2016.  The decrease was due to higher restructuring, impairment and other charges, lower volume in the Print and Office Products segments, and price declines.

	Nine Months Ended September 30,
	2017		2016		$ Change
	(in millions)
Interest expense-net	$	52	$	—	$	52
Investment and other expense-net		—		1		(1	)

Net interest expense increased by $52 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 due to the debt incurred in connection with the separation.  

	Nine Months Ended September 30,
	2017			2016			$ Change
	(in millions)
(Net loss) income before income taxes	$	(22	)	$	147		$	(169	)
Income tax (benefit) expense		(23	)		50			(73	)
Effective income tax rate		105.3	%		34.1	%

The effective income tax rate for the nine months ended September 30, 2017 was 105.3% compared to 34.1% for the nine months ended September 30, 2016.The effective income tax rate for the nine months ended September 30, 2017 reflects the impact of non-deductible goodwill impairment charges and share-based compensation awards that lapsed in 2017, partially offset by the favorable impact associated with a reorganization of certain entities in 2017.  The non-deductible goodwill impairment charges effectively increase the Company’s tax provision, which in turn increases the effective tax rate.

35

Information by Segment

The following tables summarize net sales, income (loss) from operations and certain items impacting comparability within each of the reportable segments and Corporate.  The descriptions of the reporting units generally reflect the primary products provided by each reporting unit.  

Print

	Nine Months Ended September 30,
	2017			2016
	(in millions, except percentages)
Net sales	$	2,252		$	2,338
Income from operations		24			114
Operating margin		1.1	%		4.9	%
Restructuring, impairment and other charges-net		69			9
Purchase accounting inventory adjustments		1			—

	Net Sales for the Nine Months Ended September 30,
Reporting unit	2017		2016		$ Change			% Change
	(in millions, except percentages)
Magazines, catalogs and retail inserts	$	1,209	$	1,191	$	18			1.5	%
Book		777		841		(64	)		(7.6	%)
Europe		180		209		(29	)		(13.9	%)
Directories		86		97		(11	)		(11.3	%)
Total Print	$	2,252	$	2,338	$	(86	)		(3.7	%)

Net sales for the Print segment for the nine months ended September 30, 2017 were $2,252 million, a decrease of $86 million, or 3.7%, compared to the nine months ended September 30, 2016.  Print segment net sales were impacted by the net sales of its reporting units:

• Magazines, catalogs and retail inserts: Sales increased due to the acquisitions of CREEL, Publishers Press, Fairrington, and HudsonYards in 2017 and Continuum in 2016, as well as a $1 million increase in pass-through paper sales, partially offset by lower volume, price pressures and a $3 million decrease due to changes in foreign exchange rates.

• Book: Sales decreased due to lower volume within the educational and religious markets and coloring products, a $19 million decrease in pass-through paper sales, and price pressures, partially offset by higher revenues from digital and supply chain management and fulfillment services.  

• Europe: Sales decreased primarily due to lower volume, including the impact of certain customer contracts previously managed by European operations that were assigned to RRD entities as of the separation, and price pressures, partially offset by a $4 million increase due to changes in foreign exchange rates, primarily in Polish zloty.

• Directories: Sales decreased due to lower volume and a $6 million decrease in pass-through paper sales.

Print segment income from operations decreased $90 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to higher restructuring, impairment and other charges as a result of non-cash charges of $55 million for goodwill impairment recorded in the magazines, catalogs and retail inserts reporting unit.  See Note 6, Restructuring, Impairment and Other Charges, for more information.  Income from operations also decreased due to lower volume and price declines.  Operating margins decreased from 4.9% for the nine months ended September 30, 2016 to 1.1% for the nine months ended September 30, 2017 primarily due to higher restructuring, impairment and other charges, lower volume and price declines.  

36

Office Products

	Nine Months Ended September 30,
	2017			2016
	(in millions, except percentages)
Net sales	$	352		$	397
Income from operations		32			38
Operating margin		9.1	%		9.6	%
Restructuring, impairment and other charges-net		1			—

Net sales for the Office Products segment for the nine months ended September 30, 2017 were $352 million, a decrease of $45 million, or 11.3%, compared to the nine months ended September 30, 2016, largely as a result of lower volume, primarily in filing, notetaking and binder products, as well as price pressures, partially offset by the acquisition of NECI in 2017.

Office Products segment income from operations decreased $6 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 mainly due to lower volume, partially offset by cost control initiatives.  Operating margins decreased from 9.6% for the nine months ended September 30, 2016 to 9.1% for the nine months ended September 30, 2017 due to price pressures and higher restructuring, impairment and other charges, partially offset by cost control initiatives.

Corporate

The following table summarizes unallocated operating expenses and certain items impacting comparability within the activities presented as Corporate:

	Nine Months Ended September 30,
	2017		2016
	(in millions)
Total operating expenses	$	26	$	4
Significant components of total operating expenses:
Restructuring, impairment and other charges-net		17		2
Separation-related transaction expenses		4		1
Share-based compensation expenses		10		4
Acquisition-related expenses		3		—
Pension settlement charge		—		1

Corporate operating expenses for the nine months ended September 30, 2017 were $26 million, as compared to $4 million for the nine months ended September 30, 2016.  The most significant charges are shown above and were partially offset by reductions in other corporate expenses. Additionally, the change was also driven by higher costs incurred during the nine months ended September 30, 2017 as a result of costs to operate as an independent public company, partially offset by higher pension income as compared to the nine months ended September 30, 2016.        

Non-GAAP Measures

The Company believes that certain non-GAAP measures, such as Non-GAAP adjusted EBITDA, provide useful information about the Company’s operating results 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 allows 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, 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 and restructuring, impairment and other charges, the Company believes that Non-GAAP adjusted EBITDA can provide a useful additional basis for comparing the current performance of the underlying operations being evaluated.

37

Non-GAAP adjusted EBITDA is not presented in accordance with GAAP and has important limitations as an analytical tool.  You should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP.  In addition, these measures are defined differently by different companies in our industry and, accordingly, such measures may not be comparable to similarly-titled measures of other companies.

Non-GAAP adjusted EBITDA excludes restructuring, impairment and other charges-net, separation-related transaction expenses, acquisition-related expenses, purchase accounting inventory adjustments, and a pension settlement charge.  A reconciliation of GAAP net income to non-GAAP adjusted EBITDA for the three and nine months ended September 30, 2017 and 2016 is presented in the following table:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016
Net (loss) income	$	(3	)	$	38	$	1		$	97
Restructuring, impairment and other charges – net		60			3		87			11
Separation-related transaction expenses		1			1		4			1
Acquisition-related expenses		2			—		3			—
Purchase accounting inventory adjustments		1			—		1			—
Pension settlement charge		—			—		—			1
Depreciation and amortization		39			40		118			130
Interest expense-net		19			1		52			—
Income tax (benefit) expense		(23	)		18		(23	)		50
Non-GAAP adjusted EBITDA	$	96		$	101	$	243		$	290

Three Months Ended September 30, 2017 and 2016  

2017 Restructuring, impairment and other charges—net: The three months ended September 30, 2017 included restructuring, impairment and other charges of $60 million.  The Company recorded a non-cash charge of $55 million to recognize the impairment of goodwill in the magazines, catalogs and retail inserts reporting unit included in the Print segment.  See Note 5, Goodwill and Other Intangible Assets, for more information.  The Company also recorded other restructuring charges of $4 million and a de minimis amount of net restructuring charges for employee termination costs.  

2016 Restructuring, impairment and other charges—net: The three months ended September 30, 2016 included restructuring, impairment and other charges of $3 million. The Company recorded net restructuring charges of $2 million for employee termination costs and $1 million of other restructuring charges. The Company recorded $1 million for multiemployer pension plan withdrawal obligations unrelated to facility closures.  Additionally, the company recorded a reversal of previously recorded impairment charges of $1 million.  

Separation-related transaction expenses:The three months ended September 30, 2017 and 2016 each included charges of $1 million for one-time transaction costs associated withbecoming a standalone company.

Acquisition-related expenses: The three months ended September 30, 2017 included charges of $2 million related to legal, accounting and other expenses associated with the completed and contemplated acquisitions.

Purchase accounting inventory adjustments: The three months ended September 30, 2017 included charges of $1 million as a result of purchase accounting inventory adjustments for Publishers Press, CREEL and NECI.

Nine Months Ended September 30, 2017 and 2016

2017 Restructuring, impairment and other charges—net. The nine months ended September 30, 2017 included restructuring, impairment and other charges of $87 million. The Company recorded a non-cash charge of $55 million to recognize the impairment of goodwill in the magazines, catalogs and retail inserts reporting unit included in the Print segment. The Company recorded other restructuring charges of $22 million primarily related to charges incurred as a result of a terminated supplier contract and the exit from certain operations and facilities.  Additionally, the Company incurred $7 million for employee termination costs and other charges of $3 million primarily related to multiemployer pension withdrawal obligations unrelated to facility closures.    

38

2016 Restructuring, impairment and other charges—net. The nine months ended September 30, 2016 included restructuring, impairment and other charges of $11 million. The Company incurred other restructuring charges of $4 million and net restructuring charges of $4 million for employee termination costs.  Additionally, the Company recorded other charges of $3 million primarily related to multiemployer pension withdrawal obligations unrelated to facility closures.

Separation-related transaction expenses:The nine months ended September 30, 2017 and 2016 included charges of $4 million and $1 million, respectively, for one-time transaction costs associated withbecoming a standalone company.

Acquisition-related expenses: The nine months ended September 30, 2017 included charges of $3 million related to legal, accounting and other expenses associated with the completed and contemplated acquisitions.

Purchase accounting inventory adjustments: The nine months ended September 30, 2017 included charges of $1 million as a result of purchase accounting inventory adjustments for Publishers Press, CREEL and NECI.

Pension settlement charge: The nine months ended September 30, 2016 included a pension settlement charge of $1 million related to lump-sum pension settlement payments.    

LIQUIDITY AND CAPITAL RESOURCES

The Company believes it has sufficient liquidity to support its ongoing operations and to invest in future growth to create value for its stockholders. Operating cash flows and the Company’s $400 million senior secured revolving credit facility (the “Revolving Credit Facility”) are the Company’s primary sources of liquidity and are expected to be used for, among other things, payments of interest and principal on the Company’s debt obligations, distributions to stockholders that may be approved by the Board of Directors, acquisitions, capital expenditures necessary to support productivity improvement and growth and completion of restructuring programs.

The following sections describe the Company’s cash flows for the nine months ended September 30, 2017 and 2016.

	Nine Months Ended September 30,
	2017			2016
Net cash provided by operating activities	$	58		$	136
Net cash (used in) investing activities		(218	)		(25)
Net cash provided by (used in) financing activities		83			(151)

Cash flows from Operating Activities

Operating cash inflows are largely attributable to sales of the Company’s products.  Operating cash outflows are largely attributable to recurring expenditures for raw materials, labor, rent, interest, taxes and other operating activities.  

Net cash provided by operating activities was $58 million for the nine months ended September 30, 2017 compared to $136 million for the same period in 2016.  The decrease in net cash provided by operating activities was driven by interest payments in 2017 and the timing of customer and supplier payments.  

Beginning on October 1, 2016, transactions with RRD and Donnelley Financial are considered third-party and are settled in cash, whereas prior to that date transactions were net settled among the three companies.

39

Cash flows from Investing Activities  

Net cash used in investing activities for the nine months ended September 30, 2017 was $218 million compared to $25 million for the same period in 2016.  Significant changes are as follows:

• Cash paid for acquisitions of businesses, net of cash acquired, was $175 million during the nine months ended September 30, 2017, of which $173 million was for the 2017 acquisitions and $2 million was paid as part of a final working capital adjustment for the 2016 acquisition of Continuum;  

• Capital expenditures were $51 million during the nine months ended September 30, 2017, an increase of $16 million compared to the same period in 2016, primarily due to increased spend on machinery and equipment in the Print segment and software expenditures in the Corporate segment;

• Proceeds from the sales of other assets were $7 million for the nine months ended September 30, 2017, compared to $1 million for the nine months ended September 30, 2016;

• The Company received net proceeds of $1 million related to the sales and purchases of investments during the nine months ended September 30, 2017; and

• There were transfers from restricted cash of $9 million for the nine months ended September 30, 2016.

Cash flows from Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2017 was $83 million compared to $151 million used in financing activities for the same period in 2016.  Significant changes are as follows:

• The Company received net proceeds from credit facility borrowings of $140 million for the nine months ended September 30, 2017;

• The Company paid $53 million of long-term debt and current maturities, primarily due to $50 million paid in advance for the full amount of required amortization payments for the year ended December 31, 2017 for the Term Loan Facility on February 2, 2017;  

• The Company received proceeds of $18 million for the issuance of common stock on March 28, 2017 in connection with the secondary offering of shares retained by RRD at the separation;

• The Company paid $25 million in dividends to stockholders during the nine months ended September 30, 2017;

• The Company received $3 million in net cash proceeds from RRD in connection with the separation from RRD during the nine months ended September 30, 2017;

• There were $816 million and $18 million of proceeds and debt issuance costs, respectively, during the nine months ended September 30, 2016 as a result of issuance of long-term debt as of September 30, 2016;

• There were $945 million of net transfers to parent and affiliates during the nine months ended September 30, 2016; and

• There were $4 million of debt repayments during the nine months ended September 30, 2016.

Dividends

Cash dividends declared and paid to stockholders during the nine months ended September 30, 2017 totaled $25 million. On October 26, 2017, the Board of Directors declared a quarterly cash dividend of $0.25 per common share, payable on December 4, 2017 to stockholders of record on November 15, 2017.      

The Credit Agreement generally allows annual dividend payments of up to $50 million in aggregate, though additional dividends may be allowed subject to certain conditions.  The timing, declaration, amount and payment of any future dividends to the Company’s stockholders falls within the discretion of the Company’s Board of Directors. The decisions of the Company’s Board of Directors regarding the payment of future dividends depends on many factors, including but not limited to the Company’s financial condition, future prospects, earnings, capital requirements and debt service obligations, as well as legal requirements, regulatory constraints, industry practice and other factors that the Board of Directors may deem relevant. In addition, the terms of the agreements governing the Company’s existing debt or debt that the Company may incur in the future may limit or prohibit the payment of dividends. There can be no assurance that the Company will continue to pay a dividend.  

LIQUIDITY

Cash and cash equivalents were $23 million and $95 million as of September 30, 2017 and December 31, 2016, respectively.

40

The Company’s cash balances are held in several locations throughout the world, including amounts held outside of the United States.  Cash and cash equivalents as of September 30, 2017 included $6 million in the U.S. and $17 million at international locations. The Company has not recognized deferred tax liabilities as of September 30, 2017 related to local taxes on certain foreign earnings as all are considered to be permanently reinvested. Certain other cash balances of foreign subsidiaries may be subject to U.S. or local country taxes if repatriated to the U.S. In addition, repatriation of some foreign cash balances is further restricted by local laws. Management regularly evaluates whether foreign earnings are expected to be permanently reinvested. This evaluation requires judgment about the future operating and liquidity needs of the Company and its foreign subsidiaries. Changes in economic and business conditions, foreign or U.S. tax laws, or the Company’s financial situation could result in changes to these judgments and the need to record additional tax liabilities.

The Company maintains cash pooling structures that enable participating international locations to draw on the pools’ cash resources to meet local liquidity needs. Foreign cash balances may be loaned from certain cash pools to U.S. operating entities on a temporary basis in order to reduce the Company’s short-term borrowing costs or for other purposes.  As of September 30, 2017, $14 million of international cash was loaned to U.S. operating entities.  

Debt Issuances

On September 30, 2016, the Company issued $450 million of 8.75% Senior Secured Notes (the “Senior Notes”) due October 15, 2023.  Interest on the Senior Notes is due semi-annually on April 15 and October 15, commencing on April 15, 2017.  Net proceeds from the offering of the Senior Notes (the “Notes Offering”) were distributed to RRD in the form of a dividend.  The Company did not retain any proceeds from the Notes Offering.

The Senior Notes were issued pursuant to an indenture where certain wholly-owned domestic subsidiaries of the Company guarantee the Senior Notes (the “Guarantors”).  The Senior Notes are fully and unconditionally guaranteed, on a senior secured basis, jointly and severally, by the Guarantors, which are comprised of each of the Company’s existing and future direct and indirect wholly-owned U.S. subsidiaries that guarantee the Company’s obligations. The Senior Notes are not guaranteed by the Company’s foreign subsidiaries or unrestricted subsidiaries.  The Senior Notes and the related guarantees are secured on a first-priority lien basis by substantially all assets of the Company and the Guarantors, subject to certain exceptions and permitted liens. The Indenture governing the Senior Notes contains certain covenants applicable to the Company and its restricted subsidiaries, including limitations on: (1) liens; (2) indebtedness; (3) mergers, consolidations and acquisitions; (4) sales, transfers and other dispositions of assets; (5) loans and other investments; (6) dividends and other distributions, stock repurchases and redemptions and other restricted payments; (7) restrictions affecting subsidiaries; (8) transactions with affiliates; and (9) designations of unrestricted subsidiaries. Each of these covenants is subject to important exceptions and qualifications.  The Indenture is filed as an exhibit to this quarterly report on Form 10-Q.

On September 30, 2016 the Company entered into a credit agreement (the “Credit Agreement”) which provides for (i) a new senior secured term loan B facility in an aggregate principal amount of $375 million (the “Term Loan Facility”) and (ii) a new senior secured revolving credit facility in an aggregate principal amount of $400 million (the “Revolving Credit Facility,”). The interest rate per annum applicable to the Term Loan Facility is equal to, at the Company’s option, either a base rate plus a margin of 5.00% or LIBOR plus a margin of 6.00%. The LIBOR rate is subject to a “floor” of 1%.  The interest rate per annum applicable to the Revolving Credit Facility is equal to a base rate plus a margin ranging from 1.75% to 2.25%, or LIBOR plus a margin ranging from 2.75% to 3.25%, in either case based upon the Consolidated Leverage Ratio of the Company and its restricted subsidiaries. Interest on the Credit Agreement is due at least quarterly, which commenced on December 31, 2016.  The Term Loan Facility will amortize in quarterly installments of $13 million for the first eight quarters and $11 million for subsequent quarters.  The debt issuance costs and original issue discount are being amortized over the life of the facilities using the effective interest method. The Term Loan Facility will mature on September 30, 2022 and the Revolving Credit Facility will mature on September 30, 2021.  The Credit Agreement is filed as an exhibit to this quarterly report on Form 10-Q.

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

The proceeds of any collection or other realization of collateral received in connection with the exercise of remedies and any distribution in respect of collateral in any bankruptcy proceeding will be applied first to repay amounts due under the Revolving Credit Facility before the lenders under the Term Loan Facility or the holders of the Senior Notes receive such proceeds.

41

The Credit Agreement is subject to a number of covenants, including, but not limited to, a minimum Interest Coverage Ratio and the Consolidated Leverage Ratio, as defined in and calculated pursuant to the Credit Agreement, 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. The Credit Agreement generally allows annual dividend payments of up to $50 million in aggregate, though additional dividends may be allowed subject to certain conditions. Each of these covenants is subject to important exceptions and qualifications.

The Company used the net proceeds from the Term Loan Facility in 2016 to fund a cash dividend to RRD in connection with the separation and to pay fees and expenses related to the separation from RRD.  The Company intends to use any additional borrowings under the credit facilities for general corporate purposes, including the financing of permitted investments.

There were $140 million of borrowings under the Revolving Credit Facility as of September 30, 2017. Based on the Company’s condensed consolidated statements of operations for the nine months ended September 30, 2017 and existing debt, 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.  Availability under the Revolving Credit Facility was reduced by $58 million related to outstanding letters of credit.  

The current availability under the Revolving Credit Facility and net availability as of September 30, 2017 is shown in the table below:    

	September 30, 2017
	(in millions)
Availability
Stated amount of the Revolving Credit Facility	$	400
Less: availability reduction from covenants		—
Amount available under the Revolving Credit Facility	$	400
Usage
Borrowings under the Revolving Credit Facility	$	140
Impact on availability related to outstanding letters of credit		58
	$	198
Current availability at September 30, 2017	$	202
Cash		23
Net Available Liquidity	$	225

The Company was in compliance with its debt covenants as of September 30, 2017, and expects to remain in compliance based on management’s estimates of operating and financial results for 2017 and the foreseeable future. However, declines in market and economic conditions or demand for certain of the Company’s products could impact the Company’s ability to remain in compliance with its debt covenants in future periods. As of September 30, 2017, the Company met all the conditions required to borrow under the Credit Agreement and management expects the Company to continue to meet the applicable borrowing conditions.

The failure of a financial institution supporting the Credit Agreement would reduce the size of the Company’s committed facility unless a replacement institution were added. Currently, the Credit Agreement is supported by fifteen U.S. and international financial institutions.    

As of September 30, 2017, the Company had $58 million in outstanding letters of credit issued under the Revolving Credit Facility, all of which reduced the availability thereunder. As of September 30, 2017, the Company also had $16 million in other uncommitted credit facilities, all of which were outside the U.S. (the “Other Facilities”). As of September 30, 2017, letters of credit and guarantees of a de minimis amount were issued and reduced availability under the Other Facilities. As of September 30, 2017, there were $140 million of borrowings under the Revolving Credit Facility and the Other Facilities.

42

The Company’s debt maturities as of September 30, 2017 are shown in the following table:

	Debt Maturity Schedule
	Total		2017		2018		2019		2020		2021		Thereafter
Borrowings under the Credit Agreement	$	452	$	140	$	48	$	43	$	43	$	43	$	135
Senior secured notes		450		—		—		—		—		—		450
Capital lease obligations		3		1		1		1		—		—		—
Total (a)	$	905	$	141	$	49	$	44	$	43	$	43	$	585

(a) Excludes unamortized debt issuance costs of $5 million and $8 million related to the Company’s Term Loan Facility and 8.75% Senior Notes due October 15, 2023, respectively, and a discount of $8 million related to the Company’s Term Loan Facility. These amounts do not represent contractual obligations with a fixed amount or maturity date.

MANAGEMENT OF MARKET RISK

The Company is exposed to interest rate risk on its variable debt and price risk on its fixed-rate debt. At September 30, 2017, the Company’s variable-interest borrowings were $452 million, or approximately 49.9%, of the Company’s total debt.

The Company assesses market risk based on changes in interest rates utilizing a sensitivity analysis that measures the potential loss in earnings, fair values and cash flows based on a hypothetical 10% change in interest rates. Using this sensitivity analysis, such changes would not have a material effect on interest income or expense and cash flows and would change the fair values of fixed-rate debt at September 30, 2017 by approximately $17 million.  

The Company is exposed to the impact of foreign currency fluctuations in certain countries in which it operates. The exposure to foreign currency movements is limited in many countries because the operating revenues and expenses of its various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent that borrowings, sales, purchases, revenues, expenses or other transactions are not in the local currency of the subsidiary, the Company is exposed to currency risk and may enter into foreign exchange forward contracts to hedge the currency risk.  The Company is primarily exposed to the currencies of the Canadian dollar, Polish zloty and Mexican peso. The Company does not use derivative financial instruments for trading or speculative purposes.

OTHER INFORMATION

Litigation and Contingent Liabilities

For a discussion of certain litigation involving the Company, see Note 12, Commitments and Contingencies, to the condensed consolidated and combined financial statements.

New Accounting Pronouncements and Pending Accounting Standards

Recently issued accounting standards and their estimated effect on the Company’s consolidated and combined financial statements are also described in Note 15, New Accounting Pronouncements, to the condensed consolidated and combined financial statements.

CAUTIONARY STATEMENT

The Company has made forward-looking statements in this quarterly report on Form 10-Q that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of the Company. Generally, forward-looking statements include information concerning possible or assumed future actions, events, or results of operations of the Company.

43

These statements may include, or be preceded or followed by, the words  “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “continues,” “believes,” “may,” “will,” “goals” or variations of such words and similar expressions.  Examples of forward-looking statements include, but are not limited to, statements, beliefs and expectations regarding our business strategies, market potential, future financial performance, dividends, costs to be incurred in connection with the separation, results of pending legal matters, our goodwill and other intangible assets, price volatility and cost environment, our liquidity, our funding sources, expected pension contributions, capital expenditures and funding, our financial covenants, repayments of debt, off-balance sheet arrangements and contractual obligations, our accounting policies, general views about future operating results and other events or developments that we expect or anticipate will occur in the future. These forward-looking statements are subject to a number of important factors, including those factors disclosed in “Item 1A. Risk Factors” in section Part I in the Company’s annual report on Form 10-K for the year ended December 31, 2016, as filed with the SEC on February 23, 2017, that could cause our actual results to differ materially from those indicated in any such forward-looking statements. These factors include, but are not limited to:

• the competitive market for our products and industry fragmentation affecting our prices;

• inability to improve operating efficiency to meet changing market conditions;

• 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 effect 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 recent and future acquisitions;

• factors that affect customer demand, including changes in postal rates, postal regulations, delivery systems and service levels, changes in advertising markets and customers’ budgetary constraints;

• vulnerability to adverse events as a result of becoming a stand-alone company after separation from RRD, including the inability to obtain as favorable of terms from third-party vendors;

• 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 paper, ink, energy, and other raw materials) 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, including management;

• 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;

44

• the ability to gain customer acceptance of our new products and technologies;

• the effect of a material breach of or disruption to the security of any of our or our vendors’ systems;

• the failure to properly use and protect customer and employee information and data;

• the effect of increased costs of providing health care and other benefits to our employees;

• the effect of catastrophic events;

• lack of market for our common stock;

• potential tax liability of the separation;

• lack of history as an operating company and costs and other issues associated with being an independent company;

• failure to achieve certain intended benefits of the separation;

• failure of RRD or Donnelley Financial to satisfy their respective obligations under transition services agreements or other agreements entered into in connection with the separation; and

• increases in requirements to fund or pay withdrawal costs related to the Company’s pension plans.

Because forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Undue reliance should not be placed on such statements, which speak only as of the date of this document or the date of any document that may be incorporated by reference into this document.

Consequently, readers of this quarterly report on Form 10-Q should consider these forward-looking statements only as the Company’s current plans, estimates and beliefs. The Company does not undertake 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 statements or to reflect the occurrence of anticipated or unanticipated events. The Company undertakes no obligation to update or revise any forward-looking statements in this quarterly report on Form 10-Q to reflect any new events or any change in conditions or circumstances.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of Part I under “Management of Market Risk.” There have been no significant changes to the Company’s market risk since December 31, 2016.  For a discussion of exposure to market risk, refer to Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2016, as filed with the SEC on February 23, 2017.        

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(e) of the Securities Exchange Act of 1934, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As of September 30, 2017, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures as of September 30, 2017 were effective in ensuring information required to be disclosed in the Company’s SEC reports was recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information was accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  

45

Internal Control Over Financial Reporting

Under the rules and regulations of the Securities and Exchange Commission, LSC Communications is not required to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 until its annual report on Form 10-K for the year ending December 31, 2017. In its annual report on Form 10-K for the year ending December 31, 2017, management and the company’s independent registered public accounting firm will be required to provide an assessment as to the effectiveness of the company’s internal control over financial reporting.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.    

46

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a discussion of certain litigation involving the Company, see Note 12, Commitments and Contingencies, to the condensed consolidated and combined financial statements.  

ITEM 1A. RISK FACTORS  

There have been no material changes to the risk factors disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2016, as filed with the SEC on February 23, 2017.      

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no repurchases during the three months ended September 30, 2017.

The Credit Agreement generally allows annual dividend payments of up to $50 million in aggregate, though additional dividends may be allowed subject to certain conditions.  The decisions of the Company’s Board of Directors regarding the payment of future dividends depends on many factors, including but not limited to the Company’s financial condition, future prospects, earnings, capital requirements and debt service obligations, as well as legal requirements, regulatory constraints, industry practice and other factors that the Board of Directors may deem relevant.          

Unregistered Sales of Equity Securities

On July 28, 2017, the Company, Fairrington, Fairrington, LLC, Dispatch Merger Sub 1, Inc., Dispatch Merger Sub 2, Inc. and Victor G. Warren, as Trustee for the Victor G. Warren Revocable Trust Dated July 14, 1993 (the “Victor G. Warren Revocable Trust”), majority stockholder of Fairrington, entered into the Agreement and Plan of Merger (the “Fairrington Merger Agreement”), pursuant to which the Company acquired Fairrington. Under the Fairrington Merger Agreement, the Company issued 964,319 shares of common stock to four individuals and the Victor G. Warren Revocable Trust (the “selling stockholders”), which shares had an aggregate closing date value of $20 million, in partial consideration for the acquisition of Fairrington (which had a total transaction value of $40 million).  

The shares were unregistered under the Securities Act of 1933 (“the Securities Act”) upon the initial issuance and sale of the shares to the selling stockholders. The shares were issued pursuant to an exemption from registration provided by Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act and were endorsed with a customary Securities Act legend. The Company did not receive proceeds, underwriting discounts or commissions in connection with the sale and all of the shares of common stock offered by the selling stockholders will be sold by the selling stockholders for their own accounts. The shares were initially issued as restricted securities but were subsequently registered for resale pursuant to a Registration Statement on Form S-3 (File No. 333-220762), which was declared effective by the Securities and Exchange Commission on October 13, 2017.  

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable    

47

ITEM 6. EXHIBITS  

2.1 Separation and Distribution Agreement, dated as of September 14, 2016, by and among R. R. Donnelley & Sons Company, LSC Communications, Inc. and Donnelley Financial Solutions, Inc. (the “Separation Agreement”) (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on October 3, 2016)

2.2 Transition Services Agreement, dated as of September 14, 2016, between LSC Communications, Inc. and R. R. Donnelley & Sons Company (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on October 3, 2016)

2.3 Transition Services Agreement, dated as of September 14, 2016, between LSC Communications, Inc. and Donnelley Financial Solutions, Inc. (incorporated by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K filed on October 3, 2016)

2.4 Tax Disaffiliation Agreement, dated as of September 14, 2016, between LSC Communications, Inc. and R. R. Donnelley & Sons Company (incorporated by reference to Exhibit 2.4 to the Company’s Current Report on Form 8-K filed on October 3, 2016)

2.5 Patent Assignment and License Agreement, dated as of September 27, 2016, between LSC Communications US, LLC and R. R. Donnelley & Sons Company (incorporated by reference to Exhibit 2.5 to the Company’s Current Report on Form 8-K filed on October 3, 2016)

2.6 Trademark Assignment and License Agreement, dated as of September 27, 2016, between LSC Communications US, LLC and R. R. Donnelley & Sons Company (incorporated by reference to Exhibit 2.6 to the Company’s Current Report on Form 8-K filed on October 3, 2016)

2.7 Data Assignment and License Agreement, dated as of September 27, 2016, between LSC Communications US, LLC and R. R. Donnelley & Sons Company (incorporated by reference to Exhibit 2.7 to the Company’s Current Report on Form 8-K filed on October 3, 2016)

2.8 Software, Copyright and Trade Secret Assignment and License Agreement, dated as of September 27, 2016, between LSC Communications US, LLC and R. R. Donnelley & Sons Company (incorporated by reference to Exhibit 2.8 to the Company’s Current Report on Form 8-K filed on October 3, 2016)

3.1 Amended and Restated Certificate of Incorporation of LSC Communications, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 3, 2016)

3.2 Amended and Restated By-laws of LSC Communications, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on October 3, 2016)

4.1 Indenture, dated as of September 30, 2016, among LSC Communications, Inc., the subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as Trustee and as Collateral Agent (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on October 3, 2016)

4.2 Registration Rights Agreement, dated as of July 28, 2017, by and among LSC Communications, Inc. Victor G. Warren Revocable Trust Dated July 14, 1993, James Reifenberg, Mark Nickel, Phillip Warren and James M. Slattery (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3 filed on October 2, 2017)

10.1     Credit Agreement, dated as of September 30, 2016, among LSC Communications, Inc., the lenders party thereto, Bank Of America, N.A., as Administrative Agent Swing Line Lender and an L/C Issuer, Citigroup Global Markets Inc. and JPMorgan Chase Bank, N.A., as Co-Syndication Agents (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 3, 2016)

10.2 2016 LSC Communications, Inc. Performance Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 3, 2016)*

48

10.3 Amended and Restated LSC Communications, Inc. 2016 Performance Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 23, 2017)*

10.4 LSC Communications, Inc. Nonqualified Deferred Compensation Plan, dated as of September 22, 2016 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on October 3, 2016)*

10.5 LSC Unfunded Supplemental Pension Plan effective October 1, 2016 (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)*

10.6 Supplemental Executive Retirement Plan-B for Designated Executives effective January 1, 2001 as amended effective December 31, 2004, January 1, 2005 and September 30, 2016 (the “SERP-B”) (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)*

10.7 Assignment of Employment Agreement and Acceptance of Assignment, dated as of September 29, 2016, between LSC Communications, Inc., R. R. Donnelley & Sons Company and Thomas J. Quinlan III (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on October 3, 2016)*

10.8 Amendment to Employment Agreement, dated as of October 25, 2017, between LSC Communications, Inc. and Thomas J. Quinlan III (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 31, 2017)*

10.9 Assignment of Employment Agreement and Acceptance of Assignment, dated as of September 29, 2016,  between LSC Communications, Inc., R. R. Donnelley & Sons Company and Andrew B. Coxhead (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on October 3, 2016)*

10.10 Assignment of Employment Agreement and Acceptance of Assignment, dated as of September 29, 2016, between LSC Communications, Inc., R. R. Donnelley & Sons Company and Suzanne S. Bettman (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on October 3, 2016)*

10.11 Amendment to Employment Agreement, dated as of October 25, 2017, between LSC Communications, Inc. and Suzanne S. Bettman (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 31, 2017)*

49

10.12 Assignment of Employment Agreement and Acceptance of Assignment, dated as of September 30, 2016, between LSC Communications, Inc., R. R. Donnelley & Sons Company and Richard T. Lane (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on October 3, 2016)*

10.13 Employment Agreement, dated as of July 26, 2016, between Kent A. Hansen and LSC Communications US, LLC (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)*

10.14 Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, filed on November 10, 2016)*

10.15 Key Employee Severance Plan effective October 25, 2017 (filed herewith)*

10.16 Form of Participation Agreement for the Key Employee Severance Plan (filed herewith)*

10.17 Form of Director Restricted Stock Unit Award as amended (for 2004-2007) converted from R. R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)*

10.18 Form of Director Restricted Stock Unit Award (for 2014-2016) converted from R. R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)*

10.19 Non-Employee Director Compensation Plan amended as of October 26, 2017 (filed herewith)*

10.20 Form of Director Restricted Stock Unit Award Agreement (for 2017) (incorporated by reference to Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed on August 3, 2017)*

10.21 Form of Director Restricted Stock Unit Award Agreement (filed herewith)*

10.22 Policy on Retirement Benefits, Phantom Stock Grants and Stock Options for Directors as amended to March 2000 (incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)*

10.23 Form of Stock Option Award Agreement (for 2009 to 2012) converted from R. R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)*

10.24 Form of Stock Unit Award Agreement (for 2013 and 2014) converted from R. R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)*

10.25 Form of Stock Unit Award Agreement (for 2015) converted from R. R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)*

10.26 Form of Stock Unit Award Agreement (for 2016) converted from R. R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)*

10.27 Form of Performance Unit Award Agreement (for 2014) converted from R. R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)*

50

10.28 Form of Performance Unit Award Agreement (for 2015) converted from R. R. Donnelley & Sons Company to the Company pursuant to the Separation Agreement (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)*

10.29 Form of Founder’s Award (Restricted Stock) Agreement (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)*

10.30 Written Description of 2016 Annual Incentive Plan of the Company with respect to the period from October 1, 2016 to December 31, 2016 (incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)*

10.31 LSC Communications Annual Incentive Plan as amended and restated (incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)*

10.32 Form of Amendment to Cash Retention Awards (incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)*

10.33 Form of Performance Restricted Stock Award (for 2017) (incorporated by reference to Exhibit 10.29 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed on May 4, 2017)*

10.34 Form of Stock Unit Award Agreement (for 2017) (incorporated by reference to Exhibit 10.30 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed on May 4, 2017)*

14.1 Code of Ethics for the Chief Executive Officer and Senior Financial Officers (incorporated by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)

21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed on February 23, 2017)

31.1 Certification by Thomas J. Quinlan, III, Chief Executive Officer, required by Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith)

31.2 Certification by Andrew B. Coxhead, Chief Financial Officer, required by Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith)

32.1 Certification by Thomas J. Quinlan, III, Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code (filed herewith)

32.2 Certification by Andrew B. Coxhead, Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code (filed herewith)

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

___________________________

* Management contract or compensatory plan or arrangement

51

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

LSC COMMUNICATIONS, INC.
By:	/s/ ANDREW B. COXHEAD
	Andrew B. Coxhead
	Chief Financial Officer
By:	/s/ KENT A. HANSEN
	Kent A. Hansen
	Chief Accounting Officer and Controller

Date: November 2, 2017            

52

EX-10.15

Exhibit 10.15

LSC Communications US, LLC

Key Employee Severance Plan

ESTABLISHED EFFECTIVE OCTOBER 25, 2017

LSC Communications US, LLC (“LSC”) hereby establishes the Key Employee Severance Plan (the “Severance Plan”) as a sub-plan existing under the LSC Separation Pay Plan (the “Separation Pay Plan”) effective as of October 25, 2017 (the “Effective Date”). Capitalized terms that are not otherwise defined herein shall have the meaning given to such terms in the Separation Pay Plan.

SECTION 1: PURPOSE OF THE SEVERANCE PLAN.

The purpose of the Severance Plan is to advance the interests of LSC and its subsidiaries (hereinafter individually or collectively, as the case may be, referred to as the “Company”) and its shareholders by providing financial protection to certain key employees of the Company in the event of their termination of employment in specific circumstances.

SECTION 2: ELIGIBILITY.

Persons eligible to participate in this Severance Plan are those Employees selected by the Administrator. Such Employees (“Participants”) shall be notified in writing of their participation in the Severance Plan by the Administrator (such writing, a “Participation Agreement”). As a condition to becoming a Participant, the Administrator may require an Employee to enter into a restrictive covenant agreement with the Company in a form reasonably satisfactory to the Administrator. The restrictive covenants described in the preceding sentence may be set forth in the applicable Participation Agreement or in a separate written document.

SECTION 3: SEVERANCE PLAN ADMINISTRATION.

The Administrator may establish such rules and regulations, not inconsistent with the provisions of the Separation Pay Plan and the Severance Plan, as it deems necessary for the proper administration of the Severance Plan, and may amend or revoke any rule or regulation so established. The Administrator may make such determinations and interpretations under or in connection with the Severance Plan as it deems necessary or advisable. All such rules, regulations, determinations and interpretations shall be binding and conclusive upon the Company, its officers, employees, shareholders, Severance Plan Participants, their respective legal representatives, beneficiaries, successors and assigns, and upon all other persons claiming under or through any of them. Notwithstanding the foregoing provisions of Section 2 or this Section 3, except to the extent it would violate applicable law or the rules of any relevant securities exchange, the Administrator may delegate all or a portion of its authority for administering the Severance Plan to an officer or officers of the Company. To the extent so delegated, the term “Administrator” hereunder shall be deemed to refer to such officer or officers.

CHICAGO/#3034676.8

The Administrator shall take such actions it deems necessary or desirable to ensure that such officer or officers have sufficient and appropriate authority for carrying out the intent and purpose of the Severance Plan.

SECTION 4: REQUIREMENTS FOR BENEFITS.

(a) INVOLUNTARY TERMINATION OF EMPLOYMENT BY COMPANY AS CONDITION FOR ELIGIBILITY. No benefits shall be payable under the Severance Plan unless the Participant’s employment with the Company is involuntarily terminated by the Company without Cause, or if applicable, by the Participant with Good Reason (a “Qualifying Termination”).

(b) DEFINITION OF CAUSE. The Company may terminate the Participant’s employment for “Cause” if, in the reasonable determination of the Company, (i) the Participant engages in conduct that materially violates the policies of the Company, (ii) the Participant fails to perform the essential functions of his or her job (except for a failure resulting from a bona fide illness or incapacity) or fails to carry out the Company’s reasonable directions issued by the Participant’s supervisor, with respect to the Participant’s material duties, (iii) the Participant engages in embezzlement or misappropriation of corporate funds or other acts of fraud, dishonesty or self-dealing, or commits a felony or any significant violation or any material statutory or common law duty of loyalty to the Company, or (iv) the Participant breaches a material provision of the Severance Plan. Notwithstanding the foregoing, to the extent a Participant is party to an employment agreement, Severance Plan Participation Agreement, or other agreement with the Company that contains a definition of “Cause” or a term of similar effect, the definition set forth in such employment agreement, Severance Plan Participation Agreement or other agreement, and not the definition set forth in this Severance Plan, shall control.

(c) GOOD REASON. For purposes of Section 4(a) of the Severance Plan, a Participant will be considered to have a Qualifying Termination if (i) such Participant is a party to an employment agreement, Participation Agreement or other agreement with the Company that contains provisions for such Participant to be entitled to severance payments or benefits based on a termination for “Good Reason” or a term of similar effect, and (ii) such Participant fulfills the requirements set forth in the that employment agreement, Severance Plan Participation Agreement, or other agreement to, in fact, terminate for Good Reason (or a term of similar effect). For the avoidance of doubt, except as specifically set forth in this Section 4(c), a termination for “Good Reason” will not be considered a Qualifying Termination for purposes of the Severance Plan.

CHICAGO/#3034676.8

(d) COMPLIANCE WITH SEPARATION PAY PLAN. In order for a Participant to be eligible for benefits pursuant to this Severance Plan, in addition to the other requirements set forth herein, the Participant must comply with the terms of the Separation Pay Plan, specifically including, without limitation, the obligation to execute and not revoke a Plan Release and a Separation Agreement (collectively, a “Separation Agreement and General Release”) containing such terms as may be acceptable to the Company in its sole discretion including, without limitation, covenants restricting the ability of a Participant to (i) compete with the Company or any Affiliate, (ii) solicit customers or employees of the Company or an Affiliate, (iii) infringe upon the proprietary rights of the Company or an Affiliate, (iv) disclose the confidential information of the Company or any Affiliate, or (v) disparage the Company or an Affiliate.

SECTION 5: SEVERANCE BENEFITS.

(a) BENEFITS IF NOT FOLLOWING A CHANGE IN CONTROL. In the event of a Participant’s Qualifying Termination at any point other than during the two-year period beginning on the date the Company undergoes a Change in Control (as defined below), subject to satisfying the requirements of Section 4 hereof, the Company shall pay the Participant an amount equal to the sum of:

(i) SALARY CONTINUATION: a number of months of the Participant’s base salary as in effect at the time of the Qualifying Termination as may be set forth in the applicable Participation Agreement, and

(ii) TARGET BONUS: a portion or multiple of the Participant’s target annual bonus amount as in effect on the date of the Qualifying Termination as may be set forth in the applicable Participation Agreement.

The amount payable pursuant to the preceding sentence will be paid in the form of periodic equal payments on the Company’s regular payroll dates beginning sixty (60) days after the applicable Qualifying Termination (with all amounts that, absent the sixty (60) day delay, would have been paid during such sixty (60) day period being paid on that first payment date) and ending at the end of the payment period set forth in the applicable Participation Agreement.

In addition to the amounts described above in this Section 5(a), in the event of a Participant’s Qualifying Termination at any point other than during the two-year period beginning on the date the Company undergoes a Change in Control, subject to satisfying the requirements of Section 4 hereof, the Company shall:

(A) MEDICAL SUBSIDY: pay the Participant an amount equal to the then current difference between the Participant’s monthly medical insurance cost immediately prior to the applicable Qualifying Termination and the monthly cost for COBRA for a number of months as may be set forth in the applicable Participation Agreement, to be paid in a lump sum as soon as administratively feasible following sixty (60) days after the applicable Qualifying Termination, and

CHICAGO/#3034676.8

(B) OUTPLACEMENT: provide such Participant outplacement services with an outplacement service provider reasonably selected by the Company for a number of months as may be set forth in the applicable Participation Agreement.

(b) BENEFITS FOLLOWING A CHANGE IN CONTROL. In the event of a Participant’s Qualifying Termination at any point during the two-year period beginning on the date the Company undergoes a Change in Control, subject to satisfying the requirements of Section 4 hereof, the Company shall pay the Participant an amount equal to the sum of:

(i) SALARY CONTINUATION: a number of months of the Participant’s base salary as in effect at the time of the Qualifying Termination as may be set forth in the applicable Participation Agreement, and

(ii) TARGET BONUS: a portion or multiple of the Participant’s target annual bonus amount as in effect on the date of the Qualifying Termination as may be set forth in the applicable Participation Agreement.

The amount payable pursuant to the preceding sentence will be paid in the form of periodic equal payments on the Company’s regular payroll dates beginning sixty (60) days after the applicable Qualifying Termination (with all amounts that, absent the sixty (60) day delay, would have been paid during such sixty (60) day period being paid on that first payment date) and ending at the end of the payment period set forth in the applicable Participation Agreement.

In addition to the amounts described above in this Section 5(b), in the event of a Participant’s Qualifying Termination at any point during the two-year period beginning on the date the Company undergoes a Change in Control, subject to satisfying the requirements of Section 4 hereof, the Company shall:

(A) MEDICAL SUBSIDY: pay the Participant an amount equal to the then current difference between the Participant’s monthly medical insurance cost immediately prior to the applicable Qualifying Termination and the monthly cost for COBRA for a number of months as may be set forth in the applicable Participation Agreement, to be paid in a lump sum as soon as administratively feasible following sixty (60) days after the applicable Qualifying Termination, and

(B) OUTPLACEMENT: provide such Participant with outplacement services with an outplacement service provider reasonably selected by the Company for a number of months as may be set forth in the applicable Participation Agreement.

CHICAGO/#3034676.8

(c) CHANGE IN CONTROL. For purposes of this Severance Plan, “Change in Control” means the occurrence of any one of the following events that occurs on or after the date hereof:

(i) any “person,” as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as modified and used in Section 13(d) and 14(d) thereof (but not including (i) LSC Communications, Inc. (“LSCCI”) or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of LSCCI or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of LSCCI in substantially the same proportions as their ownership of stock of the Company) (hereinafter a “Person”) is or becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act) directly or indirectly, of securities of LSCCI, but not including in the securities beneficially owned by such Person, any securities acquired directly from LSCCI or its affiliates, excluding an acquisition resulting from the exercise of a conversion or exchange privilege in respect of outstanding convertible or exchangeable securities, representing 50% or more of the combined voting power of LSCCI’s then outstanding securities; or

(ii) during any period of two (2) consecutive years beginning on the date that stockholders of LSCCI approve the LSC Communications, Inc. 2016 Performance Incentive Plan, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into any agreement with the Company to effect a transaction described in Clause (i), (ii) or (iv) of this Section 5(c)) whose election to the Board or nomination for election by LSCCI’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

(iii) a merger or consolidation of LSCCI with any other corporation (hereinafter, a “Corporate Transaction”) is consummated, other than (A) a merger or consolidation which would result in the voting securities of LSCCI outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or acquiring entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of LSCCI, at least 50% of the combined voting power of the voting securities of LSCCI or such surviving or acquiring entity outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of LSCCI (or similar transaction) in which no Person acquires more than 50% of the combined voting power of LSCCI’s then outstanding securities; or

(iv) the stockholders of LSCCI approve a plan of complete liquidation of LSCCI or for the consummation of the sale or disposition by LSCCI of all or substantially all of LSCCI’s assets.

CHICAGO/#3034676.8

Notwithstanding the foregoing, to the extent necessary to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), no Change in Control will be deemed to have occurred hereunder unless and until the events constituting such Change in Control also constitute a “change in control event” (as described in Treas. Reg. Section 1.409A-3(i)(5)(i)) with respect to LSCCI or the Company.

SECTION 6: AMENDMENT OR TERMINATION. The Company reserves the right to have the Administrator amend, modify, suspend, or terminate the Severance Plan at any time; provided that without the consent of the Participant, no such amendment, modification, suspension or termination shall materially and adversely affect the terms of a Participant’s economic benefits under this Severance Plan without the Participant’s written consent.

SECTION 7: MISCELLANEOUS.

(a) STATUS OF SEVERANCE PLAN BENEFITS; NO DUPLICATION OF BENEFITS. For purposes of the Separation Pay Plan, amounts payable pursuant to Section 5 of the Severance Plan will be considered Non-Regular Separation Pay.Pursuant to Section 3.6 of the Separation Pay Plan, any amount paid pursuant to Section 5 of the Severance Plan will offset the amount of any Regular Separation Pay that might otherwise have been due to a Participant pursuant to the Separation Pay Plan as a result of such Participant’s Termination of Employment. In addition, to the extent a Participant becomes entitled to benefits under the Severance Plan and under an employment agreement or other agreement with the Company, the amounts due pursuant to the Severance Plan shall be offset by the amounts paid or to be paid pursuant to such employment agreement or other agreement and no duplication of benefits shall occur.

(b) SEPARATION PAY PLAN CONTROLS. Except as specifically set forth in this Severance Plan, the Separation Pay Plan shall control the payment of benefits and the obligations of the Company and each Participant.

(c) SECTION 409A. To the extent applicable, this Severance Plan will be interpreted in accordance with Section 409A of the Code, and the guidance issued thereunder. Notwithstanding any provision of this Severance Plan or the Separation Pay Plan to the contrary, in the event that the Company determines that any compensation or benefits payable or provided under this Severance Plan or the Separation Pay Plan may be subject to Section 409A of the Code, the Company may adopt such limited amendments to this Severance Plan and appropriate policies and procedures, including amendments and policies with retroactive effect, that the Company reasonably determines are necessary or appropriate to (A) exempt the compensation and benefits payable under this Severance Plan from Code Section 409A and/or preserve the intended tax treatment of the compensation and benefits provided with respect to this Severance Plan, or (B) comply with the requirements of, or correct the Severance Plan to reduce the penalties under, Section 409A of the Code; provided, however, that this Section 7(c) does not create an obligation on the part of the Company take any such action. Notwithstanding anything herein to the contrary, to the extent permitted:

(i) The amounts payable pursuant to the Severance Plan shall, to the greatest extent possible, be made in reliance upon Treas. Reg. Section 1.409A-1(b)(4) (Short-Term Deferrals) or Treas. Reg. Section 1.409A-1(b)(9) (separation pay plans), as applicable. For this purpose, each payment shall be considered a separate and distinct payment.

CHICAGO/#3034676.8

(ii) If a Participant is deemed on the date of his or her “separation from service” (within the meaning of Treas. Reg. Section 1.409A-1(h)) to be a “specified employee” (within the meaning of Treas. Reg. Section 1.409A-l(i)), then with regard to any payment that is required to be delayed pursuant to Section 409A(a)(2)(B) of the Code (the “Delayed Payments”), such payment shall not be made prior to the earlier of (A) the first day of the seventh month following the date of the Participant’s “separation from service” and (B) the date of the Participant’s death. Any payments due under the Plan or this Severance Plan other than the Delayed Payments shall be paid in accordance with the normal payment dates specified herein. In no case will the delay of any of the Delayed Payments by the Company constitute a breach of the Company’s obligations under the Separation Pay Plan or this Severance Plan.

(iii) For the provision of payments and benefits under this Severance Plan, reference to “termination of employment” (and corollary terms) with the Company shall be construed to refer to a Severance Plan Participant’s “separation from service” from the Company (as determined under Treas. Reg. Section 1.409A-1(h), as uniformly applied by the Company) in tandem with the Severance Plan Participant’s termination of employment with the Company.

(iv) No action or failure by the Company in good faith to act, pursuant to this Section 7(c) shall subject the Company or any of the Company’s employees, directors or representatives to any claim, liability or expense, and the Company shall not have any obligation to indemnify or otherwise protect a Severance Plan Participant from the obligation to pay any taxes pursuant to Section 409A of the Code.

(d) RESOLUTION OF CLAIMS OR DISPUTES. Any controversy or claim arising out of or relating to this Severance Plan shall be settled pursuant to the terms of the Separation Pay Plan.

(e) NO FUNDING OF SEVERANCE BENEFITS. Nothing herein contained shall require or be deemed to require the Company to segregate, earmark or otherwise set aside any funds or other assets to provide for any payments made hereunder. The rights of any Participant under this Severance Plan shall be solely those of a general creditor of the Company. However, in the event the Company foresees payment under the Severance Plan, the Company may deposit cash or property, or both, equal in value to all or a portion of the benefits anticipated to be payable hereunder for any or all Participants into a trust, the assets of which are to be distributed at such times as are otherwise provided for in this Severance Plan and are subject to the rights of the general creditors of the Company.

(f) SUCCESSORS TO THE COMPANY. This Severance Plan shall be binding upon the Company and any successor of the Company, including without limitation any corporation or other entity acquiring directly or indirectly all or substantially all of the assets of the Company whether by merger, consolidation, sale or otherwise. Such successor shall thereafter be deemed the “Company” for the purposes of this Severance Plan.

CHICAGO/#3034676.8

(g) EMPLOYMENT RIGHTS. Establishment of this Severance Plan shall not be construed to give any Participant the right to be retained by the Company or to any benefits not specifically provided by the Severance Plan.

(h) PARACHUTE PAYMENTS. Anything in this Severance Plan to the contrary notwithstanding, if the determination is made that any payments or benefits otherwise payable to a Participant (i) constitute “parachute payments” within the meaning of Section 280G of the Code, and (ii) but for this Section 7(h), would be subject to the excise tax imposed by Section 4999 of the Code, then such payments and benefits will be either (A) delivered in full, or (B) delivered as to such lesser extent that would result in no portion of such payments and benefits being subject to excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income and employment taxes and the excise tax imposed by Section 4999 of the Code (and any equivalent state or local excise taxes), results in such Participant’s receipt on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such payments and benefits may be taxable under Section 4999 of the Code.

Unless the applicable Participant and the Company otherwise agree in writing, any such determination required under this Section 7(h) will be made in writing by a nationally-recognized accounting firm selected by the Company (the “Accountants”), whose determination will be conclusive and binding upon the Participant and the Company for all purposes. For purposes of making the calculations required by this Section 7(h), the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. In connection with making any such determinations, the Accountants shall take into account the value of any reasonable compensation for services to be rendered by the Participant before or after the Change in Control, including any restrictive covenants applicable to Participant, and the Company and its affiliates shall cooperate in the valuation of any such services, including any restrictive covenant provisions. The Participant and the Company agree to furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section 7(h). The Company will bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this provision.

CHICAGO/#3034676.8

Any reduction in payments and/or benefits required by this Section 7(h) and any other agreement between the applicable Participant and the Company will occur in the order set forth in the employment agreement between the applicable Participant and the Company. To the extent there is no such agreement, or if such agreement does not provide for an order, then the reductions shall be made in the following order, in each case with payments and benefits with a higher “parachute payment” value for purposes of Section 280G of the Code reduced before payments with a lower value: (1) reduction of vesting acceleration of equity awards that are not eligible for reduction under Treasury Regulation 1.280G Q&A-24(c); (2) reduction of other benefits provided under this Severance Plan; (3) reduction of cash payments that are not eligible for reduction under Treasury Regulation 1.280G Q&A-24(c); (4) reduction of vesting acceleration of equity awards that are eligible for reduction under Treasury Regulation 1.280G Q&A-24(c); and (5) reduction of cash payments that are eligible for reduction under Treasury Regulation 1.280G Q&A-24(c). In the event that acceleration of vesting of equity awards or cash payments is to be reduced, such acceleration of vesting or reduction will be cancelled in the reverse order of the date of grant for such awards. If two or more awards were granted on the same date, each award will be reduced on a pro-rata basis.

CHICAGO/#3034676.8

EX-10.16

Exhibit 10.16

LSC Communications US, LLC.  

Participation Agreement

[Date]

[Participant Name]

[Address]

Re: Notice of Participation in the Key Employee Severance Plan

Dear_________:

LSC Communications, Inc. (the “Company”) is pleased to inform you that you have been selected as a participant in the Company’s LSC Communications US, LLC Key Employee Severance Plan (the “Severance Plan”), which is operated as a sub-plan under the LSC Separation Pay Plan. Capitalized terms that are used in this Participation Agreement, but that are not defined herein shall have the meanings set forth in the Severance Plan.

Severance Plan Benefits

Under Section 5(a) of the Severance Plan, in the event you incur a Qualifying Termination, which for purposes of the Severance Plan generally includes a termination of your employment by the Company without Cause (unless otherwise set forth in this Participation Agreement), then so long as you fulfill the Severance Plan’s requirements (e.g., executing a Separation Agreement and General Release, which may include covenants restricting your ability to work for a competitor), then you would be entitled to the following benefits:

• Salary continuation for ___ months;

• Payment of ____% of your target annual bonus;

• A lump-sum payment which represents the current difference between your monthly medical insurance cost immediately prior to the applicable Qualifying Termination and the monthly cost for COBRA for ____months which may be used for any purpose including to offset the cost of electing COBRA coverage; and

• ____ months of outplacement assistance from a provider selected by the Company.

The salary continuation and target bonus payments amounts set forth above will be paid as provided in the Severance Plan beginning approximately 60 days following your Qualifying Termination and ending on the [first anniversary/18 month

CHICAGO/#3050368.6

anniversary/second anniversary [choose one or update as applicable]] of the Qualifying Termination.

Under Section 5(b) of the Severance Plan, in the event that your Qualifying Termination occurs within two years following the date of a Change in Control of the Company, then so long as you fulfill the Severance Plan’s requirements (e.g., executing a Separation Agreement and General Release, which may include covenants restricting your ability to work for a competitor), then you would be entitled to the following benefits:

• Salary continuation for ___ months;

• Payment of ____% of your target annual bonus;

• A lump-sum payment which represents the current difference between your monthly medical insurance cost immediately prior to the applicable Qualifying Termination and the monthly cost for COBRA for ____months which may be used for any purpose including to offset the cost of electing COBRA coverage; and

• ____ months of outplacement assistance from a provider selected by the Company.

The salary continuation and target bonus payments amounts set forth above will be paid as provided in the Severance Plan beginning approximately 60 days following your Qualifying Termination and ending on the [first anniversary/18 month anniversary/second anniversary [choose one or update as applicable]] of the Qualifying Termination.

Non-Solicitation Provision

By signing below, you acknowledge that the Company’s relationship with the customer or customers you serve, and with other employees, is special and unique, based upon the development and maintenance of good will resulting from the customers' and other employees’ contacts with the Company and its employees, including you.  As a result of your position and customer contacts, you recognize that you will gain valuable information about (a) the Company’s relationship with its customers, their buying habits, special needs, and purchasing policies, (b) the Company’s pricing policies, purchasing policies, profit structures, and margin needs, (c) the skills, capabilities and other employment-related information relating to Company employees, and (d) other matters of which you would not otherwise know and that is not otherwise readily available.  Such knowledge is essential to the business of the Company and you recognize that, if you have a termination of employment, the Company will be required to rebuild that customer relationship to retain the customer's business.  You recognize that during a period following your termination of employment, the Company is entitled to protection from your use of the information and customer and employee relationships with which you have been entrusted by the Company during your employment.

CHICAGO/#3050368.6

By signing below, you also acknowledge and agree that any injury to the Company’s customer relationships, or the loss of those relationships, would cause irreparable harm to the Company.  Accordingly, you agree that you shall not, while employed by the Company and for a period of one year from the date of termination of employment for any reason, including a termination initiated by the Company with or without Cause, directly or indirectly, either on your own behalf or on behalf of any other person, firm or entity, solicit or provide services that are the same as or similar to the services the Company provided or offered while you were employed by the Company to any customer or prospective customer of the Company (i) with whom you had direct contact during the last two years of your employment with the Company or about whom you learned confidential information as a result of your employment with the Company, or (ii) with whom any person over whom you had supervisory authority at any time had direct contact during the last two years of your employment with the Company or about whom such person learned confidential information as a result of his or her employment with the Company.

By signing below, you agree that you shall not, while employed by the Company and for a period of two years following your termination of employment for any reason, including a termination initiated by the Company with or without Cause, either directly or indirectly solicit, induce or encourage any individual who was a Company employee at the time of, or within six months prior to, your termination of employment, to terminate their employment with the Company or accept employment with any entity, including but not limited to a competitor, supplier or customer of the Company, nor shall you cooperate with any others in doing or attempting to do so.  As used herein, the term "solicit, induce or encourage" includes, but is not limited to, (A) initiating communications with a Company employee relating to possible employment, (B) offering bonuses or other compensation to encourage a Company employee to terminate his or her employment with the Company and accept employment with any entity, including but not limited to a competitor, supplier or customer of the Company, or (C) referring Company employees to personnel or agents employed by any entity, including but not limited to competitors, suppliers or customers of the Company.

Additional Terms

[Insert optional provisions here related to definitions of “Cause” and “Good Reason,” or any other desired provisions (e.g., signing a more complete restrictive covenants agreement).]

Administrative Provisions

Your eligibility to receive the benefits described above, and the timing of your receipt of those benefits, is in all cases subject to the terms of the Severance Plan, a copy of which can be obtained by contacting the Company’s Chief Human Resources Officer.

Please note, your participation in the Severance Plan is subject to your execution of this Participation Agreement. Until you sign this Participation Agreement below where indicated and return it to ___________, you will not be eligible for the benefits described

CHICAGO/#3050368.6

above in this notice even if a Qualifying Termination were to otherwise occur. If you fail to sign and return this Participation Agreement by ______________, then you will lose the opportunity to participate in the Severance Plan.

We thank you for your continued services to the Company.

Sincerely,

[Name and Title]

By signing below, you agree to be bound by the terms of this Participation Agreement and the Severance Plan.

______________________________________

[Participant Name]

Date: _________________________________

CHICAGO/#3050368.6

EX-10.19

                                                                                                                                  Exhibit 10.19

LSC Communications, Inc.
Non-Employee Director Compensation Plan

Each director shall receive (A) an annual cash retainer (a “Cash Retainer”) and (B) an annual equity retainer (an “Equity Retainer”) to be paid in the form of a grant of Restricted Stock Units (“RSUs”) each on the date of the Company’s Annual Meeting of Stockholders, as described further below and pursuant to the Company’s Performance Incentive Plan in effect on such date (the “Plan”).  

1) Cash Retainer.  

a) Each director shall be entitled to a Cash Retainer equal to $90,000.

b) Any director in a leadership role shall be entitled to an additional Cash Retainer in the applicable amount described in the table below:  

Lead Director	$62,500
Chairman of the Audit Committee	$25,000
Chairman of the Human Resources Committee	$25,000
Chairman of the Corporate Responsibility & Governance Committee	$20,000

2) Equity Retainer.

a) Each director shall be entitled to an Equity Retainer equal to $135,000.

b) The Lead Director shall be entitled to an additional Equity Retainer equal to $62,500.    

c) The number of shares granted shall be calculated pursuant to the terms of the Plan and shall be rounded down to the nearest share.

d) RSUs will vest and be payable on the first anniversary of the grant date, but will be payable in full on the earlier of (i) the date the director ceases to be a Director of the Company and (ii) a Change in Control (as defined in the Plan).

e) Dividend equivalents on the RSUs issued hereunder are deferred, credited with interest quarterly at the same rate as five-year U.S. government bonds and paid out in cash at the same time the corresponding portion of the award becomes payable.

f) The Company shall make payment of the RSUs in Company common stock.

g) Each director may, subject to any conditions deemed appropriate from time to time by the Human Resources Committee, defer the delivery of the Equity Retainer until the termination of such director’s service on the Board in accordance with Section 409A of the Internal Revenue Code of 1986, as amended (including the applicable regulations thereunder) using such deferral election form as approved by the Human Resources Committee from time to time.

3) General.

a) If any director joins the Board on a date other than the date of the Company’s Annual Meeting, then a pro-rata portion of each of the applicable Cash Retainer and Equity Retainer from the date joined to the next Annual Meeting date shall be granted.  

Effective as of October 26, 2017

Each director is expected to comply with the terms of any stock ownership guidelines for non-employee directors that are established by the Company, as in effect from time to time.

Effective as of October 26, 2017

EX-10.21

Exhibit 10.21

LSC COMMUNICATIONS, INC.
DIRECTOR RESTRICTED STOCK UNIT AWARD

This Restricted Stock Unit Award (“Award”) is granted as of this XX day of XX, XXXX (the “Grant Date”) by LSC Communications, Inc., a Delaware corporation (the “Company”), to XXXXXXX (“Grantee”).  This Award is made to Grantee pursuant to the provisions of the Company’s 2016 Performance Incentive Plan, as it may be amended from time to time (the “2016 PIP”).  Capitalized terms not defined herein shall have the meanings specified in the 2016 PIP.

1.Grant of Award.  The Company hereby credits to Grantee XXXXrestricted stock units (the “RSUs”), subject to the restrictions and on the terms and conditions set forth herein.  Grantee shall indicate acceptance of this Award by signing and returning a copy hereof.

2.Issuance of Common Stock in Satisfaction of Restricted Stock Units.  

(a)Except to the extent otherwise provided in paragraph 2(b) below, the Company shall deliver to Grantee on the earlier of  (1) May XX, XXXX or (2) the date Grantee ceases to be a member of the Board of Directors of the Company (the “Board”) or such other date as required by section 409A(a)(2)(A)(i) of the Internal Revenue Code of 1986, as amended (“Section 409A”), the number of shares of Common Stock equal to all of the RSUs and cash in the amount of Dividend Equivalents (as defined below) earned with respect to such RSUs pursuant to paragraph 3 below.

(b)Upon the date of a Change in Control, shares of Common Stock with respect to any remaining RSUs and cash in the amount of Dividend Equivalents earned with respect to such RSUs pursuant to paragraph 3 below shall be delivered to Grantee in accordance with the terms of the 2016 PIP.

(c)Each RSU shall be cancelled upon the issuance of a share of Common Stock with respect thereto.

3.Dividend Equivalents.  An amount in cash equal to the amount of dividends and other distributions that are payable (other than dividends or distributions for which the record date is prior to the date hereof) during the period commencing on the date hereof and ending on the date on which no RSUs shall remain outstanding (due to issuance of shares of Common Stock (or cash) in satisfaction of RSUs pursuant to paragraph 2) on a like number of shares of Common Stock as are equal to the number of RSUs then outstanding shall be credited to a bookkeeping account for Grantee (the “Dividend Equivalents”).  Such bookkeeping account shall be credited quarterly (beginning on the last day of the calendar quarter in which the first credit to the account was made) with an amount of interest on the balance (including interest previously

credited) at an annual rate equal to the then current yield obtainable on United States government bonds having a maturity date of approximately five years.      

4.Deferral Elections.  Notwithstanding the payment timing above, the delivery of the shares of Common Stock under this Award will be made in accordance with the terms of any deferral election made by Grantee using such deferral election form as approved by the Human Resources Committee of the Board (the “Committee”) from time to time, subject to any conditions deemed appropriate from time to time by the Committee (including the suspension of the right to elect deferrals or to make changes to any existing deferral election) and in accordance with Section 409A.

5.Rights as a Shareholder.  Prior to issuance, Grantee shall not have the right to vote, nor have any other rights of ownership in, the shares of Common Stock to be issued in satisfaction of the RSUs.  

6.Withholding Taxes

(a)As a condition precedent to the issuance to Grantee of any shares of Common Stock pursuant to this Award, Grantee shall, upon request by the Company, pay to the Company such amount of cash as the Company may be required, under all applicable and allowable laws or regulations, to withhold and pay over as income or other withholding taxes (the “Required Tax Payments”) with respect to the Award and any Dividend Equivalents.  If Grantee shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to Grantee.

(b)Grantee may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means:  (1) a cash payment to the Company, (2) delivery to the Company of previously owned whole shares of Common Stock for which Grantee has good title, free and clear of all liens and encumbrances, having a fair market value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Award and any Dividend Equivalents (the “Tax Date”), equal to the Required Tax Payments, or (3) directing the Company to withhold a number of shares of Common Stock (or cash) otherwise issuable to Grantee pursuant to this Award and any Dividend Equivalents having a fair market value, determined as of the Tax Date, equal to the Required Tax Payments or any combination of (1)-(3). No certificate representing a share of Common Stock shall be delivered until the Required Tax Payments have been satisfied in full.  For purposes of this Award and any Dividend Equivalents, the fair market value of a share of Common Stock on a specified date shall be determined by reference to the closing stock price  in trading of the Common Stock or, if no such trading in the Common Stock occurred on such date, then on the next preceding date when such trading occurred.

7.Miscellaneous  

(a)The Company shall pay all original issue or transfer taxes with respect to the issuance or delivery of shares of Common Stock pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection therewith, and will use reasonable efforts to comply with all laws and regulations which, in the opinion of counsel for the Company, shall be applicable thereto.

(b)This Award shall be governed in accordance with the laws of the State of Illinois.

(c)This Award shall be binding upon and inure to the benefit of any successor or successors to the Company.

(d)Neither this Award nor the RSUs nor any rights hereunder or thereunder may be transferred or assigned by Grantee other than:

(1)by will or the laws of descent and distribution;

(2)in whole or in part to one or more transferees; provided that (i) any such transfer must be without consideration, (ii) each transferee must be a “family member” of Grantee, a trust established for the exclusive benefit of Grantee and/or one or more family member of Grantee or a partnership whose sole equity owners are Grantee and/or family members of Grantee, and (iii) such transfer is specifically approved by the Company’s General Counsel or the  Committee following the receipt of a completed Assignment of Restricted Stock Unit Award; or

(3)as otherwise set forth in an amendment to this Award.  

In the event the RSUs are transferred as contemplated in this Section 7(d), such transfer shall become effective when approved by the Company’s General Counsel or the Committee (as evidenced by counter execution of the Assignment of Restricted Stock Unit Award on behalf of the Company), and such RSUs may not be subsequently transferred by the transferee other than by will or the laws of descent and distribution.  Any transferred RSU shall continue to be governed by and subject to the terms and conditions of the 2016 PIP and this Agreement and the transferee shall be entitled to the same rights as Grantee as if no transfer had taken place.  Except as permitted by the foregoing, the RSUs and this Award may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process.  Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of the RSUs, the RSUs and all rights hereunder shall immediately become null and void.  As used in this Section, "family member" with respect to any person, includes any child, step-child, grandchild, parent, step-parent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law and sister-in-law, including adoptive relationships, and any person sharing the transferor's household (other than a tenant or employee).

(e)The Committee, as from time to time constituted, shall have the right to determine any questions which arise in connection with this Award, the RSUs or the Dividend Equivalents.  This Award and the RSUs are subject to the provisions of the 2016 PIP and shall be interpreted in accordance therewith.

IN WITNESS WHEREOF, the Company has caused this Award to be duly executed by its duly authorized officer.

LSC Communications, Inc.

By:

Name: Suzanne S. Bettman

Title: Chief Administrative Officer

Accepted: ________________________

XXXXX                

EX-31.1

Exhibit 31.1

Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

of the Securities Exchange Act of 1934

I, Thomas J. Quinlan, III, certify that:  

1. I have reviewed this Quarterly Report on Form 10-Q of LSC Communications, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and  

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 2, 2017      

/s/    THOMAS J. QUINLAN, III

Thomas J. Quinlan, III

  Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

of the Securities Exchange Act of 1934

I, Andrew B. Coxhead, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of LSC Communications, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and  

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 2, 2017    

/s/    ANDREW B. COXHEAD

Andrew B. Coxhead

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b)

AND SECTION 1350 OF CHAPTER 63 OF TITLE 18

OF THE UNITED STATES CODE (18 U.S.C. 1350),

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of LSC Communications, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas J. Quinlan, III, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 2, 2017  

/s/  THOMAS J. QUINLAN, III

Thomas J. Quinlan, III

Chairman and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b)

AND SECTION 1350 OF CHAPTER 63 OF TITLE 18

OF THE UNITED STATES CODE (18 U.S.C. 1350),

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of LSC Communications (the “Company”) on Form 10-Q for the period ended September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrew B. Coxhead, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

November 2, 2017        

/s/  ANDREW B. COXHEAD

Andrew B. Coxhead

Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Oct. 27, 2017
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Trading Symbol	LKSD
Entity Registrant Name	LSC Communications, Inc.
Entity Central Index Key	0001669812
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		34,845,077

XML

CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS (UNAUDITED) - USD ($) $ in Millions	Sep. 30, 2017	Dec. 31, 2016
ASSETS
Cash and cash equivalents	$ 23	$ 95
Receivables, less allowances for doubtful accounts of $10 in 2017 (2016: $10)	741	667
Income taxes receivable	24	1
Inventories (Note 3)	237	193
Prepaid expenses and other current assets	25	20
Total current assets	1,050	976
Property, plant and equipment-net (Note 4)	612	608
Goodwill (Note 5)	82	84
Other intangible assets-net (Note 5)	158	131
Deferred income taxes	65	57
Other noncurrent assets	106	96
Total assets	2,073	1,952
LIABILITIES
Accounts payable	325	294
Accrued liabilities	237	237
Short-term and current portion of long-term debt (Note 13)	177	52
Total current liabilities	739	583
Long-term debt (Note 13)	707	742
Pension liabilities	237	279
Deferred income taxes	1	2
Other noncurrent liabilities	103	106
Total liabilities	1,787	1,712
Commitments and contingencies (Note 12)
EQUITY (Note 8)
Common stock, $0.01 par value Authorized: 65,000,000 shares; Issued: 34,446,778 shares in 2017 (2016: 32,449,669)	0	0
Additional paid-in-capital	813	770
(Accumulated deficit) retained earnings	(23)	1
Accumulated other comprehensive loss (Note 10)	(503)	(531)
Treasury stock, at cost: 34,727 shares in 2017	(1)	0
Total equity	286	240
Total liabilities and equity	$ 2,073	$ 1,952

XML

CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS (UNAUDITED) (Parenthetical) - USD ($) $ in Millions	Sep. 30, 2017	Dec. 31, 2016
Statement Of Financial Position [Abstract]
Receivables, allowance for doubtful accounts	$ 10	$ 10
Common stock, par value	$ 0.01	$ 0.01
Common stock, Authorized	65,000,000	65,000,000
Common stock, Issued	34,446,778	32,449,669
Treasury stock, shares	34,727	0

XML

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) shares in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Income Statement [Abstract]
Net sales	$ 935	$ 949	$ 2,604	$ 2,735
Cost of sales	778	783	2,175	2,250
Selling, general and administrative expenses (exclusive of depreciation and amortization)	65	66	194	196
Restructuring, impairment and other charges-net (Note 6)	60	3	87	11
Depreciation and amortization	39	40	118	130
(Loss) income from operations	(7)	57	30	148
Interest expense-net	19	1	52	0
Investment and other expense-net	0	0	0	1
(Loss) income before income taxes	(26)	56	(22)	147
Income tax (benefit) expense	(23)	18	(23)	50
Net (loss) income	$ (3)	$ 38	$ 1	$ 97
Net (loss) earnings per common share (Note 9):
Basic net (loss) earnings per share	$ (0.07)	$ 1.17	$ 0.03	$ 2.99
Diluted net (loss) earnings per share	(0.07)	1.17	0.03	2.99
Dividends declared per common share	$ 0.25	$ 0	$ 0.75	$ 0
Weighted average number of common shares outstanding:
Basic	34.2	32.4	33.5	32.4
Diluted	34.2	32.4	33.8	32.4

XML

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Statement Of Income And Comprehensive Income [Abstract]
Net (loss) income	$ (3)	$ 38	$ 1	$ 97
Other comprehensive income (loss), net of tax (Note 10)
Translation adjustments	2	(2)	20	(3)
Adjustments for net periodic pension plan cost	3	1	8	(1)
Other comprehensive income (loss)	5	(1)	28	(4)
Comprehensive income	$ 2	$ 37	$ 29	$ 93

XML

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Cash Flows from Operating Activities
Net income	$ 1	$ 97
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment charges	55	0
Depreciation and amortization	118	130
Provision for doubtful accounts receivable	3	11
Share-based compensation	10	4
Deferred income taxes	(14)	(14)
Other	3	(3)
Changes in operating assets and liabilities - net of acquisitions:
Accounts receivable- net	(48)	(45)
Inventories	(20)	(12)
Prepaid expenses and other current assets	(3)	(4)
Accounts payable	36	(11)
Income taxes payable and receivable	(29)	(2)
Accrued liabilities and other	(54)	(15)
Net cash provided by operating activities	58	136
Cash Flows from Investing Activities
Capital expenditures	(51)	(35)
Acquisitions of businesses, net of cash acquired	(175)	0
Net proceeds from sales and purchase of investments	1	0
Proceeds from sales of other assets	7	1
Transfers from restricted cash	0	9
Net cash used in investing activities	(218)	(25)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt	0	816
Payments of current maturities and long-term debt	(53)	(4)
Net proceeds from credit facility borrowings	140	0
Debt issuance costs	0	(18)
Proceeds from issuance of common stock	18	0
Dividends paid	(25)	0
Payments from RRD – net	3	0
Net transfers to Parent and affiliates	0	(945)
Net cash provided by (used in) financing activities	83	(151)
Effect of exchange rate on cash and cash equivalents	5	0
Net decrease in cash and cash equivalents	(72)	(40)
Cash and cash equivalents at beginning of year	95	95
Cash and cash equivalents at end of period	23	55
Supplemental non-cash disclosure:
Assumption of warehousing equipment related to customer contract	0	9
Fairrington
Supplemental non-cash disclosure:
Issuance of shares of LSC Communications, Inc. common stock for acquisition of a business	$ 20	$ 0

XML

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED) (Parenthetical) shares in Millions	9 Months Ended
	Sep. 30, 2017 shares
Fairrington
Issuance of stock for acquisitions of businesses	1.0

XML

Overview and Basis of Presentation

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Overview and Basis of Presentation

Note 1.  Overview and Basis of Presentation  

Description of Business and Separation

The principal business of LSC Communications, Inc., a Delaware corporation, and its direct or indirect wholly-owned subsidiaries (“LSC Communications,” “the Company,” “we,” “our” and “us”) is to offer a broad scope of traditional and digital print, print-related services and office products.  The Company serves the needs of publishers, merchandisers and retailers worldwide with a service offering that includes e-services, warehousing and fulfillment and supply chain management. The Company utilizes a broad portfolio of technology capabilities coupled with consultative attention to clients' needs to increase speed to market, reduce costs, provide postal savings to customers and improve efficiencies. The Company prints magazines, catalogs, retail inserts, books, and directories and its office products offerings include filing products, note-taking products, binder products, forms, and envelopes. 

On October 1, 2016 (the “separation date”), R. R. Donnelley & Sons Company (“RRD” or the “Parent”) completed the previously announced separation (the “separation”) into three separate independent publicly-traded companies: (i) its publishing and retail-centric print services and office products business (“LSC Communications”); (ii) its financial communications services business (“Donnelley Financial Solutions, Inc.” or “Donnelley Financial”) and (iii) a global, customized multichannel communications management company, which is the business of RRD after the separation.  To effect the separation, RRD undertook a series of transactions to separate net assets and legal entities.  RRD completed the distribution (the “distribution”) of 80.75%, of the outstanding common stock of LSC Communications and Donnelley Financial to RRD stockholders on October 1, 2016.  RRD retained a 19.25% ownership stake in both LSC Communications and Donnelley Financial.  On October 1, 2016, RRD stockholders of record as of the close of business on September 23, 2016 (“the record date”) received one share of LSC Communications common stock and one share of Donnelley Financial common stock for every eight shares of RRD common stock held as of the record date.  

On March 28, 2017, RRD completed the sale of approximately 6.2 million shares of LSC Communications common stock, representing its entire 19.25% retained ownership.  In connection with the over-allotment option granted to the underwriters as part of the secondary sale by RRD, LSC Communications also sold approximately 0.9 million shares of common stock, receiving proceeds of $18 million, which were used for general corporate purposes.      

In connection with the separation, LSC Communications, RRD and Donnelley Financial entered into commercial arrangements, transition services agreements and various other agreements related to the separation that remain in effect.  Final copies of such agreements are filed as exhibits to this quarterly report on Form 10-Q.

Basis of Presentation

The accompanying condensed consolidated and combined financial statements reflect the consolidated balance sheets and statements of operations of the Company as an independent, publicly traded company for the periods after the separation, and the condensed combined balance sheets and statements of operations of the Company as a combined reporting entity of RRD for the periods prior to the separation.  The condensed consolidated and combined financial statements include the balance sheets, statements of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”).  These unaudited condensed consolidated and combined interim financial statements include estimates and assumptions of management that affect the amounts reported in the condensed consolidated and combined financial statements. Actual results could differ from these estimates.  Certain prior year amounts were restated to conform to the Company’s current consolidated and combined statement of operations classifications.    

On October 1, 2016, the Company recorded certain separation-related adjustments primarily for certain assets and liabilities that were distributed as part of the separation from RRD. The adjustments primarily related to the assumption of certain pension obligations and plan assets in single employer plans for the Company’s employees and certain former employees and retirees of RRD.  Refer to Note 8, Equity, for information on the separation-related adjustments recorded during the nine months ended September 30, 2017.  Additional separation-related adjustments may be recorded in future periods.             

Prior to the Separation

The condensed combined financial statements were prepared on a stand-alone basis and were derived from RRD’s consolidated financial statements and accounting records. They include certain expenses of RRD that were allocated to LSC Communications for certain corporate functions, including healthcare and pension benefits, information technology, finance, legal, human resources, internal audit, treasury, tax, investor relations and executive oversight.  These expenses were allocated to the Company on the basis of direct usage, when available, with the remainder allocated on a pro rata basis by revenue, employee headcount, or other measures. The Company considered the allocation methodologies and results to be reasonable for all periods presented, however, these allocations may not be indicative of the actual expenses that LSC Communications would have incurred as an independent public company or the costs it may incur in the future.  The income tax amounts in these combined financial statements were calculated based on a separate income tax return methodology and presented as if the Company’s operations were separate taxpayers in the respective jurisdictions.  

All intercompany transactions and accounts have been eliminated.  All intracompany transactions between LSC Communications, RRD and Donnelley Financial are considered to be effectively settled in the condensed consolidated and combined financial statements at the time the transaction is recorded.  The total net effect of the settlement of these intracompany transactions is reflected in the condensed combined statement of cash flows as a financing activity.    

XML

Business Combinations

9 Months Ended

Sep. 30, 2017

Business Combinations [Abstract]

Business Combinations

Note 2.  Business Combinations

2017 Acquisitions

On September 7, 2017, the Company acquired Publishers Press, a printing solutions provider with capabilities such as web-offset printing, prepress and distribution services for magazines and retail brands. The acquisition enhanced the Company’s printing capabilities.  The total purchase price was $70 million in cash, of which $1 million was recorded in goodwill.  For the three and nine months ended September 30, 2017, the Company’s condensed consolidated statement of operations included net sales of $11 million and a de minimis amount of income from operationsattributable to the acquisition of Publishers Press.

On August 21, 2017, the Company acquired the assets of NECI, LLC (“NECI”), a supplier of commodity and specialty filing supplies.  The acquisition enhanced the Company’s office products offerings.  The total purchase price was $5 million in cash, of which $1 million was recorded in goodwill.  For the three and nine months ended September 30, 2017, the Company’s condensed consolidated statement of operations included net sales of $1 million and a de minimis amount of loss from operations attributable to the acquisition of NECI.

OnAugust 17, 2017, the Company acquired CREEL Printing (“CREEL”), an offset and digital printing company.  The acquisition enhanced the capabilities of the Company’s offset and digital production platform and brought enhanced technologies to support our clients’ evolving needs, specifically in the magazine media and retail marketing industries.  CREEL’s capabilities include full-color web and sheetfed printing, regionally distributed variable digital production, large-format printing, and integrated digital solutions.  The purchase price, which included the Company’s estimate of contingent consideration, was $78 million in cash, of which $25 million was recorded in goodwill.  Contingent consideration in the form of cash payments up to $10 million will be due to the sellers if and to the extent certain financial targets are achieved.  As of the acquisition date, the Company estimated the fair value of the contingent consideration to be $1 million using a probability weighting of the potential payouts.  For the three and nine months ended September 30, 2017, the Company’s condensed consolidated statement of operations included net sales of $18 million and income from operations of $3 million attributable to the acquisition of CREEL.

On July 28, 2017, the Company acquired Fairrington Transportation Corp., F.T.C. Transport, Inc. and F.T.C. Services, Inc. (“Fairrington”), a full-service, printer-independent mailing logistics provider in the United States.  The acquisition enhanced the Company’s logistics service offering. The purchase price was $20 million in cash and approximately 1.0 million shares of LSC Communications common stock, for a total transaction value of $40 million.  Of the total purchase price, $22 million was recorded in goodwill.  For the three and nine months ended September 30, 2017, the Company’s condensed consolidated statement of operations included net sales of $11 million and a de minimis amount of income from operations attributable to the acquisition of Fairrington.

On March 1, 2017, the Company acquired HudsonYards Studios (“HudsonYards”), a digital and print premedia production company that provides high-quality creative retouching, computer-generated imagery, mechanical creation, press-ready file preparation, and interactive production services.  The acquisition enhanced the Company’s digital and premedia capabilities.  The purchase price for HudsonYards was $3 million in cash, of which $2 million was recorded in goodwill.  For the three months ended September 30, 2017, the Company’s condensed consolidated statement of operations included net sales of $2 million and a de minimis operating loss attributable to the acquisition of HudsonYards.  For the nine months ended September 30, 2017, the Company’s condensed consolidated statement of operations included net sales of $5 million and a loss from operations of $1 million attributable to the acquisition of HudsonYards.  

The operations of Publishers Press, CREEL, Fairrington, and HudsonYards are included in the Print segment; specifically the magazines, catalogs and retail inserts reporting unit.  The operations of NECI are included in the Office Products segment.  

The acquisitions were recorded by allocating the cost of the acquisitions to the assets acquired, including other intangible assets, based on their estimated fair values at the acquisition date.  The excess of the cost of the acquisitions over the net amounts assigned to the fair value of the assets acquired was recorded in goodwill. The goodwill is primarily attributable to the synergies expected to arise as a result of the acquisitions.   

The preliminary tax deductible goodwill related to the Publishers Press, NECI, CREEL, Fairrington, and HudsonYards acquisitions was $33 million.

Based on the acquisition-date valuations, the preliminary purchase price allocations for Publishers Press, CREEL and Fairrington in the Print segment are as follows:

	Publishers Press			CREEL			Fairrington
Accounts Receivable	$	25		$	13		$	6
Inventories		13			5			—
Prepaid expenses and other current assets		2			1			—
Property, plant and equipment		36			19			6
Other intangible assets		—			22			17
Other noncurrent assets		—			—			1
Goodwill		1			25			22
Accounts payable and accrued liabilities		(8	)		(7	)		(4	)
Deferred taxes-net		—			—			(9	)
Total purchase price, net of cash acquired		69			78			39
Less: value of common stock issued		—			—			20
Net cash paid:	$	69		$	78		$	19

Given the historical valuations of the magazines, catalogs and retail inserts reporting unit that have resulted in goodwill impairment in prior years, combined with the change in the composition of the carrying value of the reporting unit due to the recent acquisitions, the Company determined it necessary to perform an interim goodwill impairment review on this reporting unit as of September 30, 2017.  As a result, for the three months ended September, 2017, the Company recorded a non-cash charge of $55 million to recognize the impairment of goodwill for the magazines, catalogs and retail inserts reporting unit in the Print segment.  Refer to Note 6, Restructuring, Impairment and Other Charges, for further details on this non-cash charge.    

The purchase price allocations for Publishers Press, NECI, CREEL, and Fairrington are preliminary because the valuations necessary to assess the fair values of the net assets and liabilities acquired are still in process.  The primary areas that are not yet finalized relate to the valuation of certain assets and liabilities.  The final purchase price allocations may differ from what is currently reflected in the condensed consolidated financial statements, and could affect goodwill impairment in the future.

The fair values of other intangible assets and goodwill associated with the acquisitions were determined to be Level 3 under the fair value hierarchy. The following table presents the fair value, valuation techniques and related unobservable inputs for these Level 3 measurements:

	Fair Value		Valuation Technique	Unobservable Input	Range
Customer relationships	$	36	Relief-from-royalty-method	Growth rate	(3.0)% - 0.9%
				Attrition rate	6.0% - 6.5%
				Discount rate	15.0% - 23.0%
Trade names		3	Multi-period excess earnings method	Royalty rate	1.0% - 1.5%
				Discount rate	15.0% - 19.0%

The fair values of property, plant and equipment associated with the acquisitions were determined to be Level 3 under the fair value hierarchy. Property, plant and equipment values were estimated using either the cost or market approach, if a secondhand market existed.

For the three and nine months ended September 30, 2017, the Company recorded $2 million and $3 million of acquisition-related expenses associated with the completed and contemplated acquisitions described above within selling, general and administrative expenses in the condensed consolidated statements of operations.

2016 Acquisition  

On December 2, 2016, the Company acquired Continuum Management Company, LLC (“Continuum”), a print procurement and management business.  The acquisition enhanced the Company’s print management’s capabilities.  The Company paid $7 million in cash in 2016.  An additional $2 million in cash was paid during the three months ended March 31, 2017 as part of a final working capital adjustment for a total purchase price of $9 million, of which $5 million was recorded in goodwill.  The operations of Continuum are included in the Print segment.

There were no acquisition-related expenses during the three and nine months ended September 30, 2016.

Pro forma results  

The following unaudited pro forma financial information for the three and nine months ended September 30, 2017 and 2016 presents the condensed consolidated and combined statements of operations of the Company and the acquisitions described above, as if the acquisitions had occurred as of January 1 of the year prior to the acquisitions.

The unaudited pro forma financial information is not intended to represent or be indicative of the Company’s condensed consolidated and combined statements of operations that would have been reported had these acquisitions been completed as of the beginning of the period presented and should not be taken as indicative of the Company’s future condensed consolidated statements of operations.

	Three Months Ended					Nine Months Ended
	September 30					September 30
		2017			2016		2017			2016
Net sales	$	978		$	1,052	$	2,808		$	3,034
Net (loss) income		(6	)		40		(8	)		97
Net (loss) earnings per common share
Basic	$	(0.18	)	$	1.20	$	(0.24	)	$	2.90
Diluted	$	(0.18	)	$	1.20	$	(0.24	)	$	2.90

The following table outlines unaudited pro forma financial information for the three and nine months ended September 30, 2017 and 2016:

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2017		2016		2017		2016
Amortization of purchased intangibles	$	5	$	5	$	15	$	16

Additionally, the nonrecurring pro forma adjustments affecting net income for the three and nine months ended September 30, 2017 and 2016 were as follows:  

	Three Months Ended					Nine Months Ended
	September 30					September 30
	2017			2016		2017			2016
Acquisition-related expenses, pre-tax	$	(1	)	$	—	$	(1	)	$	—
Restructuring, impairment and other charges		—			—		(1	)		—
Inventory fair value adjustments, pre-tax		1			—		1			(1	)
Other pro forma adjustments, pre-tax		—			1		2			2
Income taxes		—			—		1			(1	)

Note: A negative number in the table above represents a decrease to income in pro forma net income.

XML

Inventories

9 Months Ended

Sep. 30, 2017

Inventory Disclosure [Abstract]

Inventories

Note 3.  Inventories

The components of the Company’s inventories, net of excess and obsolescence reserves for raw materials and finished goods, at September 30, 2017 and December 31, 2016 were as follows:    

	September 30,			December 31,
	2017			2016
Raw materials and manufacturing supplies	$	121		$	100
Work in process		74			58
Finished goods		99			93
Last in, First out reserve ("LIFO")		(57	)		(58	)
Total	$	237		$	193

XML

Property, Plant and Equipment

9 Months Ended

Sep. 30, 2017

Property Plant And Equipment [Abstract]

Property, Plant and Equipment

Note 4.  Property, Plant and Equipment

The components of the Company’s property, plant and equipment at September 30, 2017 and December 31, 2016 were as follows:

	September 30,			December 31,
	2017			2016
Land	$	46		$	42
Buildings		783			762
Machinery and equipment		4,133			4,173
		4,962			4,977
Accumulated depreciation		(4,350	)		(4,369	)
Total	$	612		$	608

During the three and nine months ended September 30, 2017, depreciation expense was $34 million and$102 million, respectively.  During the three and nine months ended September 30, 2016, depreciation expense was $35 million and $112 million, respectively.

XML

Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2017

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

Note 5.  Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended September 30, 2017 were as follows:

	Print			Office Products			Total
Net book value as of December 31, 2016
Goodwill	$	852		$	109		$	961
Accumulated impairment losses		(798	)		(79	)		(877	)
Total		54			30			84
Acquisitions		52			1			53
Impairment charges		(55	)		—			(55	)
Net book value as of September 30, 2017
Goodwill		914			110			1,024
Accumulated impairment losses		(863	)		(79	)		(942	)
Total	$	51		$	31		$	82

During the three months ended September 30, 2017, the Company recorded a non-cash charge of $55 million to recognize the impairment of goodwill for the magazines, catalogs and retail inserts reporting unit in the Print segment.  See Note 6, Restructuring, Impairment and Other Charges, for further discussion regarding this impairment charge.  

The components of other intangible assets at September 30, 2017 and December 31, 2016 were as follows:

	September 30, 2017							December 31, 2016
	Gross  Carrying		Accumulated			Net Book		Gross  Carrying		Accumulated			Net Book
	Amount		Amortization			Value		Amount		Amortization			Value
Customer relationships	$	242	$	(120	)	$	122	$	205	$	(109	)	$	96
Trade names		7		(3	)		4		5		(2	)		3
Total amortizable other intangible assets		249		(123	)		126		210		(111	)		99
Indefinite-lived trade names		32		—			32		32		—			32
Total other intangible assets	$	281	$	(123	)	$	158	$	242	$	(111	)	$	131

The Company recorded additions to other intangible assets of $39 million for acquisitions during the three months ended September 30, 2017.  

The components of other intangible assets added during the three months ended September 30, 2017 were as follows:

	September 30, 2017
			Weighted-Average
			Amortization Period
	Amount		(years)
Customer relationships	$	36		10.6
Trade names (amortizable)		3		5.0
	$	39

During the three and nine months ended September 30, 2017, amortization expense for other intangible assets was $4 million and $12 million, respectively.  During the three and nine months ended September 30, 2016, amortization expense for other intangible assets was $4 million and $13 million, respectively.          

The following table outlines the estimated annual amortization expense related to other intangible assets:

For the year ending December 31,	Amount
2017	$	17
2018		15
2019		15
2020		14
2021		13
2022 and thereafter		64
Total	$	138

XML

Restructuring, Impairment and Other Charges

9 Months Ended

Sep. 30, 2017

Restructuring And Related Activities [Abstract]

Restructuring, Impairment and Other Charges

Note 6.  Restructuring, Impairment and Other Charges      

For the three months ended September 30, 2017 and 2016, the Company recorded the following net restructuring, impairment and other charges:    

Three Months Ended                         September 30, 2017	Employee Terminations		Other Restructuring Charges		Total Restructuring Charges		Impairment		Other Charges		Total
Print	$	—	$	2	$	2	$	55	$	1	$	58
Corporate		—		2		2		—		—		2
Total	$	—	$	4	$	4	$	55	$	1	$	60

Three Months Ended                           September 30, 2016	Employee Terminations		Other Restructuring Charges		Total Restructuring Charges		Impairment			Other Charges		Total
Print	$	—	$	1	$	1	$	(1	)	$	1	$	1
Corporate		2		—		2		—			—		2
Total	$	2	$	1	$	3	$	(1	)	$	1	$	3

For the nine months ended September 30, 2017 and 2016, the Company recorded the following net restructuring, impairment and other charges:  

Nine Months Ended                           September 30, 2017	Employee Terminations		Other Restructuring Charges		Total Restructuring Charges		Impairment		Other Charges		Total
Print	$	6	$	5	$	11	$	55	$	3	$	69
Office Products		1		—		1		—		—		1
Corporate		—		17		17		—		—		17
Total	$	7	$	22	$	29	$	55	$	3	$	87

Nine Months Ended                           September 30, 2016	Employee Terminations		Other Restructuring Charges		Total Restructuring Charges		Impairment		Other Charges		Total
Print	$	2	$	4	$	6	$	—	$	3	$	9
Corporate		2		—		2		—		—		2
Total	$	4	$	4	$	8	$	—	$	3	$	11

Restructuring and Impairment Charges      

For the three and nine months ended September 30, 2017, the Company incurred employee-related restructuring charges of a de minimis amount and $7 million for an aggregate of 516 employees, of whom 450 were terminated as of or prior to September 30, 2017.  These charges primarily related to one facility closure in the Print segment and the reorganization of certain business units.  The Company incurred other restructuring charges of $4 million and $22 million for the three and nine months ended September 30, 2017, respectively, primarily related to charges incurred as a result of a terminated supplier contract and the exit from certain operations and facilities.    

As explained in Note 2, Business Combinations, the Company completed several acquisitions during the three months ended September 30, 2017, three of which are now included in the Company’s magazines, catalogs and retail inserts reporting unit, which is part of the Print segment.  The goodwill arising from each acquisition was determined on a stand-alone basis for each particular transaction based on each transaction’s individual facts and circumstances, in accordance with ASC 805, Business Combinations.  Per the guidance in ASC 805, goodwill was recognized on each transaction given that the consideration transferred for each transaction was in excess of the net amounts of the identifiable assets acquired and the liabilities assumed.  Furthermore, the consideration transferred, the identifiable assets acquired and the liabilities assumed were all measured at the acquisition-date fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction, between market participants, at the acquisition date.

In accordance with ASC 350, Intangibles — Goodwill and Other, the Company is required to test its goodwill for impairment annually, or more often if there is an indication that goodwill might be impaired.  For purposes of the goodwill impairment test, goodwill is not tested based upon the individual transactions that gave rise to the goodwill, but rather based upon the reporting unit’s total goodwill and the characteristics of the reporting unit in which the goodwill resides.  Therefore, the level at which goodwill is tested for impairment is different from the level that originally created the goodwill.  In the Company’s case, the test is performed based upon the total carrying value of the magazines, catalogs and retail inserts reporting unit and that reporting unit’s total implied fair value.  Carrying value is determined based upon the net book value of assets and liabilities required for the operations of the magazines, catalogs and retail inserts reporting unit, while fair value is determined based upon a discounted cash flows analysis of the magazines, catalogs and retail inserts reporting unit.  If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

The Company’s policy is to perform its annual test of goodwill for impairment as of October 31 of each year.  Prior to the acquisitions completed within the last twelve months, the magazines, catalogs and retail inserts reporting unit had zero goodwill recorded, as goodwill associated with this reporting unit had been fully impaired in prior years.  Given the historical valuations of the magazines, catalogs and retail inserts reporting unit that have resulted in goodwill impairment in prior years, combined with the change in the composition of the carrying value of the reporting unit due to the recent acquisitions, the Company determined it necessary to perform an interim goodwill impairment review on this reporting unit as of September 30, 2017.    

As a result of the interim goodwill impairment test, and consistent with prior goodwill impairment tests, the magazines, catalogs and retail inserts reporting unit’s fair value continued to be at a value below its carrying value.  This is primarily due to the negative revenue trends experienced in recent years that are only partially offset by the impact of the new acquisitions.  As such, the Company recorded a non-cash charge of $55 million during the three and nine months ended September 30, 2017 to recognize the impairment of goodwill in this reporting unit.  The goodwill impairment charges were determined using Level 3 inputs, including discounted cash flow analyses, comparable marketplace fair value data and management’s assumptions.    

For the three and nine months ended September 30, 2016, the Company incurred other restructuring charges of $1 million and $4 million, respectively. Additionally, the three and nine months ended September 30, 2016 included net restructuring charges of $2 million and $4 million, respectively, for employee termination costs for an aggregate of 48 employees, substantially all of whom were terminated as of or prior to September 30, 2017. These charges primarily related to one facility closure in the Print segment and the reorganization of certain operations. The Company also recorded a reversal of previously recorded impairment charges of $1 million for the three months ended September 30, 2016.  There was also a de minimis amount of net impairment charges during the nine months ended September 30, 2016.  

Restructuring Reserve

The restructuring reserve as of December 31, 2016 and September 30, 2017, and changes during the nine months ended September 30, 2017, were as follows:

	December 31, 2016		Restructuring Charges		Foreign Exchange and Other		Cash Paid			September 30, 2017
Employee terminations	$	8	$	7	$	—	$	(11	)	$	4
Multiemployer pension plan withdrawal      obligations		18		1		—		(3	)		16
Lease terminations and other		2		16		—		(14	)		4
Total	$	28	$	24	$	—	$	(28	)	$	24

The current portion of restructuring reserves of $11 million at September 30, 2017 was included in accrued liabilities, while the long-term portion of $13 million, which primarily related to multiemployer pension plan withdrawal obligations related to facility closures and lease termination costs, was included in other noncurrent liabilities at September 30, 2017.    

The Company anticipates that payments associated with the employee terminations reflected in the above table will be substantially completed by September 30, 2018.    

Payments on all of the Company’s multiemployer pension plan withdrawal obligations are scheduled to be completed by 2034. Changes based on uncertainties in these estimated withdrawal obligations could affect the ultimate charges related to multiemployer pension plan withdrawals.  

The restructuring liabilities classified as “lease terminations and other” consisted of lease terminations and other facility closing costs. Payments on certain of the lease obligations are scheduled to continue until 2018. Market conditions and the Company’s ability to sublease these properties could affect the ultimate charges related to the lease obligations.  Any potential recoveries or additional charges could affect amounts reported in the Company’s condensed consolidated and combined financial statements.

Other Charges  

For the three and nine months ended September 30, 2017, the Company recorded other charges of $1 million and $3 million, respectively, for multiemployer pension plan withdrawal obligations unrelated to facility closures.  The total liability for the withdrawal obligations associated with the Company’s decision to withdraw from certain multiemployer pension plans included in accrued liabilities and other noncurrent liabilities are $6 million and $37 million, respectively, at September 30, 2017.  

The Company’s withdrawal liabilities could be affected by the financial stability of other employers participating in such plans and any decisions by those employers to withdraw from such plans in the future. While it is not possible to quantify the potential impact of future events or circumstances, reductions in other employers’ participation in multiemployer pension plans, including certain plans from which the Company has previously withdrawn, could have a material effect on the Company’s previously estimated withdrawal liabilities and condensed consolidated and combined balance sheets, statements of operations and cash flows.

For the three and nine months ended September 30, 2016, the Company recorded other charges of $1 million and $3 million, respectively, for multiemployer pension plan withdrawal obligations unrelated to facility closures.  

XML

Retirement Plans

9 Months Ended

Sep. 30, 2017

Compensation And Retirement Disclosure [Abstract]

Retirement Plans

Note 7.  Retirement Plans

The Company is the sole sponsor of certain defined benefit pension plans, which have been reflected in the condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016. At the separation date, the Company assumed and recorded certain pension obligations and plan assets in single employer plans for the Company’s employees and certain former employees and retirees.  The Company recorded a net benefit plan obligation of $358 million as of October 1, 2016 related to these plans.  On June 30, 2017, the Company recorded a $6 million increase to this net obligation as a result of the final actuarial valuation of the Company’s qualified plan assets that was completed in June 2017.  Additionally, the Company’s United Kingdom pension plan was transferred to RRD at the separation date and, as a result, the Company recorded a reduction in its net benefit plan assets of $7 million as of October 1, 2016.        

The components of the estimated net pension benefits plan income for the three and nine months ended September 30, 2017 and 2016 are disclosed in the table below.  Amounts shown for the three and nine months ended September 30, 2017 include pension income for the Company’s qualified and non-qualified plans, certain plans in Mexico and plans acquired as a result of the acquisitions of Esselte Corporation (“Esselte”) and Courier Corporation (“Courier”). Amounts shown for the three and nine months ended September 30, 2016 include pension income for certain plans in the United Kingdom and Mexico and plans acquired as a result of the the acquisitions of Esselte and Courier.  

	Three Months Ended September 30, 2017					Nine Months Ended September 30, 2017
	Qualified			Non-Qualified & International		Qualified			Non-Qualified & International
Interest cost	$	22		$	—	$	65		$	2
Expected return on plan assets		(38	)		—		(114	)		—
Amortization, net		4			1		12			1
Net periodic benefit (income) loss	$	(12	)	$	1	$	(37	)	$	3

	Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
	Qualified			Non-Qualified & International			Qualified			Non-Qualified & International
Interest cost	$	2		$	2		$	5		$	5
Expected return on plan assets		(3	)		(2	)		(8	)		(7	)
Amortization, net		—			—			—			1
Settlement		—			—			1			—
Net periodic benefit income	$	(1	)	$	—		$	(2	)	$	(1	)

Prior to the separation, certain employees of the Company participated in certain pension and postretirement healthcare plans sponsored by RRD.  For RRD-sponsored defined benefit and postemployment plans, the Company recorded net pension and postretirement income of $8 million and $28 million for the three and nine months ended September 30, 2016 in addition to the amounts disclosed above.    

The Company recorded non-cash settlement charges of $1 million in selling, general and administrative expenses in the three months ended June 30, 2016 in connection with settlement payments from an early buyout of certain former Esselte employees.  These charges resulted from the recognition in earnings of a portion of the actuarial losses recorded in accumulated other comprehensive loss based on the proportion of the obligation settled. 

XML

Equity

9 Months Ended

Sep. 30, 2017

Equity [Abstract]

Equity

Note 8.  Equity

The Company’s equity as of December 31, 2016 and September 30, 2017 and changes during the nine months ended September 30, 2017 were as follows:

	Total Equity
Balance at December 31, 2016	$	240
Net income		1
Other comprehensive income		28
Share-based compensation		10
Issuance of share-based awards, net of withholdings and other		(1	)
Cash dividends paid		(25	)
Issuance of common stock		38
Separation-related adjustments		(5	)
Balance at September 30, 2017	$	286

On July 28, 2017, the Company issued approximately 1.0 million shares of common stock in conjunction with the Fairrington acquisition, which shares had a closing date value of $20 million.

On March 28, 2017, in connection with the over-allotment option granted to the underwriters as part of the secondary sale by RRD, LSC Communications also completed the sale of approximately 0.9 million shares of common stock with a value of $18 million.  

During the nine months ended September 30, 2017, the Company recorded certain separation-related adjustments due to the adjustment of assets and liabilities recorded as of the separation date.  

The Company’s equity as of December 31, 2015 and September 30, 2016 and changes during the nine months ended September 30, 2016 were as follows:

	Total Equity
Balance at December 31, 2015	$	1,277
Net income		97
Net transfers to parent company		(933	)
Other comprehensive loss		(4	)
Balance at September 30, 2016	$	437

During the three months ended September 30, 2016, the Company used the net proceeds from the debt issuances to fund an $806 million cash dividend to RRD in connection with the separation.  The cash dividend is included in net transfers to parent company balance.  Refer to Note 13, Debt, for more information.    

XML

Earnings per Share

9 Months Ended

Sep. 30, 2017

Earnings Per Share [Abstract]

Earnings Per Share

Note 9.  Earnings Per Share

During the three months ended September 30, 2017, the Company issued approximately 1.0 million shares of common stock in conjunction with the Fairrington acquisition.  During the nine months ended September 30, 2017, no shares of common stock were purchased by the Company, however, shares were withheld from employees for tax liabilities upon vesting of equity awards.    

On October 1, 2016 in connection with the separation, RRD distributed approximately 26.2 million shares of LSC Communications common stock to RRD stockholders and retained approximately 6.2 million shares.  On March 28, 2017, RRD completed the sale of its approximately 6.2 million shares of LSC Communications common stock.  Additionally, on March 28, 2017, in connection with the over-allotment option granted to the underwriters as part of the secondary sale by RRD, LSC Communications completed the sale of approximately 0.9 million shares of common stock.

Basic earnings per share (“EPS”) is calculated by dividing net earnings attributable to the Company’s stockholders by the weighted average number of common shares outstanding for the period. In computing diluted EPS, basic EPS is adjusted for the assumed issuance of all potentially dilutive share-based awards, including stock options, restricted stock, RSUs, and PSUs. The computations of basic and diluted EPS for periods prior to the separation were calculated using the shares distributed and retained by RRD on October 1, 2016.  The same number of shares was used to calculate basic and diluted earnings per share since there were no LSC Communications equity awards outstanding prior to the separation.      

The following table shows the calculation of basic and diluted EPS, as well as a reconciliation of basic shares to diluted shares:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2017			2016		2017		2016
Net (loss) earnings per common share:
Basic	$	(0.07	)	$	1.17	$	0.03	$	2.99
Diluted	$	(0.07	)	$	1.17	$	0.03	$	2.99
Dividends declared per common share	$	0.25		$	—	$	0.75	$	—
Numerator:
Net (loss) income	$	(3	)	$	38	$	1	$	97
Denominator:
Weighted average number of common shares outstanding		34.2			32.4		33.5		32.4
Dilutive options and awards		—			—		0.3		—
Diluted weighted average number of common shares outstanding		34.2			32.4		33.8		32.4

XML

Comprehensive Income

9 Months Ended

Sep. 30, 2017

Equity [Abstract]

Comprehensive Income

Note 10.  Comprehensive Income

The components of other comprehensive income (loss) and income tax expense allocated to each component for the three and nine months ended September 30, 2017 and 2016 were as follows:

	Three Months Ended September 30, 2017						Nine Months Ended September 30, 2017
	Before Tax Amount		Income Tax Expense		Net of Tax Amount		Before Tax Amount		Income Tax Expense		Net of Tax Amount
Translation adjustments	$	2	$	—	$	2	$	20	$	—	$	20
Adjustment for net periodic pension plan cost		5		2		3		13		5		8
Other comprehensive income	$	7	$	2	$	5	$	33	$	5	$	28

	Three Months Ended September 30, 2016								Nine Months Ended September 30, 2016
	Before Tax Amount			Income Tax Expense		Net of Tax Amount			Before Tax Amount			Income Tax Expense		Net of Tax Amount
Translation adjustments	$	(2	)	$	—	$	(2	)	$	(3	)	$	—	$	(3	)
Adjustment for net periodic pension plan cost		1			—		1			4			5		(1	)
Other comprehensive (loss) income	$	(1	)	$	—	$	(1	)	$	1		$	5	$	(4	)

During the nine months ended September 30, 2016, translation adjustments and income tax expense on pension plan cost were adjusted to reflect previously recorded deferred taxes at their historical exchange rates.    

Accumulated other comprehensive loss by component as of December 31, 2016 and September 30, 2017 and changes during the nine months ended September 30, 2017 were as follows:

	Pension Plan Cost			Translation Adjustments			Total
Balance at December 31, 2016	$	(462	)	$	(69	)	$	(531	)
Other comprehensive income before reclassifications		—			20			20
Amounts reclassified from accumulated other comprehensive loss		8			—			8
Net change in accumulated other comprehensive loss		8			20			28
Balance at September 30, 2017	$	(454	)	$	(49	)	$	(503	)

Accumulated other comprehensive loss by component as of December 31, 2015 and September 30, 2016 and changes during the nine months ended September 30, 2016, were as follows:  

	Pension Plan Cost			Translation Adjustments			Total
Balance at December 31, 2015	$	(46	)	$	(159	)	$	(205	)
Other comprehensive loss before reclassifications		—			(3	)		(3	)
Amounts reclassified from accumulated other comprehensive loss		(1	)		—			(1	)
Net change in accumulated other comprehensive loss		(1	)		(3	)		(4	)
Balance at September 30, 2016	$	(47	)	$	(162	)	$	(209	)

Reclassification from accumulated other comprehensive loss for the three and nine months ended September 30, 2017 and 2016 were as follows:    

	Three Months Ended September 30,					Nine Months Ended September 30,					Classification in the Condensed Consolidated & Combined
	2017		2016			2017		2016			Statements of Operations
Amortization of pension plan cost:
Net actuarial loss	$	5	$	—		$	13	$	1		(a)
Settlement		—		—			—		1
Reclassifications before tax		5		—			13		2
Income tax expense (benefit)		2		(1	)		5		3
Reclassifications, net of tax	$	3	$	1		$	8	$	(1	)

(a) These accumulated other comprehensive income components are included in the calculation of net periodic pension plan (income) expense that is recognized substantially all in selling, general and administrative expenses in the condensed consolidated and combined statements of operations (see Note 7, Retirement Plans).        

XML

Segment Information

9 Months Ended

Sep. 30, 2017

Segment Reporting [Abstract]

Segment Information

Note 11.  Segment Information

The Company’s segment and product and service offerings are summarized below:

Print  

The Print segment produces magazines, catalogs, retail inserts, books, and directories. The segment also provides supply-chain management and certain other print-related services, including mail-list management and sortation, e-book formatting and distribution.  The segment has operations in the U.S., Europe and Mexico.  The Print segment is divided into the magazines, catalogs and retail inserts, book, Europe and directories reporting units.    

Office Products

The Office Products segment manufactures and sells branded and private label products in five core categories: filing products, note-taking products, binder products, forms, and envelopes.   

Corporate

Corporate consists of unallocated selling, general and administrative activities and associated expenses including, in part, executive, legal, finance, communications, certain facility costs and LIFO inventory provisions.  In addition, certain costs and earnings of employee benefit plans, such as pension benefit plan income and share-based compensation, are included in Corporate and not allocated to the operating segments. Prior to the separation, many of these costs were based on allocations from RRD, however, the Company has incurred such costs directly after the separation.  

Information by Segment

The Company has disclosed income (loss) from operations as the primary measure of segment earnings (loss).  This is the measure of profitability used by the Company’s chief operating decision-maker and is most consistent with the presentation of profitability reported with the condensed consolidated and combined financial statements.

	Net Sales		Income (loss) from Operations			Depreciation and Amortization		Capital Expenditures
Three months ended September 30, 2017
Print	$	819	$	(10	)	$	35	$	9
Office Products		116		11			4		1
Total operating segments		935		1			39		10
Corporate		—		(8	)		—		5
Total operations	$	935	$	(7	)	$	39	$	15

	Net Sales		Income (loss) from Operations			Depreciation and Amortization		Capital Expenditures
Three months ended September 30, 2016
Print	$	822	$	48		$	36	$	14
Office Products		127		11			4		1
Total operating segments		949		59			40		15
Corporate		—		(2	)		—		1
Total operations	$	949	$	57		$	40	$	16

	Net Sales		Income (loss) from Operations			Assets of Operations		Depreciation and Amortization		Capital Expenditures
Nine months ended September 30, 2017
Print	$	2,252	$	24		$	1,667	$	106	$	41
Office Products		352		32			316		11		3
Total operating segments		2,604		56			1,983		117		44
Corporate		—		(26	)		90		1		7
Total operations	$	2,604	$	30		$	2,073	$	118	$	51

	Net Sales		Income (loss) from Operations			Assets of Operations		Depreciation and Amortization		Capital Expenditures
Nine months ended September 30, 2016
Print	$	2,338	$	114		$	1,602	$	118	$	28
Office Products		397		38			323		12		3
Total operating segments		2,735		152			1,925		130		31
Corporate		—		(4	)		23		—		4
Total operations	$	2,735	$	148		$	1,948	$	130	$	35

Restructuring, impairment and other charges by segment for the three and nine months ended September 30, 2017 and 2016 are disclosed in Note 6, Restructuring, Impairment and Other Charges.    

XML

Commitments and Contingencies

9 Months Ended

Sep. 30, 2017

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 12.  Commitments and Contingencies  

The Company is subject to laws and regulations relating to the protection of the environment. The Company accrues for expenses associated with environmental remediation obligations when such amounts are probable and can be reasonably estimated. Such accruals are adjusted as new information develops or circumstances change and are generally not discounted. The Company has been designated as a potentially responsible party or has received claims in ten active federal and state Superfund and other multiparty remediation sites. In addition to these sites, the Company may also have the obligation to remediate four other previously and currently owned facilities. At the Superfund sites, the Comprehensive Environmental Response, Compensation and Liability Act provides that the Company’s liability could be joint and several, meaning that the Company could be required to pay an amount in excess of its proportionate share of the remediation costs.  

The Company’s understanding of the financial strength of other potentially responsible parties at the multiparty sites and of other liable parties at the previously owned facilities has been considered, where appropriate, in the determination of the Company’s estimated liability. The Company established reserves, recorded in accrued liabilities and other noncurrent liabilities, that it believes are adequate to cover its share of the potential costs of remediation at each of the multiparty sites and the previously and currently owned facilities. It is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future. However, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material effect on the Company’s condensed consolidated and combined balance sheets, statements of operations and cash flows.

From time to time, the Company’s customers and others file voluntary petitions for reorganization under United States bankruptcy laws. In such cases, certain pre-petition payments received by the Company from these parties could be considered preference items and subject to return. In addition, the Company may be party to certain litigation arising in the ordinary course of business. Management believes that the final resolution of these preference items and litigation will not have a material effect on the Company’s condensed consolidated and combined balance sheets, statements of operations and cash flows.    

XML

Debt

9 Months Ended

Sep. 30, 2017

Debt Disclosure [Abstract]

Debt

Note 13.  Debt

The Company’s debt at September 30, 2017 and December 31, 2016 consisted of the following:

	September 30, 2017			December 31, 2016
Borrowings under the Revolving Credit Facility	$	140		$	—
Term Loan Facility due September 30, 2022 (a)		304			353
8.75% Senior Secured Notes due October 15, 2023		450			450
Capital lease obligations		3			6
Unamortized debt issuance costs		(13	)		(15	)
Total debt		884			794
Less: current portion		(177	)		(52	)
Long-term debt	$	707		$	742

(a) The borrowings under the Term Loan Facility are subject to a variable interest rate. As of September 30, 2017 and December 31, 2016, the interest rate was 7.24% and 7.00%, respectively.

__________________________________

On September 30, 2016, the Company issued $450 million of 8.75% Senior Secured Notes (the “Senior Notes”) due October 15, 2023.  Interest on the Senior Notes is due semi-annually on April 15 and October 15, commencing on April 15, 2017.  Net proceeds from the offering of the Senior Notes (the “Notes Offering”) were distributed to RRD in the form of a dividend.  The Company did not retain any proceeds from the Notes Offering.  

The Senior Notes were issued pursuant to an indenture where certain wholly-owned domestic subsidiaries of the Company guarantee the Senior Notes (the “Guarantors”).  The Senior Notes are fully and unconditionally guaranteed, on a senior secured basis, jointly and severally, by the Guarantors, which are comprised of each of the Company’s existing and future direct and indirect wholly-owned U.S. subsidiaries that guarantee the Company’s obligations. The Senior Notes are not guaranteed by the Company’s foreign subsidiaries or unrestricted subsidiaries.  The Senior Notes and the related guarantees are secured on a first-priority lien basis by the collateral, subject to certain exceptions and permitted liens. The Indenture governing the Senior Notes contains certain covenants applicable to the Company and its restricted subsidiaries, including limitations on: (1) liens; (2) indebtedness; (3) mergers, consolidations and acquisitions; (4) sales, transfers and other dispositions of assets; (5) loans and other investments; (6) dividends and other distributions, stock repurchases and redemptions and other restricted payments; (7) restrictions affecting subsidiaries; (8) transactions with affiliates; and (9) designations of unrestricted subsidiaries. Each of these covenants is subject to important exceptions and qualifications.    

On September 30, 2016 the Company entered into a credit agreement (the “Credit Agreement”) which provides for (i) a new senior secured term loan B facility in an aggregate principal amount of $375 million (the “Term Loan Facility”) and (ii) a new senior secured revolving credit facility in an aggregate principal amount of $400 million (the “Revolving Credit Facility”). The interest rate per annum applicable to the Term Loan Facility is equal to, at the Company’s option, either a base rate plus a margin of 5.00% or LIBOR plus a margin of 6.00%. The LIBOR rate is subject to a “floor” of 1%.  The interest rate per annum applicable to the Revolving Credit Facility is equal to a base rate plus a margin ranging from 1.75% to 2.25%, or LIBOR plus a margin ranging from 2.75% to 3.25%, in either case based upon the Consolidated Leverage Ratio of the Company and its restricted subsidiaries. Interest on the Credit Agreement is due at least quarterly and commenced on December 31, 2016.  The Term Loan Facility will amortize in quarterly installments of $13 million for the first eight quarters and $11 million for subsequent quarters.  The debt issuance costs and original issue discount are being amortized over the life of the facilities using the effective interest method. The Term Loan Facility will mature on September 30, 2022 and the Revolving Credit Facility will mature on September 30, 2021.    

The proceeds of any collection or other realization of collateral received in connection with the exercise of remedies and any distribution in respect of collateral in any bankruptcy proceeding will be applied first to repay amounts due under the Revolving Credit Facility before the lenders under the Term Loan Facility or the holders of the Senior Notes receive such proceeds.

The Credit Agreement is subject to a number of covenants, including, but not limited to, a minimum Interest Coverage Ratio and a Consolidated Leverage Ratio, as defined in and calculated pursuant to the Credit Agreement, 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. The Credit Agreement generally allows annual dividend payments of up to $50 million in aggregate, though additional dividends may be allowed subject to certain conditions. Each of these covenants is subject to important exceptions and qualifications.

The Company used the net proceeds from the Term Loan Facility to fund a cash dividend to RRD and to pay fees and expenses both related to the separation from RRD in October 2016.  The Company intends to use any additional borrowings under the Credit Facilities for general corporate purposes, including the financing of permitted investments.

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

The fair values of the Senior Notes and Term Loan Facility, which were determined using the market approach based upon interest rates available to the Company for borrowings with similar terms and maturities, were determined to be Level 2 under the fair value hierarchy. The fair value of the Company’s debt was greater than its book value by approximately $24 million and $22 million at September 30, 2017 and December 31, 2016, respectively.  

There was $19 million and $52 million of net interest expense during the three and nine months ended September 30, 2017, respectively.  There was $1 million and a de minimis amount of net interest expense during the three and nine months ended September 30, 2016, respectively.      

There were $140 million of borrowings under the Revolving Credit Facility as of September 30, 2017 and no borrowings as of December 31, 2016.  The weighted average interest rate on borrowings under the Credit Agreement was 4.31% during the nine months ended September 30, 2017.  

XML

Related Parties

9 Months Ended

Sep. 30, 2017

Related Party Transactions [Abstract]

Related Parties

Note 14.  Related Parties  

On March 28, 2017, RRD completed the sale of approximately 6.2 million shares of LSC Communications common stock, representing its entire 19.25% retained ownership.    

Prior to the separation, the Company had not historically operated as a stand-alone business.  In connection with the separation, the Company entered into commercial arrangements with RRD. Under the terms of the commercial arrangements, RRD continues to provide, among other things, logistics, premedia, production and sales services to LSC Communications.  In addition, LSC Communications continues to provide sales support services to RRD’s Asia and Mexico print and graphics management businesses in order to facilitate the importing of books and related products to the U.S. RRD also provides LSC Communications certain global outsourcing, technical support and other services.      

Allocations from RRD

Prior to the separation, RRD provided LSC Communications certain services, which included, but were not limited to, information technology, finance, legal, human resources, internal audit, treasury, tax, investor relations and executive oversight. RRD charged the Company for these services based on direct usage, when available, with the remainder allocated on a pro rata basis by revenue, headcount, or other measures.  These allocations were reflected as follows in the condensed combined statements of operations for the three and nine months ended September 30, 2016:

	Three Months Ended September 30, 2016		Nine Months Ended September 30, 2016
Costs of goods sold	$	25	$	67
Selling, general and administrative		42		114
Depreciation and amortization		1		5
Total allocations from RRD	$	68	$	186

The Company considered the expense methodologies and financial results to be reasonable for all periods presented.  However, these allocations may not be indicative of the actual expenses that may have been incurred as an independent public company or the costs LSC Communications may incur in the future.

After the separation, the Company no longer receives or records allocations from RRD. The Company records transactions with RRD as external arms-length transactions in the Company’s condensed consolidated financial statements.

Transactions with RR Donnelley

Revenues and Purchases    

Given that RRD sold its remaining stake in LSC Communications on March 28, 2017, the following information is presented through March 31, 2017 only. 

LSC Communications generates net revenue from sales to RRD’s subsidiaries.  Net revenues from related party sales were $32 million for the three months ended March 31, 2017.  Net revenues from related party sales were $19 million and $40 million for the three and nine months ended September 30, 2016, respectively.  These amounts are included in the condensed consolidated and combined statements of operations.

LSC Communications utilizes RRD for freight, logistics and premedia services.  Included in the condensed consolidated and combined financial statements were costs of sales related to freight, logistics and premedia services purchased from RRD of $51 million for the three months ended March 31, 2017.  Such amounts were $43 million and $135 million for the three and nine months ended September 30, 2016, respectively.  

XML

New Accounting Pronouncements

9 Months Ended

Sep. 30, 2017

Accounting Changes And Error Corrections [Abstract]

New Accounting Pronouncements

Note 15.  New Accounting Pronouncements      

In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2017-07 “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”). This ASU requires entities to disaggregate the service cost component from other components of net benefit cost and present it with other employee compensation costs.  All other components of net benefit cost will need to be presented elsewhere on the income statement outside of income from operations. Only the service cost component would be eligible for capitalization into inventory. The standard is effective in the first quarter 2018.  As a result of the adoption of ASU 2017-07, the Company expects to reclassify approximately $46 million and $45 million related to the years ended December 31, 2017 and 2016, respectively, of net pension income out of income from operations to a line item outside of income from operations, resulting in no impact to net income.          

In January 2017, the FASB issued Accounting Standards Update No. 2017-04 “Intangibles – Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”).  The standard eliminates Step 2 of the goodwill impairment test, and instead, recognizes an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value not to exceed the total amount of goodwill allocated.  The standard is effective in the first quarter of 2020, with early adoption permitted on testing dates after January 1, 2017.  The Company adopted ASU 2017-04 during the third quarter of 2017 and applied the standard to the interim goodwill impairment review of the magazines, catalogs and retail inserts reporting unit included in the Print segment as of September 30, 2017.

In January 2017, the FASB issued Accounting Standards Update No. 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of a Business" (“ASU 2017-01”) in order to clarify the definition of a business as it relates to whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard becomes effective in the first quarter of 2018. The Company plans to adopt the standard in the first quarter of 2018.  The impact is not expected to be material.  

In August 2016, the FASB issued Accounting Standards Update No. 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), which provided guidance on eight specific cash flow classification issues to reduce existing diversity in practice. The standard becomes effective in the first quarter of 2018.  Early adoption of ASU 2016-15 is permitted, however, the Company plans to adopt the standard in the first quarter of 2018. The Company does not expect a significant impact to presentation on its condensed consolidated and combined statements of cash flows.  

In March 2016, the FASB issued Accounting Standards Update No. 2016-09 “Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”) which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory withholding requirements, as well as the classification of share-based payment transactions on the statement of cash flows. The standard became effective in the first quarter of 2017.  As early adoption of ASU 2016-09 is permitted, the Company adopted the standard in the fourth quarter of 2016. The election to early adopt ASU 2016-09 requires any adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption, to be reflected. The requirements of ASU 2016-09 did not have a material impact to any of the periods presented.     

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 “Leases (Topic 842) Section A—Leases: Amendments to the FASB Accounting Standards Codification” (“ASU 2016-02”), which requires lessees to put most leases on the balance sheet but recognize expense on the income statement in a manner similar to current accounting. For lessors, ASU 2016-02 also modifies the classification criteria and the accounting for sales-type and direct financing leases. The standard requires a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements and is effective in the first quarter of 2019. Early adoption of ASU 2016-02 is permitted, however, the Company plans to adopt the standard in the first quarter of 2019. The Company is evaluating the impact of ASU 2016-02.    

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which outlines a single comprehensive model for entities to use in accounting for revenue using a five-step process that supersedes virtually all existing revenue guidance. ASU 2014-09 also requires additional quantitative and qualitative disclosures. In August 2015, the FASB issued Accounting Standards Update No. 2015-14 “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (“ASU 2015-14”), which defers the effective date of ASU 2014-09 to January 1, 2018. Early adoption of ASU 2014-09 is permitted in the first quarter of 2017.    

The Company plans to adopt the standard in the first quarter of 2018. The standard allows the option of either a full retrospective adoption, meaning the standard is applied to all periods presented, or a modified retrospective adoption approach, meaning the standard is applied only to the most current period. The Company currently anticipates adopting the standard using the modified retrospective adoption approach.

During the second quarter of 2017, the Company completed the evaluation of whether the accounting for revenue of customized products should be over time or at a point in time under the new standard. Based on analysis of specific terms associated with current customer contracts, the Company has concluded that revenue should be recognized at a point in time for customized products. This treatment is consistent with revenue recognition under the current guidance, where revenue is recognized when the products are completed and shipped to the customer (dependent upon specific shipping terms). The Company will continue its evaluation of any new or amended contracts entered into through the date of adoption, including contracts that the Company might assume as a result of acquisition activity.  

The Company is continuing to assess all other potential impacts of the standard, including disclosure requirements and the accounting for inventory billed but not yet shipped. Under the current guidance, the Company defers revenue for inventory billed but not yet shipped. Under the new standard, in certain situations the Company may be able to recognize revenue for inventory billed but not yet shipped, which could accelerate the timing, but not the total amount, of revenue recognized and would not impact the timing of cash flows.

The Company anticipates it will be able to complete its analysis of all potential impacts of the standard, implement any system and process changes that might be necessary and educate the appropriate employees with respect to the new standard in order to effectively adopt the standard beginning in the first quarter of 2018.

XML

Business Combinations (Tables)

9 Months Ended

Sep. 30, 2017

Business Acquisition [Line Items]

Pro Forma Financial Information

The unaudited pro forma financial information is not intended to represent or be indicative of the Company’s condensed consolidated and combined statements of operations that would have been reported had these acquisitions been completed as of the beginning of the period presented and should not be taken as indicative of the Company’s future condensed consolidated statements of operations.

	Three Months Ended					Nine Months Ended
	September 30					September 30
		2017			2016		2017			2016
Net sales	$	978		$	1,052	$	2,808		$	3,034
Net (loss) income		(6	)		40		(8	)		97
Net (loss) earnings per common share
Basic	$	(0.18	)	$	1.20	$	(0.24	)	$	2.90
Diluted	$	(0.18	)	$	1.20	$	(0.24	)	$	2.90

The following table outlines unaudited pro forma financial information for the three and nine months ended September 30, 2017 and 2016:

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2017		2016		2017		2016
Amortization of purchased intangibles	$	5	$	5	$	15	$	16

Nonrecurring Pro Forma Adjustments Affecting Net Income

Additionally, the nonrecurring pro forma adjustments affecting net income for the three and nine months ended September 30, 2017 and 2016 were as follows:  

	Three Months Ended					Nine Months Ended
	September 30					September 30
	2017			2016		2017			2016
Acquisition-related expenses, pre-tax	$	(1	)	$	—	$	(1	)	$	—
Restructuring, impairment and other charges		—			—		(1	)		—
Inventory fair value adjustments, pre-tax		1			—		1			(1	)
Other pro forma adjustments, pre-tax		—			1		2			2
Income taxes		—			—		1			(1	)

Note: A negative number in the table above represents a decrease to income in pro forma net income.

2017 Acquisitions

Business Acquisition [Line Items]

Schedule of Preliminary Purchase Price Allocation for Acquisitions

Based on the acquisition-date valuations, the preliminary purchase price allocations for Publishers Press, CREEL and Fairrington in the Print segment are as follows:

	Publishers Press			CREEL			Fairrington
Accounts Receivable	$	25		$	13		$	6
Inventories		13			5			—
Prepaid expenses and other current assets		2			1			—
Property, plant and equipment		36			19			6
Other intangible assets		—			22			17
Other noncurrent assets		—			—			1
Goodwill		1			25			22
Accounts payable and accrued liabilities		(8	)		(7	)		(4	)
Deferred taxes-net		—			—			(9	)
Total purchase price, net of cash acquired		69			78			39
Less: value of common stock issued		—			—			20
Net cash paid:	$	69		$	78		$	19

Fair Values, Valuation Techniques and Related Unobservable Inputs of Level Three

The fair values of other intangible assets and goodwill associated with the acquisitions were determined to be Level 3 under the fair value hierarchy. The following table presents the fair value, valuation techniques and related unobservable inputs for these Level 3 measurements:

	Fair Value		Valuation Technique	Unobservable Input	Range
Customer relationships	$	36	Relief-from-royalty-method	Growth rate	(3.0)% - 0.9%
				Attrition rate	6.0% - 6.5%
				Discount rate	15.0% - 23.0%
Trade names		3	Multi-period excess earnings method	Royalty rate	1.0% - 1.5%
				Discount rate	15.0% - 19.0%

XML

Inventories (Tables)

9 Months Ended

Sep. 30, 2017

Inventory Disclosure [Abstract]

Components of the Company's Inventories

The components of the Company’s inventories, net of excess and obsolescence reserves for raw materials and finished goods, at September 30, 2017 and December 31, 2016 were as follows:    

	September 30,			December 31,
	2017			2016
Raw materials and manufacturing supplies	$	121		$	100
Work in process		74			58
Finished goods		99			93
Last in, First out reserve ("LIFO")		(57	)		(58	)
Total	$	237		$	193

XML

Property, Plant and Equipment (Tables)

9 Months Ended

Sep. 30, 2017

Property Plant And Equipment [Abstract]

Components of the Company's Property, Plant and Equipment

The components of the Company’s property, plant and equipment at September 30, 2017 and December 31, 2016 were as follows:

	September 30,			December 31,
	2017			2016
Land	$	46		$	42
Buildings		783			762
Machinery and equipment		4,133			4,173
		4,962			4,977
Accumulated depreciation		(4,350	)		(4,369	)
Total	$	612		$	608

XML

Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2017

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of Changes in the Carrying Amount of Goodwill

The changes in the carrying amount of goodwill for the nine months ended September 30, 2017 were as follows:

	Print			Office Products			Total
Net book value as of December 31, 2016
Goodwill	$	852		$	109		$	961
Accumulated impairment losses		(798	)		(79	)		(877	)
Total		54			30			84
Acquisitions		52			1			53
Impairment charges		(55	)		—			(55	)
Net book value as of September 30, 2017
Goodwill		914			110			1,024
Accumulated impairment losses		(863	)		(79	)		(942	)
Total	$	51		$	31		$	82

Schedule Of Finite And Indefinite Lived Intangible Assets Acquisition Table Text Block

The components of other intangible assets at September 30, 2017 and December 31, 2016 were as follows:

	September 30, 2017							December 31, 2016
	Gross  Carrying		Accumulated			Net Book		Gross  Carrying		Accumulated			Net Book
	Amount		Amortization			Value		Amount		Amortization			Value
Customer relationships	$	242	$	(120	)	$	122	$	205	$	(109	)	$	96
Trade names		7		(3	)		4		5		(2	)		3
Total amortizable other intangible assets		249		(123	)		126		210		(111	)		99
Indefinite-lived trade names		32		—			32		32		—			32
Total other intangible assets	$	281	$	(123	)	$	158	$	242	$	(111	)	$	131

Schedule of Other Intangible Assets Additions by Component

The components of other intangible assets added during the three months ended September 30, 2017 were as follows:

	September 30, 2017
			Weighted-Average
			Amortization Period
	Amount		(years)
Customer relationships	$	36		10.6
Trade names (amortizable)		3		5.0
	$	39

Schedule of Estimated Annual Amortization Expense Related to Other Intangible Assets

The following table outlines the estimated annual amortization expense related to other intangible assets:

For the year ending December 31,	Amount
2017	$	17
2018		15
2019		15
2020		14
2021		13
2022 and thereafter		64
Total	$	138

XML

Restructuring, Impairment and Other Charges (Tables)

9 Months Ended

Sep. 30, 2017

Restructuring And Related Activities [Abstract]

Schedule of Net Restructuring, Impairment and Other Charges

For the three months ended September 30, 2017 and 2016, the Company recorded the following net restructuring, impairment and other charges:    

Three Months Ended                         September 30, 2017	Employee Terminations		Other Restructuring Charges		Total Restructuring Charges		Impairment		Other Charges		Total
Print	$	—	$	2	$	2	$	55	$	1	$	58
Corporate		—		2		2		—		—		2
Total	$	—	$	4	$	4	$	55	$	1	$	60

Three Months Ended                           September 30, 2016	Employee Terminations		Other Restructuring Charges		Total Restructuring Charges		Impairment			Other Charges		Total
Print	$	—	$	1	$	1	$	(1	)	$	1	$	1
Corporate		2		—		2		—			—		2
Total	$	2	$	1	$	3	$	(1	)	$	1	$	3

For the nine months ended September 30, 2017 and 2016, the Company recorded the following net restructuring, impairment and other charges:  

Nine Months Ended                           September 30, 2017	Employee Terminations		Other Restructuring Charges		Total Restructuring Charges		Impairment		Other Charges		Total
Print	$	6	$	5	$	11	$	55	$	3	$	69
Office Products		1		—		1		—		—		1
Corporate		—		17		17		—		—		17
Total	$	7	$	22	$	29	$	55	$	3	$	87

Nine Months Ended                           September 30, 2016	Employee Terminations		Other Restructuring Charges		Total Restructuring Charges		Impairment		Other Charges		Total
Print	$	2	$	4	$	6	$	—	$	3	$	9
Corporate		2		—		2		—		—		2
Total	$	4	$	4	$	8	$	—	$	3	$	11

Schedule of Changes in the Restructuring Reserve

The restructuring reserve as of December 31, 2016 and September 30, 2017, and changes during the nine months ended September 30, 2017, were as follows:

	December 31, 2016		Restructuring Charges		Foreign Exchange and Other		Cash Paid			September 30, 2017
Employee terminations	$	8	$	7	$	—	$	(11	)	$	4
Multiemployer pension plan withdrawal      obligations		18		1		—		(3	)		16
Lease terminations and other		2		16		—		(14	)		4
Total	$	28	$	24	$	—	$	(28	)	$	24

XML

Retirement Plans (Tables)

9 Months Ended

Sep. 30, 2017

Compensation And Retirement Disclosure [Abstract]

Components of Estimated Net Pension Benefits Plan Income

The components of the estimated net pension benefits plan income for the three and nine months ended September 30, 2017 and 2016 are disclosed in the table below.  Amounts shown for the three and nine months ended September 30, 2017 include pension income for the Company’s qualified and non-qualified plans, certain plans in Mexico and plans acquired as a result of the acquisitions of Esselte Corporation (“Esselte”) and Courier Corporation (“Courier”). Amounts shown for the three and nine months ended September 30, 2016 include pension income for certain plans in the United Kingdom and Mexico and plans acquired as a result of the the acquisitions of Esselte and Courier.  

	Three Months Ended September 30, 2017					Nine Months Ended September 30, 2017
	Qualified			Non-Qualified & International		Qualified			Non-Qualified & International
Interest cost	$	22		$	—	$	65		$	2
Expected return on plan assets		(38	)		—		(114	)		—
Amortization, net		4			1		12			1
Net periodic benefit (income) loss	$	(12	)	$	1	$	(37	)	$	3

	Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
	Qualified			Non-Qualified & International			Qualified			Non-Qualified & International
Interest cost	$	2		$	2		$	5		$	5
Expected return on plan assets		(3	)		(2	)		(8	)		(7	)
Amortization, net		—			—			—			1
Settlement		—			—			1			—
Net periodic benefit income	$	(1	)	$	—		$	(2	)	$	(1	)

XML

Equity (Tables)

9 Months Ended

Sep. 30, 2017

Equity [Abstract]

Schedule of the Company's Equity Activity

The Company’s equity as of December 31, 2016 and September 30, 2017 and changes during the nine months ended September 30, 2017 were as follows:

	Total Equity
Balance at December 31, 2016	$	240
Net income		1
Other comprehensive income		28
Share-based compensation		10
Issuance of share-based awards, net of withholdings and other		(1	)
Cash dividends paid		(25	)
Issuance of common stock		38
Separation-related adjustments		(5	)
Balance at September 30, 2017	$	286

The Company’s equity as of December 31, 2015 and September 30, 2016 and changes during the nine months ended September 30, 2016 were as follows:

	Total Equity
Balance at December 31, 2015	$	1,277
Net income		97
Net transfers to parent company		(933	)
Other comprehensive loss		(4	)
Balance at September 30, 2016	$	437

XML

Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2017

Earnings Per Share [Abstract]

Calculation of Basic and Diluted EPS as Well as Reconciliation of Basic Shares to Diluted Shares

The following table shows the calculation of basic and diluted EPS, as well as a reconciliation of basic shares to diluted shares:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2017			2016		2017		2016
Net (loss) earnings per common share:
Basic	$	(0.07	)	$	1.17	$	0.03	$	2.99
Diluted	$	(0.07	)	$	1.17	$	0.03	$	2.99
Dividends declared per common share	$	0.25		$	—	$	0.75	$	—
Numerator:
Net (loss) income	$	(3	)	$	38	$	1	$	97
Denominator:
Weighted average number of common shares outstanding		34.2			32.4		33.5		32.4
Dilutive options and awards		—			—		0.3		—
Diluted weighted average number of common shares outstanding		34.2			32.4		33.8		32.4

XML

Comprehensive Income (Tables)

9 Months Ended

Sep. 30, 2017

Equity [Abstract]

Schedule of Components of Other Comprehensive Income (Loss) and Income Tax Expense Allocated to Each Component

The components of other comprehensive income (loss) and income tax expense allocated to each component for the three and nine months ended September 30, 2017 and 2016 were as follows:

	Three Months Ended September 30, 2017						Nine Months Ended September 30, 2017
	Before Tax Amount		Income Tax Expense		Net of Tax Amount		Before Tax Amount		Income Tax Expense		Net of Tax Amount
Translation adjustments	$	2	$	—	$	2	$	20	$	—	$	20
Adjustment for net periodic pension plan cost		5		2		3		13		5		8
Other comprehensive income	$	7	$	2	$	5	$	33	$	5	$	28

	Three Months Ended September 30, 2016								Nine Months Ended September 30, 2016
	Before Tax Amount			Income Tax Expense		Net of Tax Amount			Before Tax Amount			Income Tax Expense		Net of Tax Amount
Translation adjustments	$	(2	)	$	—	$	(2	)	$	(3	)	$	—	$	(3	)
Adjustment for net periodic pension plan cost		1			—		1			4			5		(1	)
Other comprehensive (loss) income	$	(1	)	$	—	$	(1	)	$	1		$	5	$	(4	)

Schedule of Changes in Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss by component as of December 31, 2016 and September 30, 2017 and changes during the nine months ended September 30, 2017 were as follows:

	Pension Plan Cost			Translation Adjustments			Total
Balance at December 31, 2016	$	(462	)	$	(69	)	$	(531	)
Other comprehensive income before reclassifications		—			20			20
Amounts reclassified from accumulated other comprehensive loss		8			—			8
Net change in accumulated other comprehensive loss		8			20			28
Balance at September 30, 2017	$	(454	)	$	(49	)	$	(503	)

Accumulated other comprehensive loss by component as of December 31, 2015 and September 30, 2016 and changes during the nine months ended September 30, 2016, were as follows:  

	Pension Plan Cost			Translation Adjustments			Total
Balance at December 31, 2015	$	(46	)	$	(159	)	$	(205	)
Other comprehensive loss before reclassifications		—			(3	)		(3	)
Amounts reclassified from accumulated other comprehensive loss		(1	)		—			(1	)
Net change in accumulated other comprehensive loss		(1	)		(3	)		(4	)
Balance at September 30, 2016	$	(47	)	$	(162	)	$	(209	)

Schedule of Reclassification From Accumulated Other Comprehensive Loss

Reclassification from accumulated other comprehensive loss for the three and nine months ended September 30, 2017 and 2016 were as follows:    

	Three Months Ended September 30,					Nine Months Ended September 30,					Classification in the Condensed Consolidated & Combined
	2017		2016			2017		2016			Statements of Operations
Amortization of pension plan cost:
Net actuarial loss	$	5	$	—		$	13	$	1		(a)
Settlement		—		—			—		1
Reclassifications before tax		5		—			13		2
Income tax expense (benefit)		2		(1	)		5		3
Reclassifications, net of tax	$	3	$	1		$	8	$	(1	)

(a) These accumulated other comprehensive income components are included in the calculation of net periodic pension plan (income) expense that is recognized substantially all in selling, general and administrative expenses in the condensed consolidated and combined statements of operations (see Note 7, Retirement Plans).        

XML

Segment Information (Tables)

9 Months Ended

Sep. 30, 2017

Segment Reporting [Abstract]

Schedule of Segment Reporting Information

The Company has disclosed income (loss) from operations as the primary measure of segment earnings (loss).  This is the measure of profitability used by the Company’s chief operating decision-maker and is most consistent with the presentation of profitability reported with the condensed consolidated and combined financial statements.

	Net Sales		Income (loss) from Operations			Depreciation and Amortization		Capital Expenditures
Three months ended September 30, 2017
Print	$	819	$	(10	)	$	35	$	9
Office Products		116		11			4		1
Total operating segments		935		1			39		10
Corporate		—		(8	)		—		5
Total operations	$	935	$	(7	)	$	39	$	15

	Net Sales		Income (loss) from Operations			Depreciation and Amortization		Capital Expenditures
Three months ended September 30, 2016
Print	$	822	$	48		$	36	$	14
Office Products		127		11			4		1
Total operating segments		949		59			40		15
Corporate		—		(2	)		—		1
Total operations	$	949	$	57		$	40	$	16

	Net Sales		Income (loss) from Operations			Assets of Operations		Depreciation and Amortization		Capital Expenditures
Nine months ended September 30, 2017
Print	$	2,252	$	24		$	1,667	$	106	$	41
Office Products		352		32			316		11		3
Total operating segments		2,604		56			1,983		117		44
Corporate		—		(26	)		90		1		7
Total operations	$	2,604	$	30		$	2,073	$	118	$	51

	Net Sales		Income (loss) from Operations			Assets of Operations		Depreciation and Amortization		Capital Expenditures
Nine months ended September 30, 2016
Print	$	2,338	$	114		$	1,602	$	118	$	28
Office Products		397		38			323		12		3
Total operating segments		2,735		152			1,925		130		31
Corporate		—		(4	)		23		—		4
Total operations	$	2,735	$	148		$	1,948	$	130	$	35

XML

Debt (Tables)

9 Months Ended

Sep. 30, 2017

Debt Disclosure [Abstract]

Schedule of the Company's Debt

The Company’s debt at September 30, 2017 and December 31, 2016 consisted of the following:

	September 30, 2017			December 31, 2016
Borrowings under the Revolving Credit Facility	$	140		$	—
Term Loan Facility due September 30, 2022 (a)		304			353
8.75% Senior Secured Notes due October 15, 2023		450			450
Capital lease obligations		3			6
Unamortized debt issuance costs		(13	)		(15	)
Total debt		884			794
Less: current portion		(177	)		(52	)
Long-term debt	$	707		$	742

(a) The borrowings under the Term Loan Facility are subject to a variable interest rate. As of September 30, 2017 and December 31, 2016, the interest rate was 7.24% and 7.00%, respectively.

XML

Related Parties (Tables)

9 Months Ended

Sep. 30, 2017

Related Party Transactions [Abstract]

Allocation of Expense Reflected in the Condensed Combined Statements of Operations

These allocations were reflected as follows in the condensed combined statements of operations for the three and nine months ended September 30, 2016:

	Three Months Ended September 30, 2016		Nine Months Ended September 30, 2016
Costs of goods sold	$	25	$	67
Selling, general and administrative		42		114
Depreciation and amortization		1		5
Total allocations from RRD	$	68	$	186

XML

Overview and Basis of Presentation - Narrative (Detail) $ in Millions			9 Months Ended
	Mar. 28, 2017 USD ($) shares	Oct. 01, 2016 Entity shares	Sep. 30, 2017 USD ($)
Overview And Basis Of Presentation [Line Items]
Percentage of distribution of common shares during spinoff		80.75%
Number of subsidiary shares sold by parent company	6,200,000
Issuance of common stock, value | $			$ 38
Over-allotment Option
Overview And Basis Of Presentation [Line Items]
Issuance of common stock, shares	900,000
Issuance of common stock, value | $	$ 18
Donnelley Financial Solutions
Overview And Basis Of Presentation [Line Items]
Percentage of distribution of common shares during spinoff		80.75%
RRD
Overview And Basis Of Presentation [Line Items]
Ownership percentage	19.25%	19.25%
Ownership percentage in Donnelley Financial solutions by related party		19.25%
Number of subsidiary shares sold by parent company	6,200,000
RR Donnelley
Overview And Basis Of Presentation [Line Items]
Number of entities resulted from spinoff of an entity | Entity		3
Number of share distributed to each stockholder in spinoff transaction in Donnelley Financial solutions by related party		0.125
Number of share distributed to each stockholder in spinoff transaction		0.125

XML

Business Combinations - Narrative (Detail) - USD ($) shares in Millions						3 Months Ended			9 Months Ended		12 Months Ended
	Sep. 07, 2017	Aug. 21, 2017	Aug. 17, 2017	Jul. 28, 2017	Mar. 01, 2017	Sep. 30, 2017	Mar. 31, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Business Acquisition [Line Items]
Goodwill						$ 82,000,000			$ 82,000,000		$ 84,000,000
Goodwill impairment non-cash charge						55,000,000			55,000,000
Acquisition-related expenses						2,000,000		$ 0	3,000,000	$ 0
Publishers Press
Business Acquisition [Line Items]
Purchase price of acquisition, cash	$ 70,000,000
Goodwill	$ 1,000,000
Business acquisition, net sales of acquiree since acquisition date						11,000,000			11,000,000
NECI
Business Acquisition [Line Items]
Purchase price of acquisition, cash		$ 5,000,000							0
Goodwill		$ 1,000,000
Business acquisition, net sales of acquiree since acquisition date						1,000,000			1,000,000
CREEL
Business Acquisition [Line Items]
Goodwill			$ 25,000,000
Business acquisition, net sales of acquiree since acquisition date						18,000,000			18,000,000
Purchase price, included in estimated contingent consideration			78,000,000
Estimated fair value of contingent consideration			1,000,000
Business acquisition, income (loss) from operations of acquiree since acquisition date						3,000,000			3,000,000
CREEL | Maximum
Business Acquisition [Line Items]
Contingent consideration in cash payments			$ 10,000,000						0
Fairrington
Business Acquisition [Line Items]
Purchase price of acquisition, cash				$ 20,000,000
Goodwill				$ 22,000,000
Business acquisition, net sales of acquiree since acquisition date						$ 11,000,000			11,000,000
Issuance of common stock shares for acquisitions of businesses				1.0		1.0
Aggregate purchase price of acquisition				$ 40,000,000
HudsonYards
Business Acquisition [Line Items]
Purchase price of acquisition, cash					$ 3,000,000
Goodwill					$ 2,000,000
Business acquisition, net sales of acquiree since acquisition date						$ 2,000,000			5,000,000
Business acquisition, income (loss) from operations of acquiree since acquisition date									(1,000,000)
2017 Acquisitions
Business Acquisition [Line Items]
Tax deductible goodwill						$ 33,000,000			$ 33,000,000
Continuum
Business Acquisition [Line Items]
Purchase price of acquisition, cash							$ 2,000,000				$ 7,000,000
Goodwill							5,000,000
Aggregate purchase price of acquisition							$ 9,000,000

XML

Business Combinations - Schedule of Preliminary Purchase Price Allocation for Acquisitions (Detail) - USD ($) $ in Millions	Sep. 30, 2017	Sep. 07, 2017	Aug. 17, 2017	Jul. 28, 2017	Dec. 31, 2016
Business Acquisition [Line Items]
Goodwill	$ 82				$ 84
Publishers Press
Business Acquisition [Line Items]
Accounts Receivable		$ 25
Inventories		13
Prepaid expenses and other current assets		2
Property, plant and equipment		36
Other intangible assets		0
Other noncurrent assets		0
Goodwill		1
Accounts payable and accrued liabilities		(8)
Deferred taxes-net		0
Total purchase price, net of cash acquired		69
Less: value of common stock issued		0
Net cash paid:		$ 69
CREEL
Business Acquisition [Line Items]
Accounts Receivable			$ 13
Inventories			5
Prepaid expenses and other current assets			1
Property, plant and equipment			19
Other intangible assets			22
Other noncurrent assets			0
Goodwill			25
Accounts payable and accrued liabilities			(7)
Deferred taxes-net			0
Total purchase price, net of cash acquired			78
Less: value of common stock issued			0
Net cash paid:			$ 78
Fairrington
Business Acquisition [Line Items]
Accounts Receivable				$ 6
Inventories				0
Prepaid expenses and other current assets				0
Property, plant and equipment				6
Other intangible assets				17
Other noncurrent assets				1
Goodwill				22
Accounts payable and accrued liabilities				(4)
Deferred taxes-net				(9)
Total purchase price, net of cash acquired				39
Less: value of common stock issued				20
Net cash paid:				$ 19

XML

Business Combinations - Fair Value, Valuation Techniques and Related Unobservable Inputs (Detail) - 2017 Acquisitions $ in Millions	9 Months Ended
	Sep. 30, 2017 USD ($)
Customer Relationships
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis Valuation Techniques [Line Items]
Fair Value	$ 36
Customer Relationships | Fair Value, Inputs, Level 3 | Fair Value, Measurements, Nonrecurring
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis Valuation Techniques [Line Items]
Fair Value	$ 36
Valuation Technique	Relief-from-royalty-method
Customer Relationships | Fair Value, Inputs, Level 3 | Fair Value, Measurements, Nonrecurring | Minimum
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis Valuation Techniques [Line Items]
Growth rate	(3.00%)
Attrition rate	6.00%
Discount rate	15.00%
Customer Relationships | Fair Value, Inputs, Level 3 | Fair Value, Measurements, Nonrecurring | Maximum
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis Valuation Techniques [Line Items]
Growth rate	0.90%
Attrition rate	6.50%
Discount rate	23.00%
Trade Names
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis Valuation Techniques [Line Items]
Fair Value	$ 3
Trade Names | Fair Value, Inputs, Level 3 | Fair Value, Measurements, Nonrecurring
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis Valuation Techniques [Line Items]
Fair Value	$ 3
Valuation Technique	Multi-period excess earnings method
Trade Names | Fair Value, Inputs, Level 3 | Fair Value, Measurements, Nonrecurring | Minimum
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis Valuation Techniques [Line Items]
Discount rate	15.00%
Royalty rate	1.00%
Trade Names | Fair Value, Inputs, Level 3 | Fair Value, Measurements, Nonrecurring | Maximum
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis Valuation Techniques [Line Items]
Discount rate	19.00%
Royalty rate	1.50%

XML

Business Combinations - Pro Forma Financial Information (Detail) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Business Combinations [Abstract]
Net sales	$ 978	$ 1,052	$ 2,808	$ 3,034
Net (loss) income	$ (6)	$ 40	$ (8)	$ 97
Net (loss) earnings per common share
Basic	$ (0.18)	$ 1.20	$ (0.24)	$ 2.90
Diluted	$ (0.18)	$ 1.20	$ (0.24)	$ 2.90
Amortization of purchased intangibles	$ 5	$ 5	$ 15	$ 16

XML

Business Combinations - Nonrecurring Pro Forma Adjustments Affecting Net Income (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Business Combinations [Abstract]
Acquisition-related expenses, pre-tax	$ (1)	$ 0	$ (1)	$ 0
Restructuring, impairment and other charges	0	0	(1)	0
Inventory fair value adjustments, pre-tax	1	0	1	(1)
Other pro forma adjustments, pre-tax	0	1	2	2
Income taxes	$ 0	$ 0	$ 1	$ (1)

XML

Inventories - Components of the Company's Inventories (Detail) - USD ($) $ in Millions	Sep. 30, 2017	Dec. 31, 2016
Inventory Net [Abstract]
Raw materials and manufacturing supplies	$ 121	$ 100
Work in process	74	58
Finished goods	99	93
Last in, First out reserve ("LIFO")	(57)	(58)
Total	$ 237	$ 193

XML

Property, Plant and Equipment - Components of the Company's Property, Plant and Equipment (Detail) - USD ($) $ in Millions	Sep. 30, 2017	Dec. 31, 2016
Property Plant And Equipment [Abstract]
Land	$ 46	$ 42
Buildings	783	762
Machinery and equipment	4,133	4,173
Property, plant and equipment, gross	4,962	4,977
Accumulated depreciation	(4,350)	(4,369)
Total	$ 612	$ 608

XML

Property, Plant and Equipment - Narrative (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Property Plant And Equipment [Abstract]
Depreciation expense	$ 34	$ 35	$ 102	$ 112

XML

Goodwill and Other Intangible Assets - Schedule of Changes in the Carrying Amount of Goodwill (Detail) - USD ($)	3 Months Ended	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016
Goodwill [Line Items]
Goodwill gross	$ 1,024,000,000	$ 1,024,000,000	$ 961,000,000
Accumulated impairment losses	(942,000,000)	(942,000,000)	(877,000,000)
Goodwill	82,000,000	82,000,000	84,000,000
Acquisitions		53,000,000
Impairment charges	(55,000,000)	(55,000,000)
Print
Goodwill [Line Items]
Goodwill gross	914,000,000	914,000,000	852,000,000
Accumulated impairment losses	(863,000,000)	(863,000,000)	(798,000,000)
Goodwill	51,000,000	51,000,000	54,000,000	$ 0
Acquisitions		52,000,000
Impairment charges	(55,000,000)	(55,000,000)
Office Products
Goodwill [Line Items]
Goodwill gross	110,000,000	110,000,000	109,000,000
Accumulated impairment losses	(79,000,000)	(79,000,000)	(79,000,000)
Goodwill	$ 31,000,000	31,000,000	$ 30,000,000
Acquisitions		1,000,000
Impairment charges		$ 0

XML

Goodwill and Other Intangible Assets - Narrative (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Schedule Of Other Intangible Assets [Line Items]
Goodwill impairment non-cash charge	$ 55		$ 55
Amortization expense for other intangible assets	4	$ 4	12	$ 13
2017 Acquisitions
Schedule Of Other Intangible Assets [Line Items]
Additions to other intangible assets	39		39
Print
Schedule Of Other Intangible Assets [Line Items]
Goodwill impairment non-cash charge	$ 55		$ 55

XML

Goodwill and Other Intangible Assets - Components of Other Intangible Assets (Detail) - USD ($) $ in Millions	Sep. 30, 2017	Dec. 31, 2016
Schedule Of Other Intangible Assets [Line Items]
Gross Carrying Amount, amortizable intangible assets	$ 249	$ 210
Accumulated Amortization, amortizable intangible assets	(123)	(111)
Net Book Value, amortizable intangible assets	126	99
Gross Carrying Amount, total other intangible assets	281	242
Net Book Value, total other intangible assets	158	131
Trade Names
Schedule Of Other Intangible Assets [Line Items]
Net Book Value, indefinite-lived trade names	32	32
Customer Relationships
Schedule Of Other Intangible Assets [Line Items]
Gross Carrying Amount, amortizable intangible assets	242	205
Accumulated Amortization, amortizable intangible assets	(120)	(109)
Net Book Value, amortizable intangible assets	122	96
Trade Names
Schedule Of Other Intangible Assets [Line Items]
Gross Carrying Amount, amortizable intangible assets	7	5
Accumulated Amortization, amortizable intangible assets	(3)	(2)
Net Book Value, amortizable intangible assets	$ 4	$ 3

XML

Goodwill and Other Intangible Assets - Schedule of Other Intangible Assets Additions by Component (Detail) - 2017 Acquisitions - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2017
Schedule Of Other Intangible Assets [Line Items]
Total additions	$ 39	$ 39
Customer Relationships
Schedule Of Other Intangible Assets [Line Items]
Amount		$ 36
Weighted Average Amortization Period		10 years 7 months 6 days
Trade Names
Schedule Of Other Intangible Assets [Line Items]
Amount		$ 3
Weighted Average Amortization Period		5 years

XML

Goodwill and Other Intangible Assets - Schedule of Estimated Annual Amortization Expense Related to Other Intangible Assets (Detail) $ in Millions	Sep. 30, 2017 USD ($)
Goodwill And Intangible Assets Disclosure [Abstract]
2017	$ 17
2018	15
2019	15
2020	14
2021	13
2022 and thereafter	64
Total	$ 138

XML

Restructuring, Impairment and Other Charges - Schedule of Net Restructuring, Impairment and Other Charges (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Restructuring Cost And Reserve [Line Items]
Employee Terminations	$ 0	$ 2	$ 7	$ 4
Other Restructuring Charges	4	1	22	4
Total Restructuring Charges	4	3	29	8
Impairment	55	(1)	55	0
Other Charges	1	1	3	3
Total	60	3	87	11
Total Operating Segments | Print
Restructuring Cost And Reserve [Line Items]
Employee Terminations	0	0	6	2
Other Restructuring Charges	2	1	5	4
Total Restructuring Charges	2	1	11	6
Impairment	55	(1)	55	0
Other Charges	1	1	3	3
Total	58	1	69	9
Total Operating Segments | Office Products
Restructuring Cost And Reserve [Line Items]
Employee Terminations			1
Other Restructuring Charges			0
Total Restructuring Charges			1
Impairment			0
Other Charges			0
Total			1
Corporate
Restructuring Cost And Reserve [Line Items]
Employee Terminations	0	2	0	2
Other Restructuring Charges	2	0	17	0
Total Restructuring Charges	2	2	17	2
Impairment	0	0	0	0
Other Charges	0	0	0	0
Total	$ 2	$ 2	$ 17	$ 2

XML

Restructuring, Impairment and Other Charges - Narrative (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2017 USD ($) Employee	Sep. 30, 2016 USD ($) Employee	Sep. 30, 2017 USD ($) Employee	Sep. 30, 2016 USD ($) Employee	Dec. 31, 2016 USD ($)
Restructuring Cost And Reserve [Line Items]
Other Restructuring Charges	$ 4,000,000	$ 1,000,000	$ 22,000,000	$ 4,000,000
Employee-related termination costs	0	2,000,000	$ 7,000,000	4,000,000
Number of employees used to determine employee termination costs | Employee			516
Goodwill	82,000,000		$ 82,000,000		$ 84,000,000
Goodwill impairment non-cash charge	55,000,000		55,000,000
Reversal of previously recorded impairment charges		1,000,000		0
Print
Restructuring Cost And Reserve [Line Items]
Goodwill	51,000,000	$ 0	51,000,000	$ 0	$ 54,000,000
Goodwill impairment non-cash charge	$ 55,000,000		$ 55,000,000
Termination One
Restructuring Cost And Reserve [Line Items]
Number of employees who were terminated as of date | Employee	450		450
Termination Two
Restructuring Cost And Reserve [Line Items]
Number of employees who were terminated as of date | Employee		48		48

XML

Restructuring, Impairment and Other Charges - Schedule of Changes in the Restructuring Reserve (Detail) $ in Millions	9 Months Ended
	Sep. 30, 2017 USD ($)
Restructuring Cost And Reserve [Line Items]
Balance at the beginning	$ 28
Restructuring Charges	24
Foreign Exchange and Other	0
Cash Paid	(28)
Balance at the end	24
Employee terminations
Restructuring Cost And Reserve [Line Items]
Balance at the beginning	8
Restructuring Charges	7
Foreign Exchange and Other	0
Cash Paid	(11)
Balance at the end	4
Lease terminations and other
Restructuring Cost And Reserve [Line Items]
Balance at the beginning	2
Restructuring Charges	16
Foreign Exchange and Other	0
Cash Paid	(14)
Balance at the end	4
Multiemployer pension plan withdrawal obligations
Restructuring Cost And Reserve [Line Items]
Balance at the beginning	18
Restructuring Charges	1
Foreign Exchange and Other	0
Cash Paid	(3)
Balance at the end	$ 16

XML

Restructuring, Impairment and Other Charges - Restructuring Reserve - Narrative (Detail) $ in Millions	Sep. 30, 2017 USD ($)
Restructuring And Related Activities [Abstract]
Current restructuring reserve (included in accrued liabilities)	$ 11
Noncurrent restructuring reserve (included in noncurrent liabilities)	$ 13

XML

Restructuring, Impairment and Other Charges - Other Charges - Narrative (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Restructuring Cost And Reserve [Line Items]
Other Charges	$ 1	$ 1	$ 3	$ 3
Accrued liabilities	237		237		$ 237
Other noncurrent liabilities	103		103		$ 106
Multiemployer pension plan withdrawal obligations
Restructuring Cost And Reserve [Line Items]
Other Charges	1	$ 1	3	$ 3
Accrued liabilities	6		6
Other noncurrent liabilities	$ 37		$ 37

XML

Retirement Plans - Narrative (Detail) - USD ($) $ in Millions			3 Months Ended		9 Months Ended
	Jun. 30, 2017	Oct. 01, 2016	Sep. 30, 2016	Jun. 30, 2016	Sep. 30, 2016
Defined Benefit Plan Disclosure [Line Items]
Net benefit plan obligation assumed		$ 358
Increase in net obligation	$ 6
Reduction in net benefit plan assets		$ 7
Net pension and postretirement income			$ 8		$ 28
Selling, General and Administrative Expenses
Defined Benefit Plan Disclosure [Line Items]
Pension non-cash settlement expense				$ 1

XML

Retirement Plans - Components of Estimated Net Pension Benefits Plan Income (Detail) - Pension Benefits - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Qualified
Defined Benefit Plan Disclosure [Line Items]
Interest cost	$ 22	$ 2	$ 65	$ 5
Expected return on plan assets	(38)	(3)	(114)	(8)
Amortization, net	4	0	12	0
Settlement		0		1
Net periodic benefit (income) loss	(12)	(1)	(37)	(2)
Non-Qualified and International
Defined Benefit Plan Disclosure [Line Items]
Interest cost	0	2	2	5
Expected return on plan assets	0	(2)	0	(7)
Amortization, net	1	0	1	1
Settlement		0		0
Net periodic benefit (income) loss	$ 1	$ 0	$ 3	$ (1)
Defined Contribution Plan, Sponsor Location [Extensible List]	us-gaap:ForeignPlanMember	us-gaap:ForeignPlanMember	us-gaap:ForeignPlanMember	us-gaap:ForeignPlanMember

XML

Equity - Schedule of the Company's Equity Activity (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Equity [Abstract]
Balance			$ 240	$ 1,277
Net income	$ (3)	$ 38	1	97
Net transfers to parent company				(933)
Other comprehensive income (loss)	5	(1)	28	(4)
Share-based compensation			10
Issuance of share-based awards, net of withholdings and other			(1)
Cash dividends paid			(25)
Issuance of common stock			38
Separation-related adjustments			(5)
Balance	$ 286	$ 437	$ 286	$ 437

XML

Equity - Narrative (Detail) - USD ($) shares in Millions, $ in Millions			3 Months Ended		9 Months Ended
	Jul. 28, 2017	Mar. 28, 2017	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017
Equity [Line Items]
Issuance of common stock, value					$ 38
Fairrington
Equity [Line Items]
Issuance of common stock, shares, acquisition	1.0		1.0
Issuance of common stock, value, acquisition	$ 20
Over-allotment Option
Equity [Line Items]
Issuance of common stock, shares		0.9
Issuance of common stock, value		$ 18
RRD
Equity [Line Items]
Cash dividend paid in connection with separation				$ 806

XML

Earnings Per Share - Narrative (Detail) - shares			3 Months Ended	9 Months Ended
	Jul. 28, 2017	Mar. 28, 2017	Sep. 30, 2017	Sep. 30, 2017	Oct. 01, 2016
Earnings Per Share [Line Items]
Number of subsidiary shares distributed to parent company stockholders					26,200,000
Number of subsidiary shares retained by parent company					6,200,000
Number of subsidiary shares sold by parent company		6,200,000
Treasury stock, shares acquired				0
Over-allotment Option
Earnings Per Share [Line Items]
Issuance of common stock, shares		900,000
Fairrington
Earnings Per Share [Line Items]
Issuance of common stock shares for acquisitions of businesses	1,000,000		1,000,000

XML

Earnings Per Share - Calculation of Basic and Diluted EPS as Well as Reconciliation of Basic Shares to Diluted Shares (Detail) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Net (loss) earnings per common share:
Basic	$ (0.07)	$ 1.17	$ 0.03	$ 2.99
Diluted	(0.07)	1.17	0.03	2.99
Dividends declared per common share	$ 0.25	$ 0	$ 0.75	$ 0
Numerator:
Net (loss) income	$ (3)	$ 38	$ 1	$ 97
Denominator:
Weighted average number of common shares outstanding	34.2	32.4	33.5	32.4
Dilutive options and awards	0.0	0.0	0.3	0.0
Diluted weighted average number of common shares outstanding	34.2	32.4	33.8	32.4

XML

Comprehensive Income - Schedule of Components of Other Comprehensive Income (Loss) and Income Tax Expense Allocated to Each Component (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive income, Before Tax Amount	$ 7	$ (1)	$ 33	$ 1
Other comprehensive income, Income Tax Expense	2	0	5	5
Other comprehensive income (loss)	5	(1)	28	(4)
Translation adjustments
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive income, Before Tax Amount	2	(2)	20	(3)
Other comprehensive income, Income Tax Expense	0	0	0	0
Other comprehensive income (loss)	2	(2)	20	(3)
Pension Plan Cost
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive income, Before Tax Amount	5	1	13	4
Other comprehensive income, Income Tax Expense	2	0	5	5
Other comprehensive income (loss)	$ 3	$ 1	$ 8	$ (1)

XML

Comprehensive Income - Schedule of Changes in Accumulated Other Comprehensive Loss (Detail) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Accumulated Other Comprehensive Income Loss [Line Items]
Balance	$ 240	$ 1,277
Balance	286	437
Pension Plan Cost
Accumulated Other Comprehensive Income Loss [Line Items]
Balance	(462)	(46)
Other comprehensive income (loss) before reclassifications	0	0
Amounts reclassified from accumulated other comprehensive loss	8	(1)
Net change in accumulated other comprehensive loss	8	(1)
Balance	(454)	(47)
Translation adjustments
Accumulated Other Comprehensive Income Loss [Line Items]
Balance	(69)	(159)
Other comprehensive income (loss) before reclassifications	20	(3)
Amounts reclassified from accumulated other comprehensive loss	0	0
Net change in accumulated other comprehensive loss	20	(3)
Balance	(49)	(162)
Accumulated Other Comprehensive Loss
Accumulated Other Comprehensive Income Loss [Line Items]
Balance	(531)	(205)
Other comprehensive income (loss) before reclassifications	20	(3)
Amounts reclassified from accumulated other comprehensive loss	8	(1)
Net change in accumulated other comprehensive loss	28	(4)
Balance	$ (503)	$ (209)

XML

Comprehensive Income - Schedule of Reclassification From Accumulated Other Comprehensive Loss (Detail) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Amortization of Pension Plan Cost: Net Actuarial Loss
Reclassification from Accumulated Other Comprehensive Loss
Reclassifications before tax	[1]	$ 5	$ 0	$ 13	$ 1
Amortization of Pension Plan Cost: Settlement
Reclassification from Accumulated Other Comprehensive Loss
Reclassifications before tax		0	0	0	1
Accumulated Defined Benefit Plans Adjustment
Reclassification from Accumulated Other Comprehensive Loss
Reclassifications before tax		5	0	13	2
Income tax expense (benefit)		2	(1)	5	3
Reclassifications, net of tax		$ 3	$ 1	$ 8	$ (1)

[1] These accumulated other comprehensive income components are included in the calculation of net periodic pension plan (income) expense that is recognized substantially all in selling, general and administrative expenses in the condensed consolidated and combined statements of operations (see Note 7, Retirement Plans).

XML

Segment Information - Narrative (Detail)	9 Months Ended
	Sep. 30, 2017 Category
Office Products
Segment Reporting Information [Line Items]
Number of core product categories	5

XML

Segment Information - Schedule of Segment Reporting Information (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Segment Reporting Information [Line Items]
Net Sales	$ 935	$ 949	$ 2,604	$ 2,735
Income (loss) from Operations	(7)	57	30	148
Assets of Operations	2,073	1,948	2,073	1,948
Depreciation and Amortization	39	40	118	130
Capital Expenditures	15	16	51	35
Total Operating Segments
Segment Reporting Information [Line Items]
Net Sales	935	949	2,604	2,735
Income (loss) from Operations	1	59	56	152
Assets of Operations	1,983	1,925	1,983	1,925
Depreciation and Amortization	39	40	117	130
Capital Expenditures	10	15	44	31
Total Operating Segments | Print
Segment Reporting Information [Line Items]
Net Sales	819	822	2,252	2,338
Income (loss) from Operations	(10)	48	24	114
Assets of Operations	1,667	1,602	1,667	1,602
Depreciation and Amortization	35	36	106	118
Capital Expenditures	9	14	41	28
Total Operating Segments | Office Products
Segment Reporting Information [Line Items]
Net Sales	116	127	352	397
Income (loss) from Operations	11	11	32	38
Assets of Operations	316	323	316	323
Depreciation and Amortization	4	4	11	12
Capital Expenditures	1	1	3	3
Corporate
Segment Reporting Information [Line Items]
Net Sales	0	0	0	0
Income (loss) from Operations	(8)	(2)	(26)	(4)
Assets of Operations	90	23	90	23
Depreciation and Amortization	0	0	1	0
Capital Expenditures	$ 5	$ 1	$ 7	$ 4

XML

Commitments and Contingencies - Narrative (Detail)	Sep. 30, 2017 Facility
Commitments And Contingencies Disclosure [Abstract]
Number of sites cited as potentially responsible party	10
Number of previously and currently owned sites with potential remediation obligations	4

XML

Debt - Schedule of the Company's Debt Obligations (Detail) - USD ($)		Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016
Debt Instrument [Line Items]
Capital lease obligations		$ 3,000,000	$ 6,000,000
Unamortized debt issuance costs		(13,000,000)	(15,000,000)
Total debt		884,000,000	794,000,000
Less: current portion		(177,000,000)	(52,000,000)
Long-term debt		707,000,000	742,000,000
Borrowings under the Revolving Credit Facility
Debt Instrument [Line Items]
Term Loan Facility		140,000,000	0
Term Loan Facility due September 30, 2022
Debt Instrument [Line Items]
Term Loan Facility	[1]	304,000,000	353,000,000
8.75% Senior Secured Notes due October 15, 2023
Debt Instrument [Line Items]
Senior Secured Notes		$ 450,000,000	$ 450,000,000	$ 450,000,000

[1] The borrowings under the Term Loan Facility are subject to a variable interest rate. As of September 30, 2017 and December 31, 2016, the interest rate was 7.24% and 7.00%, respectively.

XML

Debt - Schedule of the Company's Debt (Parenthetical) (Detail)	9 Months Ended
	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016
Term Loan Facility due September 30, 2022
Debt Instrument [Line Items]
Debt instrument, maturity date	Sep. 30, 2022
Debt instrument, variable interest rate	7.24%	7.00%
8.75% Senior Secured Notes due October 15, 2023
Debt Instrument [Line Items]
Debt instrument, interest rate	8.75%		8.75%
Debt instrument, maturity date	Oct. 15, 2023

XML

Debt - Narrative (Detail) - USD ($)				3 Months Ended		9 Months Ended
		Feb. 02, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Debt Instrument [Line Items]
Amount of difference between fair value and book value				$ 24,000,000		$ 24,000,000		$ 22,000,000
Net interest expense				19,000,000	$ 1,000,000	$ 52,000,000	$ 0
Weighted average interest rate on borrowings						4.31%
Revolving Credit Facility
Debt Instrument [Line Items]
Credit facility borrowings				140,000,000		$ 140,000,000		0
Credit Agreements
Debt Instrument [Line Items]
Debt instrument, interest payment terms						Interest on the Credit Agreement is due at least quarterly and commenced on December 31, 2016.
Debt instrument, frequency of periodic interest payment						quarterly
Debt instrument, initial date of interest payment						Dec. 31, 2016
Allowable annual dividend payment under credit agreement			$ 50,000,000		50,000,000		50,000,000
Credit Agreements | Revolving Credit Facility
Debt Instrument [Line Items]
Debt instrument, maturity date						Sep. 30, 2021
Debt instrument, principal amount			$ 400,000,000		400,000,000		400,000,000
Credit Agreements | Base Rate | Revolving Credit Facility | Minimum
Debt Instrument [Line Items]
Debt instrument, applicable margin rate			1.75%
Credit Agreements | Base Rate | Revolving Credit Facility | Maximum
Debt Instrument [Line Items]
Debt instrument, applicable margin rate			2.25%
Credit Agreements | LIBOR Rate | Revolving Credit Facility | Minimum
Debt Instrument [Line Items]
Debt instrument, applicable margin rate			2.75%
Credit Agreements | LIBOR Rate | Revolving Credit Facility | Maximum
Debt Instrument [Line Items]
Debt instrument, applicable margin rate			3.25%
8.75% Senior Secured Notes due October 15, 2023
Debt Instrument [Line Items]
Senior Secured Notes			$ 450,000,000	$ 450,000,000	$ 450,000,000	$ 450,000,000	$ 450,000,000	450,000,000
Debt instrument, interest rate			8.75%	8.75%	8.75%	8.75%	8.75%
Debt instrument, maturity date						Oct. 15, 2023
Debt instrument, interest payment terms						Interest on the Senior Notes is due semi-annually on April 15 and October 15, commencing on April 15, 2017.
Debt instrument, frequency of periodic interest payment						semi-annually
Debt instrument, initial date of interest payment						Apr. 15, 2017
Senior Secured Term Loan B Facility
Debt Instrument [Line Items]
Debt instrument, maturity date						Sep. 30, 2022
Amortization payments paid in advance		$ 50,000,000
Credit facility borrowings	[1]			$ 304,000,000		$ 304,000,000		$ 353,000,000
Senior Secured Term Loan B Facility | Credit Agreements
Debt Instrument [Line Items]
Debt instrument, maturity date						Sep. 30, 2022
Debt instrument, principal amount			$ 375,000,000		$ 375,000,000		$ 375,000,000
LIBOR floor rate			1.00%
Senior Secured Term Loan B Facility | Credit Agreements | Quarterly Installment for First Eight Quarters
Debt Instrument [Line Items]
Debt instrument, amortize in quarterly installment			$ 13,000,000
Senior Secured Term Loan B Facility | Credit Agreements | Quarterly Installment for Subsequent Quarters
Debt Instrument [Line Items]
Debt instrument, amortize in quarterly installment			$ 11,000,000
Senior Secured Term Loan B Facility | Credit Agreements | Base Rate
Debt Instrument [Line Items]
Debt instrument, applicable margin rate			5.00%
Senior Secured Term Loan B Facility | Credit Agreements | LIBOR Rate
Debt Instrument [Line Items]
Debt instrument, applicable margin rate			6.00%

[1] The borrowings under the Term Loan Facility are subject to a variable interest rate. As of September 30, 2017 and December 31, 2016, the interest rate was 7.24% and 7.00%, respectively.

XML

Related Parties - Narrative (Detail) - USD ($) shares in Millions, $ in Millions			3 Months Ended		9 Months Ended
	Mar. 28, 2017	Oct. 01, 2016	Mar. 31, 2017	Sep. 30, 2016	Sep. 30, 2016
Related Party Transaction [Line Items]
Number of common stock shares sold	6.2
RRD
Related Party Transaction [Line Items]
Number of common stock shares sold	6.2
Ownership percentage	19.25%	19.25%
Freight, logistics and premedia services purchased			$ 51	$ 43	$ 135
RRD’s subsidiaries
Related Party Transaction [Line Items]
Net revenues from related party sales			$ 32	$ 19	$ 40

XML

Related Parties - Allocation of Expense Reflected in the Condensed Combined Statements of Operations (Detail) - RRD - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2016
Related Party Transaction [Line Items]
Total allocations from RRD	$ 68	$ 186
Costs of Goods Sold
Related Party Transaction [Line Items]
Total allocations from RRD	25	67
Selling, General and Administrative Expenses
Related Party Transaction [Line Items]
Total allocations from RRD	42	114
Depreciation and Amortization
Related Party Transaction [Line Items]
Total allocations from RRD	$ 1	$ 5

XML

New Accounting Pronouncements - Narrative (Detail) - ASU 2017-07 - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Expected net pension income upon adoption of accounting standard		$ 45
Scenario Forecast
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Expected net pension income upon adoption of accounting standard	$ 46