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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Wisconsin
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39-1152983
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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N61 W23044 Harry's Way, Sussex, Wisconsin 53089-3995
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(414) 566-6000
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(Address of principal executive offices) (Zip Code)
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(Registrant's telephone number, including area code)
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Large accelerated filer
o
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Accelerated filer
x
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Class
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Outstanding as of July 31, 2014
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Class A Common Stock
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34,619,372
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Class B Common Stock
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14,198,464
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Class C Common Stock
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—
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Page No.
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ITEM 1.
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Condensed Consolidated Financial Statements (Unaudited)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2014
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2013
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2014
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2013
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Net sales
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Products
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$
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946.2
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$
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968.1
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$
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1,899.9
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$
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1,950.6
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Services
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152.8
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142.7
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301.9
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289.7
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Total net sales
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1,099.0
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1,110.8
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2,201.8
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2,240.3
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Cost of sales
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Products
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782.3
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786.9
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1,565.9
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1,588.3
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Services
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110.6
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106.9
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219.6
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215.3
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Total cost of sales
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892.9
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893.8
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1,785.5
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1,803.6
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Operating expenses
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Selling, general and administrative expenses
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100.4
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105.1
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203.9
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211.0
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Depreciation and amortization
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85.3
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87.9
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169.1
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176.7
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Restructuring, impairment and transaction-related charges
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19.9
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29.2
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31.8
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55.1
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Total operating expenses
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1,098.5
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1,116.0
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2,190.3
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2,246.4
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Operating income (loss)
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$
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0.5
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$
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(5.2
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$
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11.5
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$
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(6.1
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)
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Interest expense
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23.5
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21.3
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44.4
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43.2
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Loss on debt extinguishment
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6.0
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—
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6.0
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—
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Loss before income taxes and equity in loss of unconsolidated entities
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(29.0
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(26.5
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(38.9
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(49.3
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)
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Income tax benefit
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(9.6
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(0.6
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(10.8
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(9.1
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Loss before equity in loss of unconsolidated entities
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(19.4
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(25.9
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(28.1
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(40.2
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Equity in loss of unconsolidated entities
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(3.4
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(1.7
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(3.8
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(1.5
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Net loss
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$
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(22.8
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$
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(27.6
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$
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(31.9
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$
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(41.7
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)
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Net loss attributable to noncontrolling interests
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—
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0.4
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0.3
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0.5
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Net loss attributable to Quad/Graphics common shareholders
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$
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(22.8
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$
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(27.2
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$
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(31.6
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$
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(41.2
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Loss per share attributable to Quad/Graphics common shareholders:
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Basic and diluted
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$
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(0.48
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$
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(0.59
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$
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(0.67
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$
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(0.89
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)
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Dividends declared per share
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$
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0.30
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$
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0.30
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$
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0.60
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$
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0.60
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Weighted average number of common shares outstanding:
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Basic and diluted
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47.5
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46.9
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47.4
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46.9
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Three Months Ended June 30,
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Six Months Ended June 30,
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||||||||||||
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2014
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2013
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2014
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2013
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Net loss
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$
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(22.8
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$
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(27.6
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$
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(31.9
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$
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(41.7
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Other comprehensive loss
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Translation adjustments
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1.0
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(17.1
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0.2
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(19.4
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Pension and other postretirement benefit plan adjustments
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(1.5
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(1.4
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(3.0
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(2.8
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Other comprehensive loss, before tax
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(0.5
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(18.5
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(2.8
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(22.2
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Income tax benefit related to pension and other postretirement benefit plan adjustments
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0.5
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0.5
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1.1
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1.1
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Other comprehensive loss, net of tax
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—
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(18.0
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(1.7
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(21.1
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Total comprehensive loss
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(22.8
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(45.6
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(33.6
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(62.8
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Less: comprehensive loss attributable to noncontrolling interests
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—
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0.4
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0.3
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0.5
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Comprehensive loss attributable to Quad/Graphics common shareholders
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$
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(22.8
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$
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(45.2
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$
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(33.3
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)
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$
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(62.3
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)
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June 30,
2014 |
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December 31,
2013 |
||||
ASSETS
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Cash and cash equivalents
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$
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17.4
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$
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13.1
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Receivables, less allowances for doubtful accounts of $67.1 million at June 30, 2014 and $58.9 million at December 31, 2013
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661.1
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698.9
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Inventories
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293.5
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272.5
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Prepaid expenses and other current assets
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53.8
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37.2
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Deferred income taxes
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60.4
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48.1
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Short-term restricted cash
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7.3
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4.5
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Total current assets
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1,093.5
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1,074.3
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Property, plant and equipment—net
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1,966.5
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1,925.5
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Goodwill
|
773.1
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773.1
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Other intangible assets—net
|
197.3
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221.8
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Long-term restricted cash
|
41.3
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51.5
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|
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Equity method investments in unconsolidated entities
|
52.7
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57.1
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|
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Other long-term assets
|
80.3
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62.4
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|
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Total assets
|
$
|
4,204.7
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$
|
4,165.7
|
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LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
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|
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Accounts payable
|
$
|
351.5
|
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$
|
401.0
|
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Amounts owing in satisfaction of bankruptcy claims
|
1.4
|
|
|
2.5
|
|
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Accrued liabilities
|
346.5
|
|
|
350.7
|
|
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Short-term debt and current portion of long-term debt
|
134.2
|
|
|
127.6
|
|
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Current portion of capital lease obligations
|
7.6
|
|
|
7.0
|
|
||
Total current liabilities
|
841.2
|
|
|
888.8
|
|
||
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|
||||
Long-term debt
|
1,426.3
|
|
|
1,265.7
|
|
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Unsecured notes to be issued
|
9.6
|
|
|
18.0
|
|
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Capital lease obligations
|
14.3
|
|
|
6.5
|
|
||
Deferred income taxes
|
392.3
|
|
|
395.2
|
|
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Other long-term liabilities
|
289.9
|
|
|
303.9
|
|
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Total liabilities
|
2,973.6
|
|
|
2,878.1
|
|
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|
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Commitments and contingencies (Note 8)
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|
||||
Quad/Graphics common stock and other equity (Note 17)
|
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|
||||
Preferred stock
|
—
|
|
|
—
|
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Common stock, Class A
|
1.0
|
|
|
1.0
|
|
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Common stock, Class B
|
0.4
|
|
|
0.4
|
|
||
Common stock, Class C
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—
|
|
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—
|
|
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Additional paid-in capital
|
962.9
|
|
|
983.1
|
|
||
Treasury stock, at cost
|
(222.1
|
)
|
|
(248.8
|
)
|
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Retained earnings
|
496.2
|
|
|
558.8
|
|
||
Accumulated other comprehensive loss
|
(7.3
|
)
|
|
(5.6
|
)
|
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Quad/Graphics common stock and other equity
|
1,231.1
|
|
|
1,288.9
|
|
||
Noncontrolling interests
|
—
|
|
|
(1.3
|
)
|
||
Total common stock and other equity and noncontrolling interests
|
1,231.1
|
|
|
1,287.6
|
|
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Total liabilities and shareholders' equity
|
$
|
4,204.7
|
|
|
$
|
4,165.7
|
|
|
Six Months Ended June 30,
|
||||||
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2014
|
|
2013
|
||||
OPERATING ACTIVITIES
|
|
|
|
||||
Net loss
|
$
|
(31.9
|
)
|
|
$
|
(41.7
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
169.1
|
|
|
176.7
|
|
||
Impairment charges
|
3.1
|
|
|
9.7
|
|
||
Amortization of debt issuance costs and original issue discount
|
2.1
|
|
|
2.1
|
|
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Loss on debt extinguishment
|
6.0
|
|
|
—
|
|
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Stock-based compensation charges
|
8.6
|
|
|
9.3
|
|
||
Loss on sales or disposal of property, plant and equipment
|
—
|
|
|
0.5
|
|
||
Deferred income taxes
|
(14.9
|
)
|
|
(10.0
|
)
|
||
Equity in loss of unconsolidated entities
|
3.8
|
|
|
1.5
|
|
||
Dividends from unconsolidated entities
|
—
|
|
|
5.0
|
|
||
Changes in operating assets and liabilities—net of acquisitions
|
(67.0
|
)
|
|
63.8
|
|
||
Net cash provided by operating activities
|
78.9
|
|
|
216.9
|
|
||
|
|
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|
||||
INVESTING ACTIVITIES
|
|
|
|
||||
Purchases of property, plant and equipment
|
(83.6
|
)
|
|
(69.7
|
)
|
||
Cost investment in unconsolidated entities
|
(4.1
|
)
|
|
(2.5
|
)
|
||
Proceeds from the sale of property, plant and equipment
|
0.4
|
|
|
6.2
|
|
||
Transfers from restricted cash
|
7.4
|
|
|
4.3
|
|
||
Acquisition of Brown Printing—net of cash acquired (Note 2)
|
(96.4
|
)
|
|
—
|
|
||
Acquisition of Vertis—net of cash acquired (Note 2)
|
—
|
|
|
(235.4
|
)
|
||
Acquisition of other businesses—net of cash acquired
|
(11.4
|
)
|
|
(1.5
|
)
|
||
Net cash used in investing activities
|
(187.7
|
)
|
|
(298.6
|
)
|
||
|
|
|
|
||||
FINANCING ACTIVITIES
|
|
|
|
||||
Proceeds from issuance of long-term debt
|
1,047.0
|
|
|
—
|
|
||
Payments of long-term debt
|
(710.0
|
)
|
|
(44.0
|
)
|
||
Payments of capital lease obligations
|
(4.4
|
)
|
|
(4.8
|
)
|
||
Borrowings on revolving credit facilities
|
675.0
|
|
|
805.1
|
|
||
Payments on revolving credit facilities
|
(844.4
|
)
|
|
(645.7
|
)
|
||
Payments of debt issuance costs
|
(14.3
|
)
|
|
—
|
|
||
Bankruptcy claim payments on unsecured notes to be issued
|
(7.4
|
)
|
|
(4.3
|
)
|
||
Sale of stock for options exercised
|
1.3
|
|
|
1.7
|
|
||
Shares withheld from employees for the tax obligation on equity grants
|
(1.0
|
)
|
|
—
|
|
||
Tax benefit on equity award activity
|
(0.8
|
)
|
|
—
|
|
||
Payments of dividends
|
(29.3
|
)
|
|
(28.1
|
)
|
||
Net cash provided by financing activities
|
111.7
|
|
|
79.9
|
|
||
Effect of exchange rates on cash and cash equivalents
|
1.4
|
|
|
(3.4
|
)
|
||
Net increase (decrease) in cash and cash equivalents
|
4.3
|
|
|
(5.2
|
)
|
||
Cash and cash equivalents at beginning of period
|
13.1
|
|
|
16.9
|
|
||
Cash and cash equivalents at end of period
|
$
|
17.4
|
|
|
$
|
11.7
|
|
|
|
|
|
||||
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
||||
Acquisitions of Brown Printing and Vertis (Note 2):
|
|
|
|
||||
Fair value of assets acquired—net of cash
|
$
|
148.4
|
|
|
$
|
327.3
|
|
Liabilities assumed
|
(52.0
|
)
|
|
(66.0
|
)
|
||
Deposit paid in 2012 related to Vertis acquisition
|
—
|
|
|
(25.9
|
)
|
||
Acquisitions of Brown Printing and Vertis—net of cash acquired
|
$
|
96.4
|
|
|
$
|
235.4
|
|
|
Preliminary Purchase
Price Allocation
|
||
Cash and cash equivalents
|
$
|
3.6
|
|
Accounts receivable
|
46.3
|
|
|
Other current assets
|
19.1
|
|
|
Property, plant and equipment
|
70.8
|
|
|
Identifiable intangible assets
|
4.7
|
|
|
Other long-term assets
|
7.5
|
|
|
Accounts payable and accrued liabilities
|
(35.2
|
)
|
|
Other long-term liabilities
|
(16.8
|
)
|
|
Preliminary purchase price
|
$
|
100.0
|
|
|
Preliminary Purchase Price Allocation
|
||
Accounts receivable
|
$
|
4.4
|
|
Other current assets
|
5.9
|
|
|
Property, plant and equipment
|
13.3
|
|
|
Identifiable intangible assets
|
24.0
|
|
|
Accounts payable and accrued liabilities
|
(3.7
|
)
|
|
Other long-term liabilities
|
(2.8
|
)
|
|
Goodwill
|
8.0
|
|
|
Preliminary purchase price
|
$
|
49.1
|
|
|
Purchase Price
Allocation
|
||
Cash and cash equivalents
|
$
|
4.1
|
|
Accounts receivable
|
133.4
|
|
|
Other current assets
|
40.5
|
|
|
Property, plant and equipment
|
127.8
|
|
|
Identifiable intangible assets
|
25.6
|
|
|
Current liabilities
|
(54.0
|
)
|
|
Other long-term liabilities
|
(12.0
|
)
|
|
Purchase price
|
$
|
265.4
|
|
(1)
|
The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting under existing GAAP. The Company is the acquirer for accounting purposes.
|
(2)
|
The unaudited pro forma condensed combined financial information does not reflect any operating cost synergy savings that the combined companies may achieve as a result of the acquisition, the costs necessary to achieve these operating synergy savings or additional charges necessary as a result of the integration.
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
|
(pro forma)
|
|
(pro forma)
|
|
(pro forma)
|
|
(pro forma)
|
||||||||
Pro forma net sales
|
$
|
1,154.7
|
|
|
$
|
1,202.7
|
|
|
$
|
2,347.0
|
|
|
$
|
2,470.2
|
|
Pro forma net loss attributable to common shareholders
|
(23.9
|
)
|
|
(26.0
|
)
|
|
(32.4
|
)
|
|
(40.5
|
)
|
||||
Pro forma diluted loss per share attributable to common shareholders
|
(0.51
|
)
|
|
(0.56
|
)
|
|
(0.69
|
)
|
|
(0.88
|
)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Employee termination charges
|
$
|
12.7
|
|
|
$
|
4.3
|
|
|
$
|
18.7
|
|
|
$
|
7.7
|
|
Impairment charges
|
2.0
|
|
|
6.0
|
|
|
3.1
|
|
|
9.7
|
|
||||
Transaction-related charges
|
0.7
|
|
|
0.2
|
|
|
1.3
|
|
|
3.2
|
|
||||
Integration costs
|
1.9
|
|
|
9.7
|
|
|
4.6
|
|
|
15.1
|
|
||||
Other restructuring charges
|
2.6
|
|
|
9.0
|
|
|
4.1
|
|
|
19.4
|
|
||||
Total
|
$
|
19.9
|
|
|
$
|
29.2
|
|
|
$
|
31.8
|
|
|
$
|
55.1
|
|
•
|
Employee termination charges of
$12.7 million
and
$18.7 million
during the
three and six months ended
June 30, 2014
, respectively, and
$4.3 million
and
$7.7 million
during the
three and six months ended
June 30, 2013
, respectively. The Company reduced its workforce through facility consolidations and involuntary separation programs.
|
•
|
Integration costs of
$1.9 million
and
$4.6 million
during the
three and six months ended
June 30, 2014
, respectively, and
$9.7 million
and
$15.1 million
during the
three and six months ended
and
June 30, 2013
, respectively. Integration costs were primarily related to preparing existing facilities to meet new production requirements resulting from work transferring from closed plants, as well as other costs related to the integration of the acquired companies.
|
•
|
Other restructuring charges of
$2.6 million
and
$4.1 million
were recorded by the Company during the
three and six months ended
June 30, 2014
, respectively, which consisted of: (1)
$1.6 million
and
$2.5 million
, respectively, of vacant facility carrying costs, (2)
$0.3 million
and
$0.4 million
, respectively, of equipment and infrastructure removal costs from closed plants and (3)
$0.7 million
and
$1.2 million
, respectively, of lease exit charges. Other restructuring charges of
$9.0 million
and
$19.4 million
, were recorded by the Company during the
three and six months ended
June 30, 2013
, respectively, which consisted of: (1)
$5.7 million
and
$9.9 million
, respectively, of vacant facility carrying costs, (2)
$2.6 million
and
$4.8 million
, respectively, of equipment and infrastructure removal costs from closed plants and (3)
$0.7 million
and
$4.7 million
, respectively, of lease exit charges.
|
|
Employee
Termination
Charges
|
|
Impairment
Charges
|
|
Transaction-Related
Charges
|
|
Integration
Costs
|
|
Other
Restructuring
Charges
|
|
Total
|
||||||||||||
Balance at December 31, 2013
|
$
|
4.8
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
3.7
|
|
|
$
|
19.3
|
|
|
$
|
28.0
|
|
Expense
|
18.7
|
|
|
3.1
|
|
|
1.3
|
|
|
4.6
|
|
|
4.1
|
|
|
31.8
|
|
||||||
Cash payments
|
(11.3
|
)
|
|
—
|
|
|
(1.3
|
)
|
|
(4.6
|
)
|
|
(8.9
|
)
|
|
(26.1
|
)
|
||||||
Non-cash adjustments
|
(0.3
|
)
|
|
(3.1
|
)
|
|
—
|
|
|
(1.5
|
)
|
|
0.8
|
|
|
(4.1
|
)
|
||||||
Balance at June 30, 2014
|
$
|
11.9
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
2.2
|
|
|
$
|
15.3
|
|
|
$
|
29.6
|
|
|
United States Print and Related Services
|
|
International
|
|
Total
|
||||||
Balance at December 31, 2013
|
$
|
746.2
|
|
|
$
|
26.9
|
|
|
$
|
773.1
|
|
Translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|||
Balance at June 30, 2014
|
$
|
746.2
|
|
|
$
|
26.9
|
|
|
$
|
773.1
|
|
|
June 30, 2014
|
|
December 31, 2013
|
||||||||||||||||||||||||
|
Weighted
Average
Amortization
Period (years)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
Weighted
Average
Amortization
Period (years)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
||||||||||||
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Trademarks, patents, licenses and agreements
|
5
|
|
$
|
6.7
|
|
|
$
|
(5.4
|
)
|
|
$
|
1.3
|
|
|
5
|
|
$
|
6.5
|
|
|
$
|
(5.2
|
)
|
|
$
|
1.3
|
|
Customer relationships
|
6
|
|
458.3
|
|
|
(263.7
|
)
|
|
194.6
|
|
|
6
|
|
444.9
|
|
|
(226.4
|
)
|
|
218.5
|
|
||||||
Capitalized software
|
5
|
|
4.3
|
|
|
(4.0
|
)
|
|
0.3
|
|
|
5
|
|
4.3
|
|
|
(3.6
|
)
|
|
0.7
|
|
||||||
Acquired technology
|
5
|
|
7.3
|
|
|
(6.2
|
)
|
|
1.1
|
|
|
5
|
|
7.3
|
|
|
(6.0
|
)
|
|
1.3
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total finite-lived intangible assets
|
|
$
|
476.6
|
|
|
$
|
(279.3
|
)
|
|
$
|
197.3
|
|
|
|
|
$
|
463.0
|
|
|
$
|
(241.2
|
)
|
|
$
|
221.8
|
|
|
Amortization Expense
|
||
Remainder of 2014
|
$
|
39.1
|
|
2015
|
77.3
|
|
|
2016
|
45.7
|
|
|
2017
|
13.3
|
|
|
2018
|
12.7
|
|
|
2019 and thereafter
|
9.2
|
|
|
Total
|
$
|
197.3
|
|
|
June 30,
2014 |
|
December 31,
2013 |
||||
Raw materials and manufacturing supplies
|
$
|
183.9
|
|
|
$
|
174.9
|
|
Work in process
|
50.3
|
|
|
46.6
|
|
||
Finished goods
|
59.3
|
|
|
51.0
|
|
||
Total
|
$
|
293.5
|
|
|
$
|
272.5
|
|
|
June 30,
2014 |
|
December 31,
2013 |
||||
Land
|
$
|
148.8
|
|
|
$
|
145.8
|
|
Buildings
|
957.3
|
|
|
937.8
|
|
||
Machinery and equipment
|
3,628.7
|
|
|
3,509.9
|
|
||
Other
(1)
|
221.8
|
|
|
213.1
|
|
||
Construction in progress
|
56.8
|
|
|
32.6
|
|
||
|
5,013.4
|
|
|
4,839.2
|
|
||
Less: accumulated depreciation
|
(3,046.9
|
)
|
|
(2,913.7
|
)
|
||
Total
|
$
|
1,966.5
|
|
|
$
|
1,925.5
|
|
(1)
|
Other consists of computer equipment, vehicles, furniture and fixtures, leasehold improvements and communication related equipment.
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Net sales
|
$
|
44.7
|
|
|
$
|
52.2
|
|
|
$
|
96.3
|
|
|
$
|
109.0
|
|
Operating loss
|
(5.7
|
)
|
|
(2.5
|
)
|
|
(5.6
|
)
|
|
(0.7
|
)
|
||||
Net loss
|
(6.8
|
)
|
|
(3.2
|
)
|
|
(7.6
|
)
|
|
(2.5
|
)
|
|
Restricted Cash
|
|
Unsecured
Notes
to be Issued
|
||||
Balance at December 31, 2013
|
$
|
56.0
|
|
|
$
|
18.0
|
|
Class 3 Claim payments during 2014
|
(7.4
|
)
|
|
(7.4
|
)
|
||
Non-cash adjustment
|
—
|
|
|
(1.0
|
)
|
||
Balance at June 30, 2014
|
$
|
48.6
|
|
|
$
|
9.6
|
|
|
June 30,
2014 |
|
December 31,
2013 |
||||
Short-term restricted cash
|
$
|
7.3
|
|
|
$
|
4.5
|
|
Long-term restricted cash
|
41.3
|
|
|
51.5
|
|
||
Total restricted cash
|
$
|
48.6
|
|
|
$
|
56.0
|
|
|
June 30,
2014 |
|
December 31,
2013 |
||||
Master note and security agreement
|
$
|
451.6
|
|
|
$
|
490.2
|
|
Term loan A—$450.0 million due April 2019
|
450.0
|
|
|
—
|
|
||
Term loan A—$450.0 million due July 2017
|
—
|
|
|
416.3
|
|
||
Term loan B—$300.0 million due April 2021
|
297.1
|
|
|
—
|
|
||
Term loan B—$200.0 million due July 2018
|
—
|
|
|
194.8
|
|
||
Revolving credit facility—$850.0 million due April 2019
|
31.0
|
|
|
—
|
|
||
Revolving credit facility—$850.0 million due July 2017
|
—
|
|
|
209.8
|
|
||
Senior unsecured notes—$300.0 million due May 2022
|
300.0
|
|
|
—
|
|
||
International term loan—$78.0 million
|
—
|
|
|
58.2
|
|
||
International revolving credit facility—$16.4 million
|
9.1
|
|
|
2.3
|
|
||
Equipment term loans
|
14.9
|
|
|
16.4
|
|
||
Other
|
6.8
|
|
|
5.3
|
|
||
Total debt
|
$
|
1,560.5
|
|
|
$
|
1,393.3
|
|
Less: short-term debt and current portion of long-term debt
|
(134.2
|
)
|
|
(127.6
|
)
|
||
Long-term debt
|
$
|
1,426.3
|
|
|
$
|
1,265.7
|
|
|
Loss on Debt Extinguishment
|
||
Debt issuance costs:
|
|
||
Debt issuance costs from July 26, 2011 $1.5 billion debt financing arrangement
|
$
|
2.1
|
|
Debt issuance costs from April 28, 2014 $1.9 billion debt financing arrangement
|
3.3
|
|
|
Original issue discount:
|
|
||
Original issue discount from July 26, 2011 $1.5 billion debt financing arrangement
|
0.6
|
|
|
Total
|
$
|
6.0
|
|
|
Capitalized Debt
Issuance Costs
|
||
Balance at December 31, 2013
|
$
|
13.9
|
|
Capitalized debt issuance costs from April 28, 2014 $1.9 billion debt financing arrangement
|
11.0
|
|
|
Loss on debt extinguishment from July 26, 2011 $1.5 billion debt financing arrangement
|
(2.1
|
)
|
|
Amortization of debt issuance costs
|
(1.9
|
)
|
|
Balance at June 30, 2014
|
$
|
20.9
|
|
|
Original Issue Discount
|
||
Balance at December 31, 2013
|
$
|
0.7
|
|
Original issue discount from April 28, 2014 $1.9 billion debt financing arrangement
|
3.0
|
|
|
Loss on debt extinguishment from July 26, 2011 $1.5 billion debt financing arrangement
|
(0.6
|
)
|
|
Amortization of original issue discount
|
(0.2
|
)
|
|
Balance at June 30, 2014
|
$
|
2.9
|
|
•
|
On a rolling twelve-month basis, the total leverage ratio, defined as total consolidated debt (less certain unrestricted domestic cash) to consolidated EBITDA, shall not exceed
3.75
to 1.00 (for the twelve months ended
June 30, 2014
, the Company's leverage ratio was
2.64
to 1.00).
|
•
|
On a rolling twelve-month basis, the senior secured leverage ratio, defined as senior secured debt (less certain unrestricted domestic cash) to consolidated EBITDA, shall not exceed
3.50
to 1.00 (for the twelve months ended
June 30, 2014
, the Company's senior secured leverage ratio was
2.15
to 1.00).
|
•
|
On a rolling twelve-month basis, the minimum interest coverage ratio, defined as consolidated EBITDA to consolidated cash interest expense, shall not be less than
3.50
to 1.00 (for the twelve months ended
June 30, 2014
, the Company's interest coverage ratio was
6.88
to 1.00).
|
•
|
On a rolling twelve-month basis, the fixed charge coverage ratio, defined as consolidated EBITDA and rent expense to interest and rent expense, shall not be less than
1.50
to 1.00 (for the twelve months ended
June 30, 2014
, the Company's fixed charge coverage ratio was
4.07
to 1.00).
|
•
|
Consolidated net worth of at least
$793.8 million
plus
40%
of positive consolidated net income cumulatively for each year. As of
June 30, 2014
, consolidated net worth must be at least
$793.8 million
(as of
June 30, 2014
, the Company's consolidated net worth under the most restrictive covenant per the various debt agreements was
$1.15 billion
).
|
•
|
If the Company's total leverage ratio is greater than
3.00
to 1.00 (as defined in the Senior Secured Credit Facility), the Company is prohibited from making greater than
$120.0 million
of annual dividend payments, capital stock repurchases and certain other payments. If the total leverage ratio is less than
3.00
to 1.00, there are no such restrictions.
|
•
|
If the Company's senior secured leverage ratio is greater than
3.00
to 1.00 or the Company's total leverage ratio is greater than
3.50
to 1.00 (these ratios as defined in the Senior Secured Credit Facility), the Company is prohibited from voluntarily prepaying any of the Senior Unsecured Notes and from voluntarily prepaying any other unsecured or subordinated indebtedness, with certain exceptions (including any mandatory prepayments on the Senior Unsecured Notes or any other unsecured or subordinated debt). If the senior secured leverage ratio is less than
3.00
to 1.00 and the total leverage ratio is less than
3.50
to 1.00, there are no such restrictions.
|
Level 1:
|
Quoted prices in active markets for identical assets or liabilities.
|
Level 2:
|
Quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
|
Level 3:
|
Unobservable inputs for the asset or liability. There are no Level 3 recurring measurements of assets or liabilities as of
June 30, 2014
.
|
|
June 30,
2014 |
|
December 31,
2013 |
||||
Single employer pension and postretirement obligations
|
$
|
88.2
|
|
|
$
|
109.2
|
|
Multiemployer pension plans—withdrawal liability
|
45.8
|
|
|
53.1
|
|
||
Tax-related liabilities
|
28.0
|
|
|
24.6
|
|
||
Employee-related liabilities
|
67.8
|
|
|
54.5
|
|
||
Restructuring reserve
|
7.3
|
|
|
8.5
|
|
||
Other
|
52.8
|
|
|
54.0
|
|
||
Total
|
$
|
289.9
|
|
|
$
|
303.9
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Pension income
|
|
|
|
|
|
|
|
||||||||
Interest cost
|
$
|
(7.3
|
)
|
|
$
|
(7.0
|
)
|
|
$
|
(14.6
|
)
|
|
$
|
(14.0
|
)
|
Expected return on plan assets
|
8.6
|
|
|
7.5
|
|
|
17.2
|
|
|
15.0
|
|
||||
Net periodic pension benefit income
|
1.3
|
|
|
0.5
|
|
|
2.6
|
|
|
1.0
|
|
||||
Amortization of actuarial loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
||||
Net pension income
|
$
|
1.3
|
|
|
$
|
0.5
|
|
|
$
|
2.6
|
|
|
$
|
0.9
|
|
|
|
|
|
|
|
|
|
||||||||
Postretirement benefits income
|
|
|
|
|
|
|
|
||||||||
Interest cost
|
$
|
(0.1
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(0.1
|
)
|
Amortization of prior service credit
|
1.5
|
|
|
1.5
|
|
|
2.9
|
|
|
2.9
|
|
||||
Amortization of actuarial gain
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
||||
Net postretirement benefits income
|
$
|
1.4
|
|
|
$
|
1.4
|
|
|
$
|
2.9
|
|
|
$
|
2.8
|
|
|
Six Months Ended
|
||
|
June 30, 2014
|
||
Contributions on qualified pension plans
|
$
|
17.6
|
|
Benefit payments on non-qualified pension plans
|
3.4
|
|
|
Benefit payments on postretirement plans
|
0.3
|
|
|
Total benefit plan payments
|
$
|
21.3
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Numerator:
|
|
|
|
|
|
|
|
||||||||
Net loss attributable to Quad/Graphics common shareholders
|
$
|
(22.8
|
)
|
|
$
|
(27.2
|
)
|
|
$
|
(31.6
|
)
|
|
$
|
(41.2
|
)
|
Adjustments to net loss attributable to Quad/Graphics common shareholders
|
|
|
|
|
|
|
|
||||||||
Allocation to participating securities
|
(0.1
|
)
|
|
(0.3
|
)
|
|
(0.3
|
)
|
|
(0.6
|
)
|
||||
Net loss attributable to Quad/Graphics common shareholders – adjusted
|
$
|
(22.9
|
)
|
|
$
|
(27.5
|
)
|
|
$
|
(31.9
|
)
|
|
$
|
(41.8
|
)
|
|
|
|
|
|
|
|
|
||||||||
Denominator:
|
|
|
|
|
|
|
|
||||||||
Basic weighted average number of common shares outstanding for all classes of common shares
|
47.5
|
|
|
46.9
|
|
|
47.4
|
|
|
46.9
|
|
||||
Plus: effect of dilutive equity incentive instruments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Diluted weighted average number of common shares outstanding for all classes of common shares
|
47.5
|
|
|
46.9
|
|
|
47.4
|
|
|
46.9
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Loss per share attributable to Quad/Graphics common shareholders:
|
|
|
|
|
|
|
|
||||||||
Basic and Diluted
|
$
|
(0.48
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(0.67
|
)
|
|
$
|
(0.89
|
)
|
|
|
|
|
|
|
|
|
||||||||
Cash dividends paid per common share for all classes of common shares
|
$
|
0.30
|
|
|
$
|
0.30
|
|
|
$
|
0.60
|
|
|
$
|
0.60
|
|
|
Shares Under
Option
|
|
Weighted Average
Exercise
Price
|
|
Weighted Average
Remaining
Contractual Term
(years)
|
|
Aggregate
Intrinsic Value
(millions)
|
|||||
Outstanding at December 31, 2013
|
3,759,265
|
|
|
$
|
20.82
|
|
|
5.8
|
|
$
|
30.0
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|
||
Exercised
|
(95,109
|
)
|
|
14.26
|
|
|
|
|
|
|
||
Cancelled/forfeited/expired
|
(75,035
|
)
|
|
25.26
|
|
|
|
|
|
|
||
Outstanding at June 30, 2014
|
3,589,121
|
|
|
$
|
20.90
|
|
|
5.3
|
|
$
|
15.3
|
|
|
|
|
|
|
|
|
|
|||||
Exercisable at June 30, 2014
|
2,767,321
|
|
|
$
|
20.99
|
|
|
5.1
|
|
$
|
11.1
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Total intrinsic value of stock options exercised
|
$
|
0.3
|
|
|
$
|
0.7
|
|
|
$
|
0.8
|
|
|
$
|
0.9
|
|
Cash received from stock option exercises
|
0.5
|
|
|
1.2
|
|
|
1.3
|
|
|
1.7
|
|
||||
Total grant date fair value of stock options vested
|
—
|
|
|
—
|
|
|
1.9
|
|
|
1.8
|
|
|
Performance Shares
|
|
Performance Share Units
|
||||||||||||||
|
Shares
|
|
Weighted-
Average
Grant Date
Fair Value
Per Share
|
|
Weighted-
Average
Remaining Contractual Term (years)
|
|
Units
|
|
Weighted-
Average
Grant Date
Fair Value
Per Share
|
|
Weighted-
Average
Remaining Contractual Term (years)
|
||||||
Nonvested at December 31, 2013
|
351,848
|
|
|
$
|
20.39
|
|
|
2.0
|
|
16,208
|
|
|
$
|
20.50
|
|
|
2.0
|
Granted
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
||
Vested
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
||
Forfeited
|
(4,968
|
)
|
|
20.39
|
|
|
|
|
—
|
|
|
—
|
|
|
|
||
Nonvested at June 30, 2014
|
346,880
|
|
|
$
|
20.39
|
|
|
1.7
|
|
16,208
|
|
|
$
|
20.50
|
|
|
1.7
|
|
Restricted Stock
|
|
Restricted Stock Units
|
||||||||||||||
|
Shares
|
|
Weighted-
Average
Grant Date
Fair Value
Per Share
|
|
Weighted-
Average
Remaining
Contractual
Term (years)
|
|
Units
|
|
Weighted-
Average
Grant Date
Fair Value
Per Share
|
|
Weighted-
Average
Remaining
Contractual
Term (years)
|
||||||
Nonvested at December 31, 2013
|
735,357
|
|
|
$
|
20.88
|
|
|
1.4
|
|
49,673
|
|
|
$
|
20.49
|
|
|
1.6
|
Granted
|
706,490
|
|
|
23.44
|
|
|
|
|
17,767
|
|
|
23.45
|
|
|
|
||
Vested
|
(98,696
|
)
|
|
40.48
|
|
|
|
|
(3,217
|
)
|
|
38.86
|
|
|
|
||
Forfeited
|
(11,889
|
)
|
|
18.55
|
|
|
|
|
—
|
|
|
—
|
|
|
|
||
Nonvested at June 30, 2014
|
1,331,262
|
|
|
$
|
20.81
|
|
|
2.0
|
|
64,223
|
|
|
$
|
20.39
|
|
|
1.7
|
|
Deferred Stock Units
|
|||||
|
Units
|
|
Weighted-Average Grant Date Fair Value Per Share
|
|||
Outstanding at December 31, 2013
|
79,096
|
|
|
$
|
18.95
|
|
Granted
|
26,316
|
|
|
23.45
|
|
|
Dividend equivalents granted
|
2,451
|
|
|
19.60
|
|
|
Settled
|
—
|
|
|
—
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
Outstanding at June 30, 2014
|
107,863
|
|
|
$
|
20.06
|
|
|
|
|
Issued Common Stock
|
||||||||
|
Authorized Shares
|
|
Outstanding
|
|
Treasury
|
|
Total Issued Shares
|
||||
Class A common stock ($0.025 par value)
|
80.0
|
|
|
|
|
|
|
|
|||
June 30, 2014
|
|
|
34.6
|
|
|
5.4
|
|
|
40.0
|
|
|
December 31, 2013
|
|
|
33.8
|
|
|
6.2
|
|
|
40.0
|
|
|
|
|
|
|
|
|
|
|
||||
Class B common stock ($0.025 par value)
|
80.0
|
|
|
|
|
|
|
|
|||
June 30, 2014
|
|
|
14.2
|
|
|
0.8
|
|
|
15.0
|
|
|
December 31, 2013
|
|
|
14.2
|
|
|
0.8
|
|
|
15.0
|
|
|
|
|
|
|
|
|
|
|
||||
Class C common stock ($0.025 par value)
|
20.0
|
|
|
|
|
|
|
|
|||
June 30, 2014
|
|
|
—
|
|
|
0.5
|
|
|
0.5
|
|
|
December 31, 2013
|
|
|
—
|
|
|
0.5
|
|
|
0.5
|
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Dividend Amount
per Share
|
||
2014
|
|
|
|
|
|
|
|
||
Q2 2014 Dividend
|
May 19, 2014
|
|
June 9, 2014
|
|
June 20, 2014
|
|
$
|
0.30
|
|
Q1 2014 Dividend
|
February 26, 2014
|
|
March 12, 2014
|
|
March 21, 2014
|
|
0.30
|
|
|
2013
|
|
|
|
|
|
|
|
||
Q2 2013 Dividend
|
May 20, 2013
|
|
June 10, 2013
|
|
June 21, 2013
|
|
$
|
0.30
|
|
Q1 2013 Dividend
|
March 4, 2013
|
|
March 18, 2013
|
|
March 29, 2013
|
|
0.30
|
|
|
Quad/Graphics Common Stock and Other Equity
|
|
Noncontrolling Interests
|
||||
Balance at December 31, 2013
|
$
|
1,288.9
|
|
|
$
|
(1.3
|
)
|
Net loss attributable to Quad/Graphics common shareholders
|
(31.6
|
)
|
|
—
|
|
||
Net loss attributable to noncontrolling interests
|
—
|
|
|
(0.3
|
)
|
||
Translation adjustments
|
0.2
|
|
|
—
|
|
||
Dividends declared
|
(31.0
|
)
|
|
—
|
|
||
Stock-based compensation charges
|
8.6
|
|
|
—
|
|
||
Sale of stock for options exercised
|
1.3
|
|
|
—
|
|
||
Shares withheld from employees for the tax obligation on equity grants
|
(1.0
|
)
|
|
—
|
|
||
Tax benefit on equity award activity
|
(0.8
|
)
|
|
—
|
|
||
Purchase of additional ownership in Morvillo
(1)
|
(1.6
|
)
|
|
1.6
|
|
||
Pension and other postretirement benefit plan adjustments, net of tax
|
(1.9
|
)
|
|
—
|
|
||
Balance at June 30, 2014
|
$
|
1,231.1
|
|
|
$
|
—
|
|
(1)
|
With the purchase of additional ownership in Morvillo, the Company adjusted the noncontrolling interest on the condensed consolidated balance sheet, which was in a deficit position due to losses incurred at Morvillo. See
Note 2
, "
Acquisitions and Strategic Investments
," for further discussion.
|
|
Translation Adjustments
|
|
Pension and Other Postretirement Benefit Plan Adjustments
|
|
Total
|
||||||
Balance at December 31, 2013
|
$
|
(43.3
|
)
|
|
$
|
37.7
|
|
|
$
|
(5.6
|
)
|
Other comprehensive income before reclassifications
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|||
Amounts reclassified from accumulated other comprehensive loss to net loss
|
—
|
|
|
(1.9
|
)
|
|
(1.9
|
)
|
|||
Net other comprehensive loss
|
0.2
|
|
|
(1.9
|
)
|
|
(1.7
|
)
|
|||
Balance at June 30, 2014
|
$
|
(43.1
|
)
|
|
$
|
35.8
|
|
|
$
|
(7.3
|
)
|
|
Translation Adjustments
|
|
Pension and Other Postretirement Benefit Plan Adjustments
|
|
Total
|
||||||
Balance at December 31, 2012
|
$
|
(20.7
|
)
|
|
$
|
(39.7
|
)
|
|
$
|
(60.4
|
)
|
Other comprehensive loss before reclassifications
|
(17.0
|
)
|
|
—
|
|
|
(17.0
|
)
|
|||
Amounts reclassified from accumulated other comprehensive loss to net loss
|
(2.4
|
)
|
|
(1.7
|
)
|
|
(4.1
|
)
|
|||
Net other comprehensive loss
|
(19.4
|
)
|
|
(1.7
|
)
|
|
(21.1
|
)
|
|||
Balance at June 30, 2013
|
$
|
(40.1
|
)
|
|
$
|
(41.4
|
)
|
|
$
|
(81.5
|
)
|
Details about Accumulated Other
Comprehensive Loss Components
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
Condensed Consolidated Statements of Operations Presentation
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
||||||||||
Revaluation gain on sale of businesses
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2.4
|
)
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Amortization of pension and other postretirement benefit plan adjustments
|
|
$
|
(1.5
|
)
|
|
$
|
(1.4
|
)
|
|
$
|
(3.0
|
)
|
|
$
|
(2.8
|
)
|
|
Selling, general and administrative expenses
|
Income tax benefit
|
|
0.5
|
|
|
0.5
|
|
|
1.1
|
|
|
1.1
|
|
|
Income tax benefit
|
||||
Amortization of pension and other postretirement benefit plan adjustments, net of tax
|
|
$
|
(1.0
|
)
|
|
$
|
(0.9
|
)
|
|
$
|
(1.9
|
)
|
|
$
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total reclassifications for the period, net of tax
|
|
$
|
(1.0
|
)
|
|
$
|
(0.9
|
)
|
|
$
|
(1.9
|
)
|
|
$
|
(4.1
|
)
|
|
|
|
Net Sales
|
|
Operating Income/(Loss)
|
|
Restructuring, Impairment and Transaction-Related Charges
|
||||||||||
|
Products
|
|
Services
|
|
|
||||||||||
Three months ended June 30, 2014
|
|
|
|
|
|
|
|
||||||||
United States Print and Related Services
|
$
|
840.3
|
|
|
$
|
148.0
|
|
|
$
|
15.1
|
|
|
$
|
15.8
|
|
International
|
105.9
|
|
|
4.8
|
|
|
(0.9
|
)
|
|
0.2
|
|
||||
Total operating segments
|
946.2
|
|
|
152.8
|
|
|
14.2
|
|
|
16.0
|
|
||||
Corporate
|
—
|
|
|
—
|
|
|
(13.7
|
)
|
|
3.9
|
|
||||
Total
|
$
|
946.2
|
|
|
$
|
152.8
|
|
|
$
|
0.5
|
|
|
$
|
19.9
|
|
|
|
|
|
|
|
|
|
||||||||
Three months ended June 30, 2013
|
|
|
|
|
|
|
|
||||||||
United States Print and Related Services
|
$
|
866.2
|
|
|
$
|
139.7
|
|
|
$
|
25.9
|
|
|
$
|
14.8
|
|
International
|
101.9
|
|
|
3.0
|
|
|
(7.7
|
)
|
|
3.9
|
|
||||
Total operating segments
|
968.1
|
|
|
142.7
|
|
|
18.2
|
|
|
18.7
|
|
||||
Corporate
|
—
|
|
|
—
|
|
|
(23.4
|
)
|
|
10.5
|
|
||||
Total
|
$
|
968.1
|
|
|
$
|
142.7
|
|
|
$
|
(5.2
|
)
|
|
$
|
29.2
|
|
|
|
|
|
|
|
|
|
||||||||
Six months ended June 30, 2014
|
|
|
|
|
|
|
|
||||||||
United States Print and Related Services
|
$
|
1,682.9
|
|
|
$
|
291.6
|
|
|
$
|
37.4
|
|
|
$
|
25.3
|
|
International
|
217.0
|
|
|
10.3
|
|
|
(0.8
|
)
|
|
0.7
|
|
||||
Total operating segments
|
1,899.9
|
|
|
301.9
|
|
|
36.6
|
|
|
26.0
|
|
||||
Corporate
|
—
|
|
|
—
|
|
|
(25.1
|
)
|
|
5.8
|
|
||||
Total
|
$
|
1,899.9
|
|
|
$
|
301.9
|
|
|
$
|
11.5
|
|
|
$
|
31.8
|
|
|
|
|
|
|
|
|
|
||||||||
Six months ended June 30, 2013
|
|
|
|
|
|
|
|
||||||||
United States Print and Related Services
|
$
|
1,730.4
|
|
|
$
|
284.7
|
|
|
$
|
48.0
|
|
|
$
|
30.5
|
|
International
|
220.2
|
|
|
5.0
|
|
|
(7.2
|
)
|
|
5.0
|
|
||||
Total operating segments
|
1,950.6
|
|
|
289.7
|
|
|
40.8
|
|
|
35.5
|
|
||||
Corporate
|
—
|
|
|
—
|
|
|
(46.9
|
)
|
|
19.6
|
|
||||
Total
|
$
|
1,950.6
|
|
|
$
|
289.7
|
|
|
$
|
(6.1
|
)
|
|
$
|
55.1
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Operating income (loss)
|
$
|
0.5
|
|
|
$
|
(5.2
|
)
|
|
$
|
11.5
|
|
|
$
|
(6.1
|
)
|
Less: interest expense
|
23.5
|
|
|
21.3
|
|
|
44.4
|
|
|
43.2
|
|
||||
Less: loss on debt extinguishment
|
6.0
|
|
|
—
|
|
|
6.0
|
|
|
—
|
|
||||
Loss before income taxes and equity in loss of unconsolidated entities
|
$
|
(29.0
|
)
|
|
$
|
(26.5
|
)
|
|
$
|
(38.9
|
)
|
|
$
|
(49.3
|
)
|
ITEM 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
•
|
Cautionary Statement Regarding Forward-Looking Statements.
|
•
|
Overview.
This section includes a general description of the Company's business and segments, an overview of key performance metrics the Company's management measures and utilizes to evaluate business performance, and an overview of trends affecting the Company, including management's actions related to the trends.
|
•
|
Results of Operations.
This section contains an analysis of the Company's results of operations by comparing the results for the (1)
three months ended
June 30, 2014
, to the
three months ended
June 30, 2013
, and (2) the
six months ended
June 30, 2014
to the
six months ended
June 30, 2013
. The comparability of the Company's results of operations between periods was impacted by acquisitions, including the 2013 acquisitions of Vertis, Novia, Proteus and Transpak and the 2014 acquisitions of Brown Printing and UniGraphic. The results of operations of all acquisitions are included in the Company's condensed consolidated results prospectively from their respective acquisition dates. Forward-looking statements providing a general description of recent and projected industry and Company developments that are important to understanding the Company's results of operations are included in this section. This section also provides a discussion of EBITDA and EBITDA margin, non-GAAP financial measures that the Company uses to assess the performance of its business.
|
•
|
Liquidity and Capital Resources.
This section provides an analysis of the Company's capitalization and cash flows. Forward-looking statements important to understanding the Company's financial condition are also included in this section. This section also provides a discussion of Free Cash Flow and Debt Leverage Ratio, non-GAAP financial measures that the Company uses to assess liquidity and capital allocation and deployment.
|
•
|
New Accounting Pronouncements.
This section provides a discussion of new accounting pronouncements and the anticipated impact of those accounting pronouncements to the Company's condensed consolidated financial statements.
|
•
|
The impact of significant overcapacity in the highly competitive commercial printing industry, which creates downward pricing pressure and fluctuating demand for printing services;
|
•
|
The inability of the Company to reduce costs and improve operating efficiency rapidly enough to meet market conditions;
|
•
|
The impact of electronic media and similar technological changes including digital substitution by consumers;
|
•
|
The impact of changes in postal rates, service levels or regulations;
|
•
|
The impact of changing future economic conditions;
|
•
|
The failure to renew long-term contracts with clients on favorable terms or at all;
|
•
|
The failure of clients to perform under long-term contracts due to financial or other reasons or due to client consolidation;
|
•
|
The failure to successfully identify, manage, complete and integrate acquisitions and investments, including the integration of the operations of Vertis and Brown Printing;
|
•
|
The impact of increased business complexity as a result of the Company's entry into additional markets;
|
•
|
The impact of fluctuations in costs (including labor-related costs, energy costs, freight rates and raw materials) and the impact of fluctuations in the availability of raw materials;
|
•
|
The impact of regulatory matters and legislative developments or changes in laws, including changes in privacy and environmental laws;
|
•
|
The impact on holders of Quad/Graphics' class A common stock of a limited active market for such shares and the inability to independently elect directors or control decisions due to the voting power of the class B common stock;
|
•
|
The impact of risks associated with the operations outside of the United States; and
|
•
|
Significant capital expenditures may be needed to maintain the Company's platform and processes and to remain technologically and economically competitive.
|
•
|
Print Solutions.
Includes consumer magazines, catalogs, retail inserts, special interest publications, journals, direct mail, books, directories, in-store marketing, packaging, and other commercial and specialty printed products.
|
•
|
Media Solutions.
Includes marketing strategy, media planning and placement, data insights, response analytics services, creative services, videography, photography, workflow solutions, digital imaging, facilities management services, digital publishing, and interactive print solutions including image recognition and near field communication technology.
|
•
|
Logistics Services.
Includes mailing, distribution, logistics and data optimization and hygiene services.
|
•
|
Transform the Industry.
The Company believes it is well-positioned to transform the industry in the following three ways:
|
1.
|
Maximize the revenue clients derive from their marketing spend through media channel integration. As a printer and media channel integrator, Quad/Graphics uses a client-centric approach to help marketers and publishers connect strategy and content with multiple media channels to create measurable client value. Through its full range of integrated solutions, Quad/Graphics' clients benefit from better end user engagement, improved response and increased revenue derived from multichannel marketing campaigns.
|
2.
|
Minimize clients' total cost of production and distribution by utilizing an efficient, innovative and fully-integrated U.S. national distribution network to provide enhanced value to clients through increased efficiency and postal cost-savings.
|
3.
|
Create opportunity through disciplined, value-driven industry consolidation that adds complementary capabilities, allowing the Company to provide an enhanced range of products and services, and create significant efficiencies in the overall print production and distribution processes.
|
•
|
Maximize Operational and Technological Excellence.
Quad/Graphics utilizes a disciplined return on capital framework to make significant investments in its print manufacturing platform, research and development, technological innovation and data management capabilities, resulting in what it believes is one of the most integrated, automated, efficient and modern platforms in the industry.
|
•
|
Empower, Engage and Develop Employees.
Quad/Graphics believes that its distinct corporate culture encourages an organization-wide entrepreneurial spirit and an opportunistic mentality, where employees embrace responsibility, take ownership of projects and are encouraged to create solutions that advance the Company's strategic goals.
|
•
|
Enhance Financial Strength and Create Shareholder Value.
Given current economic and industry challenges, Quad/Graphics believes that its strategy to enhance financial strength and create shareholder value will contribute to its long-term success. Key components of this strategy are centered on the Company's disciplined financial approach to maximize earnings and Free Cash Flow; use of consistent financial policies to ensure it maintains a strong balance sheet and liquidity levels; and ability to retain the financial flexibility needed to strategically allocate and deploy capital.
|
•
|
On
May 30, 2014
, the Company completed the
$100 million
acquisition of Brown Printing. Brown Printing provides magazine and catalog printing, distribution services and integrated media solutions to magazine publishers and catalog marketers in the United States.
|
•
|
On
February 5, 2014
, the Company completed the acquisition of UniGraphic, a commercial and specialty printing company based in the Boston metro area, for a net purchase price of
$12 million
. UniGraphic offers commercial and specialty printing, in-store marketing, digital and fulfillment solutions for a wide variety of industries including arts and entertainment, education, financial, food, healthcare, mass media, pharmaceutical and retail. The acquisition expands Quad/Graphics capabilities in the commercial and specialty printing market and strengthens the Company's ability to service national retailers' large-format and in-store marketing needs, adding an East Coast presence to Quad/Graphics existing Midwest and West Coast locations.
|
•
|
On
December 18, 2013
, the Company completed the
$49 million
acquisition of Wisconsin-based Proteus as well as its sister company Transpak. Proteus is a designer and manufacturer of high-end paperboard packaging, offering packaging solutions for a wide variety of industries, including automotive, biotechnology, food, personal care, pharmaceuticals, software and electronics. Transpak is a full-service industrial packaging company, offering crating, packaging, warehousing, distribution and logistics services to destinations worldwide. Through the acquisition of the two companies, Quad/Graphics expanded its capabilities to serve the packaging market.
|
•
|
On
November 7, 2013
, the Company completed the
$13 million
acquisition of Novia, an Indianapolis, Indiana healthcare solutions company. Novia develops and manages onsite and shared primary care clinics for small to medium sized companies and the public sector, such as school districts and city and county governments. Novia operates approximately 50 clinics focusing on delivering advanced health and wellness solutions to employees and dependents.
|
•
|
On
January 16, 2013
, the Company completed its acquisition of substantially all of the assets of Vertis, a provider of retail inserts, direct marketing and in-store marketing solutions. The
$265 million
purchase price included the payment of
$95 million
for current assets that were in excess of normalized working capital requirements, for a net purchase price of
$170 million
. The Company believes the acquisition of Vertis strengthened its client offering with an enhanced range of products and services and also increased manufacturing flexibility and distribution efficiencies from an extended geographic footprint in the United States.
|
|
Operating Income (Loss)
|
|
Operating Margin
|
|
Net Loss Attributable to Quad/Graphics Common Shareholders
|
|
Loss Per Share
Attributable to
Quad/Graphics Common
Shareholders—Diluted
|
|||||||
For the Three Months Ended June 30, 2013
|
$
|
(5.2
|
)
|
|
(0.5
|
)%
|
|
$
|
(27.2
|
)
|
|
$
|
(0.59
|
)
|
2014 restructuring, impairment and transaction-related charges
(1)
|
(19.9
|
)
|
|
(1.8
|
)%
|
|
(11.9
|
)
|
|
(0.25
|
)
|
|||
2013 restructuring, impairment and transaction-related charges
(2)
|
29.2
|
|
|
2.6
|
%
|
|
17.5
|
|
|
0.37
|
|
|||
Increase in interest expense
(3)
|
N/A
|
|
|
N/A
|
|
|
(1.3
|
)
|
|
(0.03
|
)
|
|||
Loss on debt extinguishment
(4)
|
N/A
|
|
|
N/A
|
|
|
(3.6
|
)
|
|
(0.08
|
)
|
|||
Increase in income tax benefit
(5)
|
N/A
|
|
|
N/A
|
|
|
8.0
|
|
|
0.17
|
|
|||
Decrease attributable to investments in unconsolidated entities and noncontrolling interests, net of tax
(6)
|
N/A
|
|
|
N/A
|
|
|
(2.1
|
)
|
|
(0.04
|
)
|
|||
Decrease in operating income
(7)
|
(3.6
|
)
|
|
(0.3
|
)%
|
|
(2.2
|
)
|
|
(0.03
|
)
|
|||
For the Three Months Ended June 30, 2014
|
$
|
0.5
|
|
|
—
|
%
|
|
$
|
(22.8
|
)
|
|
$
|
(0.48
|
)
|
(1)
|
Restructuring, impairment and transaction-related charges of
$19.9 million
incurred during the
three months ended
June 30, 2014
, included:
|
a.
|
$12.7 million
of employee termination charges related to workforce reductions through facility consolidations and involuntary separation programs;
|
b.
|
$2.0 million
of impairment charges, including
$1.5 million
of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations primarily for Pomona, California, as well as other capacity reduction restructuring initiatives, and
$0.5 million
of land and building impairment charges as a result of the Bristol, Pennsylvania plant closure;
|
c.
|
$0.7 million
of transaction-related charges consisting of professional service fees for business acquisition and divestiture activities, which primarily included professional service fees for the acquisition of Brown Printing;
|
d.
|
$1.9 million
of acquisition-related integration costs primarily related to preparing existing facilities to meet new production requirements resulting from work transferring from closed plants, as well as other costs related to the integration of the acquired companies; and
|
e.
|
$2.6 million
of various other restructuring charges, including costs to maintain and exit closed facilities, as well as lease exit charges.
|
(2)
|
Restructuring, impairment and transaction-related charges of
$29.2 million
incurred during the
three months ended
June 30, 2013
, included:
|
a.
|
$4.3 million
of employee termination charges related to workforce reductions through facility consolidations and involuntary separation programs;
|
a.
|
$6.0 million
of impairment charges, including
$0.9 million
of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction restructuring initiatives and
$5.1 million
; of land and building impairment charges as a result of plant closures primarily for Mexico City, Mexico and Olive Branch, Mississippi;
|
b.
|
$0.2 million
of transaction-related charges consisting of professional service fees for business acquisition and divestiture activities, which primarily included professional service fees for the acquisition of Vertis;
|
c.
|
$9.7 million
of acquisition-related integration costs primarily related to preparing existing facilities to meet new production requirements resulting from work transferring from closed plants, as well as other costs related to the integration of the acquired companies; and
|
d.
|
$9.0 million
of various other restructuring charges, including costs to maintain and exit closed facilities, as well as lease exit charges.
|
(3)
|
Interest expense
increased
$2.2 million
(
$1.3 million
, net of tax) during the
three months ended
June 30, 2014
, to
$23.5 million
. This change was due to higher debt levels in the
second
quarter of
2014
as compared to the
second
quarter of
2013
, primarily related to acquisitions and a higher weighted average interest rate on borrowings due to the debt financing completed during the second quarter of
2014
.
|
(4)
|
A non-recurring
$6.0 million
loss on debt extinguishment (
$3.6 million
, net of tax) was recognized during the
three months ended
June 30, 2014
as part of the
$1.9 billion
debt financing arrangements completed on
April 28, 2014
. The
$6.0 million
loss represents certain debt issuance costs that were expensed.
|
(5)
|
The increase in income tax benefit of
$8.0 million
as calculated in the following table is primarily due to losses in foreign jurisdictions in
2013
that the Company did not receive a tax benefit and tax expense for other discrete items in
2013
.
|
|
Three Months Ended June 30,
|
|
|
||||||||
|
2014
|
|
2013
|
|
$ Change
|
||||||
Loss before income taxes and equity in loss of unconsolidated entities
|
$
|
(29.0
|
)
|
|
$
|
(26.5
|
)
|
|
$
|
(2.5
|
)
|
40% normalized tax rate
|
40.0
|
%
|
|
40.0
|
%
|
|
40.0
|
%
|
|||
Income tax benefit at 40% normalized tax rate
|
(11.6
|
)
|
|
(10.6
|
)
|
|
(1.0
|
)
|
|||
|
|
|
|
|
|
||||||
Income tax benefit from the condensed consolidated statements of operations
|
(9.6
|
)
|
|
(0.6
|
)
|
|
9.0
|
|
|||
|
|
|
|
|
|
||||||
Increase in income tax benefit
|
$
|
(2.0
|
)
|
|
$
|
(10.0
|
)
|
|
$
|
8.0
|
|
(6)
|
The decrease attributable to investments in unconsolidated entities and noncontrolling interests, net of tax, of
$2.1 million
during the
three months ended
June 30, 2014
, was primarily related to
$1.4 million
in lower equity earnings at Plural, the Company's Brazilian joint venture.
|
(7)
|
Operating income, excluding restructuring, impairment and transaction-related charges, decreased
$3.6 million
(
$2.2 million
, net of tax) primarily due to $6.2 million in net gains in
2013
from favorable legal, environmental and bankruptcy related settlements, that did not repeat at the same level in
2014
, and a decline in earnings from ongoing industry volume and pricing pressures. These declines were partially offset by lower employee-related costs, including labor productivity improvements. The following discussion provides additional details.
|
|
Three Months Ended June 30,
|
|
|
|
|
|||||||||||||||
|
2014
|
|
2013
|
|
|
|
|
|||||||||||||
|
(dollars in millions)
|
|
|
|||||||||||||||||
|
Amount
|
|
% of
Sales
|
|
Amount
|
|
% of
Sales
|
|
$ Change
|
|
%
Change
|
|||||||||
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Products
|
$
|
946.2
|
|
|
86.1
|
%
|
|
$
|
968.1
|
|
|
87.2
|
%
|
|
$
|
(21.9
|
)
|
|
(2.3
|
)%
|
Services
|
152.8
|
|
|
13.9
|
%
|
|
142.7
|
|
|
12.8
|
%
|
|
10.1
|
|
|
7.1
|
%
|
|||
Total net sales
|
1,099.0
|
|
|
100.0
|
%
|
|
1,110.8
|
|
|
100.0
|
%
|
|
(11.8
|
)
|
|
(1.1
|
)%
|
|||
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Products
|
782.3
|
|
|
71.2
|
%
|
|
786.9
|
|
|
70.9
|
%
|
|
(4.6
|
)
|
|
(0.6
|
)%
|
|||
Services
|
110.6
|
|
|
10.1
|
%
|
|
106.9
|
|
|
9.6
|
%
|
|
3.7
|
|
|
3.5
|
%
|
|||
Total cost of sales
|
892.9
|
|
|
81.3
|
%
|
|
893.8
|
|
|
80.5
|
%
|
|
(0.9
|
)
|
|
(0.1
|
)%
|
|||
Selling, general & administrative expenses
|
100.4
|
|
|
9.1
|
%
|
|
105.1
|
|
|
9.5
|
%
|
|
(4.7
|
)
|
|
(4.5
|
)%
|
|||
Depreciation and amortization
|
85.3
|
|
|
7.8
|
%
|
|
87.9
|
|
|
7.9
|
%
|
|
(2.6
|
)
|
|
(3.0
|
)%
|
|||
Restructuring, impairment and transaction-related charges
|
19.9
|
|
|
1.8
|
%
|
|
29.2
|
|
|
2.6
|
%
|
|
(9.3
|
)
|
|
(31.8
|
)%
|
|||
Total operating expenses
|
1,098.5
|
|
|
100.0
|
%
|
|
1,116.0
|
|
|
100.5
|
%
|
|
(17.5
|
)
|
|
(1.6
|
)%
|
|||
Operating income (loss)
|
$
|
0.5
|
|
|
—
|
%
|
|
$
|
(5.2
|
)
|
|
(0.5
|
)%
|
|
$
|
5.7
|
|
|
nm
|
|
|
Three Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
||||||||||
|
Amount
|
|
% of Net Sales
|
|
Amount
|
|
% of Net Sales
|
||||||
|
(dollars in millions)
|
||||||||||||
EBITDA and EBITDA margin
|
$
|
76.4
|
|
|
7.0
|
%
|
|
$
|
81.4
|
|
|
7.3
|
%
|
|
Three Months Ended June 30,
|
||||||
|
2014
|
|
2013
|
||||
|
(dollars in millions)
|
||||||
Net loss attributable to Quad/Graphics common shareholders
(1)
|
$
|
(22.8
|
)
|
|
$
|
(27.2
|
)
|
Interest expense
|
23.5
|
|
|
21.3
|
|
||
Income tax benefit
|
(9.6
|
)
|
|
(0.6
|
)
|
||
Depreciation and amortization
|
85.3
|
|
|
87.9
|
|
||
EBITDA
|
$
|
76.4
|
|
|
$
|
81.4
|
|
(1)
|
Net loss attributable to Quad/Graphics common shareholders includes the effects of:
|
a.
|
Restructuring, impairment and transaction-related charges of
$19.9 million
and
$29.2 million
for the
three months ended
June 30, 2014
, and
2013
, respectively.
|
b.
|
Loss on debt extinguishment of
$6.0 million
for the
three months ended
June 30, 2014
.
|
|
Three Months Ended June 30,
|
|
|
|
|
|||||||||
|
2014
|
|
2013
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Net sales:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
840.3
|
|
|
$
|
866.2
|
|
|
$
|
(25.9
|
)
|
|
(3.0
|
)%
|
Services
|
148.0
|
|
|
139.7
|
|
|
8.3
|
|
|
5.9
|
%
|
|||
Operating income (including restructuring, impairment and transaction-related charges)
|
15.1
|
|
|
25.9
|
|
|
(10.8
|
)
|
|
(41.7
|
)%
|
|||
Operating margin
|
1.5
|
%
|
|
2.6
|
%
|
|
N/A
|
|
|
N/A
|
|
|||
Restructuring, impairment and transaction-related charges
|
$
|
15.8
|
|
|
$
|
14.8
|
|
|
$
|
1.0
|
|
|
6.8
|
%
|
|
Three Months Ended June 30,
|
|
|
|
|
|||||||||
|
2014
|
|
2013
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Net sales:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
105.9
|
|
|
$
|
101.9
|
|
|
$
|
4.0
|
|
|
3.9
|
%
|
Services
|
4.8
|
|
|
3.0
|
|
|
1.8
|
|
|
60.0
|
%
|
|||
Operating loss (including restructuring, impairment and transaction-related charges)
|
(0.9
|
)
|
|
(7.7
|
)
|
|
6.8
|
|
|
(88.3
|
)%
|
|||
Operating margin
|
(0.8
|
)%
|
|
(7.3
|
)%
|
|
N/A
|
|
|
N/A
|
|
|||
Restructuring, impairment and transaction-related charges
|
$
|
0.2
|
|
|
$
|
3.9
|
|
|
$
|
(3.7
|
)
|
|
(94.9
|
)%
|
Equity in loss of unconsolidated entities
|
(3.4
|
)
|
|
(1.7
|
)
|
|
(1.7
|
)
|
|
100.0
|
%
|
|
Three Months Ended June 30,
|
|
|
|
|
|||||||||
|
2014
|
|
2013
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Operating expenses (including restructuring, impairment and transaction-related charges)
|
$
|
13.7
|
|
|
$
|
23.4
|
|
|
$
|
(9.7
|
)
|
|
(41.5
|
)%
|
Restructuring, impairment and transaction-related charges
|
3.9
|
|
|
10.5
|
|
|
(6.6
|
)
|
|
(62.9
|
)%
|
|
Operating Income (Loss)
|
|
Operating Margin
|
|
Net Loss Attributable to Quad/Graphics Common Shareholders
|
|
Loss Per Share
Attributable to
Quad/Graphics Common
Shareholders—Diluted
|
|||||||
For the six months ended June 30, 2013
|
$
|
(6.1
|
)
|
|
(0.3
|
)%
|
|
$
|
(41.2
|
)
|
|
$
|
(0.89
|
)
|
2014 restructuring, impairment and transaction-related charges
(1)
|
(31.8
|
)
|
|
(1.4
|
)%
|
|
(19.1
|
)
|
|
(0.40
|
)
|
|||
2013 restructuring, impairment and transaction-related charges
(2)
|
55.1
|
|
|
2.5
|
%
|
|
33.1
|
|
|
0.71
|
|
|||
Increase in interest expense
(3)
|
N/A
|
|
|
N/A
|
|
|
(0.7
|
)
|
|
(0.01
|
)
|
|||
Loss on debt extinguishment
(4)
|
N/A
|
|
|
N/A
|
|
|
(3.6
|
)
|
|
(0.08
|
)
|
|||
Increase in income tax benefit
(5)
|
N/A
|
|
|
N/A
|
|
|
5.8
|
|
|
0.12
|
|
|||
Decrease attributable to investments in unconsolidated entities and noncontrolling interests, net of tax
(6)
|
N/A
|
|
|
N/A
|
|
|
(2.5
|
)
|
|
(0.05
|
)
|
|||
Decrease in operating income
(7)
|
(5.7
|
)
|
|
(0.3
|
)%
|
|
(3.4
|
)
|
|
(0.07
|
)
|
|||
For the six months ended June 30, 2014
|
$
|
11.5
|
|
|
0.5
|
%
|
|
$
|
(31.6
|
)
|
|
$
|
(0.67
|
)
|
(1)
|
Restructuring, impairment and transaction-related charges of
$31.8 million
incurred during the
six months ended
June 30, 2014
, included:
|
a.
|
$18.7 million
of employee termination charges related to workforce reductions through facility consolidations and involuntary separation programs;
|
b.
|
$3.1 million
of impairment charges, including
$2.6 million
of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations primarily for Pomona, California, as well as other capacity reduction restructuring initiatives, and
$0.5 million
of land and building impairment charges as a result of the Bristol, Pennsylvania plant closure;
|
c.
|
$1.3 million
of transaction-related charges consisting of professional service fees for business acquisition and divestiture activities, which primarily included professional service fees for the acquisitions of Brown Printing and UniGraphic;
|
d.
|
$4.6 million
of acquisition-related integration costs primarily related to preparing existing facilities to meet new production requirements resulting from work transferring from closed plants, as well as other costs related to the integration of the acquired companies; and
|
e.
|
$4.1 million
of various other restructuring charges, including costs to maintain and exit closed facilities, as well as lease exit charges.
|
(2)
|
Restructuring, impairment and transaction-related charges of
$55.1 million
incurred during the
six months ended
June 30, 2013
, included:
|
a.
|
$7.7 million
of employee termination charges related to workforce reductions through facility consolidations and involuntary separation programs;
|
b.
|
$9.7 million
of impairment charges including
$4.6 million
of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations primarily for Dubuque, Iowa and Vancouver, British Colombia, as well as other capacity reduction restructuring initiatives and
$5.1 million
of land and building impairment charges as a result of plant closures primarily for Mexico City, Mexico and Olive Branch, Mississippi;
|
c.
|
$3.2 million
of transaction-related charges consisting of professional service fees for business acquisition and divestiture activities, which primarily included professional service fees for the acquisition of Vertis;
|
d.
|
$15.1 million
of acquisition-related integration costs primarily related to preparing existing facilities to meet new production requirements resulting from work transferring from closed plants, as well as other costs related to the integration of the acquired companies; and
|
e.
|
$19.4 million
of various other restructuring charges, including costs to maintain and exit closed facilities, as well as lease exit charges.
|
(3)
|
Interest expense
increased
$1.2 million
(
$0.7 million
, net of tax) during the
six months ended
June 30, 2014
, to
$44.4 million
. This change was due to higher debt levels in the six months of
2014
as compared to the six months of
2013
, primarily related to acquisitions and a higher weighted average interest rate on borrowings due to the debt financing completed in the second quarter of
2014
.
|
(4)
|
A non-recurring
$6.0 million
loss on debt extinguishment (
$3.6 million
, net of tax) was recognized during the
six months ended
June 30, 2014
as part of the
$1.9 billion
debt financing arrangements completed on
April 28, 2014
. The
$6.0 million
loss represents certain debt issuance costs that were expensed.
|
(5)
|
The increase in income tax benefit of
$5.8 million
as calculated in the following table is primarily due to losses in foreign jurisdictions in
2013
that the Company did not receive a tax benefit.
|
|
Six Months Ended June 30,
|
|
|
||||||||
|
2014
|
|
2013
|
|
$ Change
|
||||||
Loss before income taxes and equity in loss of unconsolidated entities
|
$
|
(38.9
|
)
|
|
$
|
(49.3
|
)
|
|
$
|
10.4
|
|
40% normalized tax rate
|
40.0
|
%
|
|
40.0
|
%
|
|
40.0
|
%
|
|||
Income tax benefit at 40% normalized tax rate
|
(15.6
|
)
|
|
(19.7
|
)
|
|
4.1
|
|
|||
|
|
|
|
|
|
||||||
Income tax benefit from the condensed consolidated statements of operations
|
(10.8
|
)
|
|
(9.1
|
)
|
|
1.7
|
|
|||
|
|
|
|
|
|
||||||
Increase in income tax benefit
|
$
|
(4.8
|
)
|
|
$
|
(10.6
|
)
|
|
$
|
5.8
|
|
(6)
|
The decrease attributable to investments in unconsolidated entities and noncontrolling interests, net of tax, of
$2.5 million
during the
six months ended
June 30, 2014
, was primarily related to
$2.2 million
in lower equity earnings at Plural, the Company's Brazilian joint venture.
|
(7)
|
Operating income, excluding restructuring, impairment and transaction-related charges, decreased
$5.7 million
(
$3.4 million
, net of tax) primarily due to a decline in earnings from ongoing industry volume and pricing pressures, as well as $9.3 million in net gains in
2013
from favorable legal, environmental and bankruptcy related settlements, that did not repeat in
2014
, and a gain on the sale of Quad/Graphics' Brazilian operations in January 2013 to the Company's existing Brazilian joint venture with Plural. These declines were partially offset by lower employee-related costs, including labor productivity improvements. The following discussion provides additional details.
|
|
Six Months Ended June 30,
|
|
|
|
|
|||||||||||||||
|
2014
|
|
2013
|
|
|
|
|
|||||||||||||
|
(dollars in millions)
|
|
|
|||||||||||||||||
|
Amount
|
|
% of
Sales
|
|
Amount
|
|
% of
Sales
|
|
$ Change
|
|
%
Change
|
|||||||||
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Products
|
$
|
1,899.9
|
|
|
86.3
|
%
|
|
$
|
1,950.6
|
|
|
87.1
|
%
|
|
$
|
(50.7
|
)
|
|
(2.6
|
)%
|
Services
|
301.9
|
|
|
13.7
|
%
|
|
289.7
|
|
|
12.9
|
%
|
|
12.2
|
|
|
4.2
|
%
|
|||
Total net sales
|
2,201.8
|
|
|
100.0
|
%
|
|
2,240.3
|
|
|
100.0
|
%
|
|
(38.5
|
)
|
|
(1.7
|
)%
|
|||
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Products
|
1,565.9
|
|
|
71.1
|
%
|
|
1,588.3
|
|
|
70.9
|
%
|
|
(22.4
|
)
|
|
(1.4
|
)%
|
|||
Services
|
219.6
|
|
|
10.0
|
%
|
|
215.3
|
|
|
9.6
|
%
|
|
4.3
|
|
|
2.0
|
%
|
|||
Total cost of sales
|
1,785.5
|
|
|
81.1
|
%
|
|
1,803.6
|
|
|
80.5
|
%
|
|
(18.1
|
)
|
|
(1.0
|
)%
|
|||
Selling, general & administrative expenses
|
203.9
|
|
|
9.3
|
%
|
|
211.0
|
|
|
9.4
|
%
|
|
(7.1
|
)
|
|
(3.4
|
)%
|
|||
Depreciation and amortization
|
169.1
|
|
|
7.7
|
%
|
|
176.7
|
|
|
7.9
|
%
|
|
(7.6
|
)
|
|
(4.3
|
)%
|
|||
Restructuring, impairment and transaction-related charges
|
31.8
|
|
|
1.4
|
%
|
|
55.1
|
|
|
2.5
|
%
|
|
(23.3
|
)
|
|
(42.3
|
)%
|
|||
Total operating expenses
|
2,190.3
|
|
|
99.5
|
%
|
|
2,246.4
|
|
|
100.3
|
%
|
|
(56.1
|
)
|
|
(2.5
|
)%
|
|||
Operating income (loss)
|
$
|
11.5
|
|
|
0.5
|
%
|
|
$
|
(6.1
|
)
|
|
(0.3
|
)%
|
|
$
|
17.6
|
|
|
nm
|
|
|
Six Months Ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
||||||||||
|
Amount
|
|
% of Net Sales
|
|
Amount
|
|
% of Net Sales
|
||||||
|
(dollars in millions)
|
||||||||||||
EBITDA and EBITDA margin
|
$
|
171.1
|
|
|
7.8
|
%
|
|
$
|
169.6
|
|
|
7.6
|
%
|
|
Six Months Ended June 30,
|
||||||
|
2014
|
|
2013
|
||||
|
(dollars in millions)
|
||||||
Net loss attributable to Quad/Graphics common shareholders
(1)
|
$
|
(31.6
|
)
|
|
$
|
(41.2
|
)
|
Interest expense
|
44.4
|
|
|
43.2
|
|
||
Income tax benefit
|
(10.8
|
)
|
|
(9.1
|
)
|
||
Depreciation and amortization
|
169.1
|
|
|
176.7
|
|
||
EBITDA
|
$
|
171.1
|
|
|
$
|
169.6
|
|
(1)
|
Net loss attributable to Quad/Graphics common shareholders includes the effects of:
|
a.
|
Restructuring, impairment and transaction-related charges of
$31.8 million
and
$55.1 million
for the
six months ended
June 30, 2014
, and
2013
, respectively.
|
b.
|
Loss on debt extinguishment of
$6.0 million
for the
six months ended
June 30, 2014
.
|
|
Six Months Ended June 30,
|
|
|
|
|
|||||||||
|
2014
|
|
2013
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Net sales:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
1,682.9
|
|
|
$
|
1,730.4
|
|
|
$
|
(47.5
|
)
|
|
(2.7
|
)%
|
Services
|
291.6
|
|
|
284.7
|
|
|
6.9
|
|
|
2.4
|
%
|
|||
Operating income (including restructuring, impairment and transaction-related charges)
|
37.4
|
|
|
48.0
|
|
|
(10.6
|
)
|
|
(22.1
|
)%
|
|||
Operating margin
|
1.9
|
%
|
|
2.4
|
%
|
|
N/A
|
|
|
N/A
|
|
|||
Restructuring, impairment and transaction-related charges
|
$
|
25.3
|
|
|
$
|
30.5
|
|
|
$
|
(5.2
|
)
|
|
(17.0
|
)%
|
|
Six Months Ended June 30,
|
|
|
|
|
|||||||||
|
2014
|
|
2013
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Net sales:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
217.0
|
|
|
$
|
220.2
|
|
|
$
|
(3.2
|
)
|
|
(1.5
|
)%
|
Services
|
10.3
|
|
|
5.0
|
|
|
5.3
|
|
|
106.0
|
%
|
|||
Operating loss (including restructuring, impairment and transaction-related charges)
|
(0.8
|
)
|
|
(7.2
|
)
|
|
6.4
|
|
|
(88.9
|
)%
|
|||
Operating margin
|
(0.4
|
)%
|
|
(3.2
|
)%
|
|
N/A
|
|
|
N/A
|
|
|||
Restructuring, impairment and transaction-related charges
|
$
|
0.7
|
|
|
$
|
5.0
|
|
|
$
|
(4.3
|
)
|
|
(86.0
|
)%
|
Equity in loss of unconsolidated entities
|
(3.8
|
)
|
|
(1.5
|
)
|
|
(2.3
|
)
|
|
(153.3
|
)%
|
|
Six Months Ended June 30,
|
|
|
|
|
|||||||||
|
2014
|
|
2013
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Operating expenses (including restructuring, impairment and transaction-related charges)
|
$
|
25.1
|
|
|
$
|
46.9
|
|
|
$
|
(21.8
|
)
|
|
(46.5
|
)%
|
Restructuring, impairment and transaction-related charges
|
5.8
|
|
|
19.6
|
|
|
(13.8
|
)
|
|
(70.4
|
)%
|
|
Six Months Ended June 30,
|
||||||
|
2014
|
|
2013
|
||||
|
(dollars in millions)
|
||||||
Net cash provided by operating activities
|
$
|
78.9
|
|
|
$
|
216.9
|
|
Less: purchases of property, plant and equipment
|
(83.6
|
)
|
|
(69.7
|
)
|
||
Free Cash Flow
|
$
|
(4.7
|
)
|
|
$
|
147.2
|
|
|
June 30,
2014 |
|
December 31,
2013 |
||||
|
(dollars in millions)
|
||||||
Total debt and capital lease obligations on the condensed consolidated balance sheets
|
$
|
1,582.4
|
|
|
$
|
1,406.8
|
|
|
|
|
|
||||
Divided by:
|
|
|
|
||||
Quad/Graphics EBITDA as adjusted for purposes of calculating the Debt Leverage Ratio
|
$
|
561.3
|
|
|
$
|
577.1
|
|
July 1, 2013 to May 29, 2014 Brown Printing pro forma EBITDA as adjusted for purposes of calculating the Debt Leverage Ratio
(1)
|
27.4
|
|
|
|
|||
EBITDA as adjusted for purposes of calculating the Debt Leverage Ratio
|
$
|
588.7
|
|
|
$
|
577.1
|
|
|
|
|
|
||||
Debt Leverage Ratio
|
2.69
|
x
|
|
2.44
|
x
|
(1)
|
As permitted by the Senior Secured Credit Facility, certain pro forma financial information related to the acquisition of Brown Printing was included when calculating the Debt Leverage Ratio as of
June 30, 2014
. As the acquisition of Brown Printing was completed on
May 30, 2014
, the $27.4 million pro forma Adjusted EBITDA represents the period from July 1, 2013 to May 29, 2014. Pro forma EBITDA as adjusted for purposes of calculating the Debt Leverage Ratio for Brown Printing was calculated in a consistent manner with the calculation above for Quad/Graphics. Brown Printing's financial information for the month of June 2014 has been included within the Quad/Graphics EBITDA as adjusted for purposes of calculating the Debt Leverage Ratio as the results of Brown Printing have been consolidated with Quad/Graphics' financial results since the date of acquisition. If the pro forma EBITDA as adjusted for purposes of calculating the Debt Leverage Ratio for Brown Printing was not included in the calculation, the Company's Debt Leverage Ratio would have been 2.82x.
|
|
|
|
Add
|
|
Subtract
|
|
Trailing Twelve
Months Ended
|
||||||||
|
Year Ended
|
|
Six Months Ended
|
|
|||||||||||
|
December 31,
2013 |
|
June 30,
2014 |
|
June 30,
2013 |
|
June 30,
2014 |
||||||||
Net earnings (loss) attributable to Quad/Graphics common shareholders
(1)
|
$
|
32.5
|
|
|
$
|
(31.6
|
)
|
|
$
|
(41.2
|
)
|
|
$
|
42.1
|
|
Interest expense
(1)
|
85.5
|
|
|
44.4
|
|
|
43.2
|
|
|
86.7
|
|
||||
Income tax expense (benefit)
(1)
|
23.3
|
|
|
(10.8
|
)
|
|
(9.1
|
)
|
|
21.6
|
|
||||
Depreciation and amortization
(1)
|
340.5
|
|
|
169.1
|
|
|
176.7
|
|
|
332.9
|
|
||||
EBITDA
|
$
|
481.8
|
|
|
$
|
171.1
|
|
|
$
|
169.6
|
|
|
$
|
483.3
|
|
Restructuring, impairment and transaction-related charges
(1)
|
95.3
|
|
|
31.8
|
|
|
55.1
|
|
|
72.0
|
|
||||
Loss on debt extinguishment
(1)
|
—
|
|
|
6.0
|
|
|
—
|
|
|
6.0
|
|
||||
Quad/Graphics EBITDA as adjusted for purposes of calculating the Debt Leverage Ratio
|
$
|
577.1
|
|
|
$
|
208.9
|
|
|
$
|
224.7
|
|
|
$
|
561.3
|
|
(1)
|
Financial information for the year ended
December 31, 2013
is included as reported in the Company's
2013
Annual Report on Form 10-K filed with the SEC on
February 27, 2014
.
|
•
|
Senior Secured Credit Facility which includes:
|
◦
|
$850.0 million
Revolving Credit Facility (
$31.0 million
outstanding as of
June 30, 2014
);
|
◦
|
$450.0 million
Term Loan A (
$450.0 million
outstanding as of
June 30, 2014
); and
|
◦
|
$300.0 million
Term Loan B (
$297.1 million
outstanding as of
June 30, 2014
);
|
•
|
Senior Unsecured Notes (
$300.0 million
outstanding as of
June 30, 2014
); and
|
•
|
Master Note and Security Agreement (
$451.6 million
outstanding as of
June 30, 2014
).
|
•
|
On a rolling twelve-month basis, the total leverage ratio, defined as total consolidated debt (less certain unrestricted domestic cash) to consolidated EBITDA, shall not exceed
3.75
to 1.00 (for the twelve months ended
June 30, 2014
, the Company's leverage ratio was
2.64
to 1.00).
|
•
|
On a rolling twelve-month basis, the senior secured leverage ratio, defined as senior secured debt (less certain unrestricted domestic cash) to consolidated EBITDA, shall not exceed
3.50
to 1.00 (for the twelve months ended
June 30, 2014
, the Company's senior secured leverage ratio was
2.15
to 1.00).
|
•
|
On a rolling twelve-month basis, the minimum interest coverage ratio, defined as consolidated EBITDA to consolidated cash interest expense, shall not be less than
3.50
to 1.00 (for the twelve months ended
June 30, 2014
, the Company's interest coverage ratio was
6.88
to 1.00).
|
•
|
On a rolling twelve-month basis, the fixed charge coverage ratio, defined as consolidated EBITDA and rent expense to interest and rent expense, shall not be less than
1.50
to 1.00 (for the twelve months ended
June 30, 2014
, the Company's fixed charge coverage ratio was
4.07
to 1.00).
|
•
|
Consolidated net worth of at least
$793.8 million
plus
40%
of positive consolidated net income cumulatively for each year. As of
June 30, 2014
, consolidated net worth must be at least
$793.8 million
(as of
June 30, 2014
, the Company's consolidated net worth under the most restrictive covenant per the various debt agreements was
$1.15 billion
).
|
•
|
If the Company's total leverage ratio is greater than
3.00
to 1.00 (as defined in the Senior Secured Credit Facility), the Company is prohibited from making greater than
$120.0 million
of annual dividend payments, capital stock repurchases and certain other payments. If the total leverage ratio is less than
3.00
to 1.00, there are no such restrictions.
|
•
|
If the Company's senior secured leverage ratio is greater than
3.00
to 1.00 or the Company's total leverage ratio is greater than
3.50
to 1.00 (these ratios as defined in the Senior Secured Credit Facility), the Company is prohibited from voluntarily prepaying any of the Senior Unsecured Notes and from voluntarily prepaying any other unsecured or subordinated indebtedness, with certain exceptions (including any mandatory prepayments on the Senior Unsecured Notes or any other unsecured or subordinated debt). If the senior secured leverage ratio is less than
3.00
to 1.00 and the total leverage ratio is less than
3.50
to 1.00, there are no such restrictions.
|
•
|
the Company increased its consolidated debt and capital lease obligations by
$367.9 million
, which included a
$192.3 million
change in anticipated future interest payments, during the
six months ended
June 30, 2014
as a result of the completion of the
April 28, 2014
,
$1.9 billion
debt financing arrangements (see
Note 10
, "
Debt
," to the condensed consolidated financial statements in
Item 1
,"
Condensed Consolidated Financial Statements (Unaudited)
," "Debt Obligations" and "Covenants and Compliance" of this Quarterly Report on Form 10-Q for further details on these debt arrangements).
|
ITEM 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
ITEM 4.
|
Controls and Procedures
|
ITEM 1A.
|
Risk Factors
|
ITEM 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
(a)
|
None.
|
(b)
|
Not applicable.
|
(c)
|
On
September 6, 2011
, the Company's board of directors authorized a share repurchase program of up to
$100.0 million
of the Company's outstanding class A common stock. Under the authorization, share repurchases may be made at the Company's discretion, from time to time, in the open market and/or in privately negotiated transactions as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchase will depend on economic and market conditions, share price, trading volume, applicable legal requirements and other factors. The program may be suspended or discontinued at any time. There were
no
stock repurchases made during the
second quarter ended
June 30, 2014
. As of
June 30, 2014
, there were
$91.8 million
of authorized repurchases remaining under the program.
|
ITEM 6.
|
Exhibits
|
|
|
|
|
QUAD/GRAPHICS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
August 7, 2014
|
|
By:
|
/s/ J. Joel Quadracci
|
|
|
|
|
J. Joel Quadracci
|
|
|
|
|
Chairman, President and Chief Executive Officer
|
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
Date:
|
August 7, 2014
|
|
By:
|
/s/ David J. Honan
|
|
|
|
|
David J. Honan
|
|
|
|
|
Vice President and Chief Financial Officer
|
|
|
|
|
(Principal Financial Officer)
|
Exhibit Number
|
|
Exhibit Description
|
|
|
|
(10.1)
|
|
Form of Performance Share Award Agreement under the Quad/Graphics, Inc. 2010 Omnibus Incentive Plan
|
|
|
|
(10.2)
|
|
Form of Performance Unit Award Agreement under the Quad/Graphics, Inc. 2010 Omnibus Incentive Plan
|
|
|
|
(31.1)
|
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
|
|
|
|
(31.2)
|
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
|
|
|
|
(32)
|
|
Written Statement of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
|
|
|
|
(101*)
|
|
Financial statements from the Quarterly Report on Form 10-Q of Quad/Graphics, Inc. for the quarter ended June 30, 2014 formatted in eXtensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations (Unaudited), (ii) the Condensed Consolidated Statements of Comprehensive Loss (Unaudited), (iii) the Condensed Consolidated Balance Sheets (Unaudited), (iv) the Condensed Consolidated Statements of Cash Flows (Unaudited), (v) the Notes to Condensed Consolidated Financial Statements (Unaudited), and (vi) document and entity information.
|
*
|
In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be "filed" for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.
|
Grant Date:
|
_______________, 20__
|
Performance Period:
|
_______________, 20__ through _______________, 20__
|
to Award (the "Shares"):
|
Target: _______________ (the "Target Shares")
|
Vesting or Forfeiture of Shares:
|
You will be granted the Target Shares on the Grant Date. The Target Shares will be earned or forfeited, and additional Shares up to the maximum set forth above may be granted following the end of the Performance Period, as follows:
|
•
|
All of the Target Shares will be forfeited, and no additional Shares will be granted, if the performance level for each of the Performance Criteria (as defined in the accompanying cover letter) is below the threshold set forth in the accompanying cover letter at the end of the Performance Period.
|
•
|
Subject to the vesting requirements described below, the Target Shares will be earned in full if all of the Performance Criteria, as set forth in the accompanying cover letter, are achieved at or above the target level set forth in the cover letter (“Target Performance”) at the end of the Performance Period. In addition, you will be eligible to be granted additional Shares, up to the maximum set forth above, as determined by the Committee in its sole discretion, based on the Company’s achievement of the Performance Criteria set forth in the accompanying cover letter.
|
•
|
For all other performance levels, the Committee will determine in its sole discretion the number of Target Shares that will be earned, if any, the number of Target Shares that will be forfeited, if any, and the number of additional Shares, if any, that will be granted, up to the maximum set forth above.
|
Change in Control:
|
Effective upon a Change in Control (as defined below), if you are employed by or in service with the Company or an Affiliate immediately prior to the date of such Change in Control, the Target Shares will fully vest immediately, and the remainder of this Award will be cancelled in full.
|
Book Entry:
|
As soon as practicable after the Compensation Subcommittee has certified the Company’s achievement of the Performance Criteria after the end of the Performance Period (or the following March 1, if later), the Company will issue your earned and vested Shares in your name in certific
ated form or by book entry; provided that such certification and issuance shall occur not later than the 15
th
day of the second month after the end of the Performance
Period.
|
Transferability of Shares:
|
By accepting this Award, you agree not to sell any Shares acquired under this Award at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale.
|
Equivalents:
|
While the Target Shares are subject to forfeiture, any dividends or other distributions paid with respect to the Target Shares for which the record date occurs before you forfeit the Target Shares will be held in the custody of the Company and will be subject to the same risk of forfeiture, restrictions on transferability and other terms of this Award that apply to the Target Shares with respect to which such dividends or other distributions were made. All such dividends or other distributions shall be paid to you within 45 days following the full vesting of the Target Shares with respect to which such dividends or other distributions were made.
|
Voting:
|
In consideration for your receipt of the Shares subject to this Award, you hereby grant to the Secretary of the Company an irrevocable proxy, coupled with an interest, to vote all of your unvested Target Shares until such time as they become vested or forfeited. You will have no voting rights with respect to the number of Shares subject to this Award in excess of the Target Shares until such Shares have been granted and become fully vested.
|
Market Stand-Off:
|
In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, you agree that you shall not directly or indirectly sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer or agree to engage in any of the foregoing transactions with respect to, any Shares acquired under this Award without the prior written consent of the Company. Such restriction shall be in effect for such period of time following the date of the final prospectus for the offering as may be determined by the Company. In no event, however, shall such period exceed one hundred eighty (180) days.
|
Tax Withholding:
|
To the extent that the vesting or receipt of the Shares, or the payment of dividends or dividend equivalents thereon, results in income to you for Federal, state or local income tax purposes, you shall deliver to the Company at the time the Company is obligated to withhold taxes in connection with such vesting, receipt or payment, as the case may be, such amount as the Company requires to meet its withholding obligation under applicable tax laws or regulations, and if you fail to do so, the Company has the right and authority to deduct or withhold from any compensation payable to you, including compensation due under this Award, an amount sufficient to satisfy its withholding obligations. To the extent permitted by the Company at the time a tax withholding requirement arises, you may
|
Recoupment:
|
If the Committee determines that recoupment of incentive compensation paid to you pursuant to this Award is required under any law or any recoupment policy of the Company, then this Award will terminate immediately on the date of such determination to the extent required by such law or recoupment policy and the Committee may recoup any such incentive compensation in accordance with such recoupment policy or as required by law. The Company shall have the right to offset against any other amounts due from the Company to you any amount owed by you hereunder.
|
Miscellaneous:
|
As a condition of the granting of this Award, you agree, for yourself and your legal representatives or guardians, that this Award shall be interpreted by the Committee and that any interpretation by the Committee of the terms of this Award or the Plan and any determination made by the Committee pursuant to this Award shall be final, binding and conclusive.
|
By:
|
|
|
|
|
[Name of Authorized Officer]
|
|
Recipient
|
|
|
|
|
Date:
|
|
|
|
Grant Dat
e:
|
_______________, 20__
|
Performance Period:
|
_______________, 20__ through _______________, 20__
|
Units (the "Units"):
|
Target: _______________ (the "Target Units")
|
Vesting or Forfeiture of Units:
|
You will be granted the Target Units on the Original Grant Date. The Target Units will be earned or forfeited, and additional Units up to the maximum set forth above may be granted following the end of the Performance Period, as follows:
|
•
|
All of the Target Units will be forfeited, and no additional Units will be granted, if the performance level for each Performance Criteria is below the threshold set forth in the accompanying cover letter at the end of the Performance Period.
|
•
|
Subject to the vesting requirements described below, the Target Units will be earned in full if all of the Performance Criteria, as set forth in the accompanying cover letter, are achieved at or above the target level set forth in the cover letter (“Target Performance”) at the end of the Performance Period. In addition, you will be eligible to be granted additional Units, up to the maximum set forth above, as determined by the Committee in its sole discretion, based on the Company’s achievement of the Performance Criteria set forth in the accompanying cover letter.
|
•
|
For all other performance levels, the Committee will determine in its sole discretion the number of Target Units that will be earned, if any, the number of Target Units that will be forfeited, if any, and the number of additional Units, if any, that will be granted, up to the maximum set forth above.
|
Change in Control:
|
Effective upon a Change in Control (as defined below), if you are employed by or in service with the Company or an Affiliate immediately prior to the date of such Change in Control, the Target Units will fully vest immediately, and the remainder of this Award will be cancelled in full.
|
Settlement of Units:
|
As soon as practicable after the Compensation Subcommittee has certified the Company’s achievement of the Performance Criteria after the end of the Performance Period, the Company will settle your Units by electing to (i) issue in your name certificate(s) or make an appropriate book entry for a number of Shares equal to the number of Units that have been earned; (ii) deliver an amount of cash equal to the Fair Market Value, determined as of the payment date, of a number of Shares equal to the number of Units that have been earned; or (iii) a combination thereof; provided that such certification and issuance or payment shall occur not later than the 15
th
day of the second month after the end of the Performance Period.
|
Transferability of Shares:
|
By accepting this Award, you agree not to sell any Shares acquired under this Award at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale.
|
Equivalents:
|
You will be credited with dividend equivalents equal to the amount of any dividends or other distributions paid with respect to the number of Shares subject to this Award, so long as the applicable record date occurs before you forfeit your rights to the Units. Any such dividend equivalents will be subject to forfeiture if the Units are not earned and will be paid to you within 45 days following the date the Units are earned.
|
Voting:
|
You will have no voting rights with respect to the Units or the number of Shares subject to this Award until such Shares have become fully earned and are issued upon settlement of the Units.
|
Market Stand-Off:
|
In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, you agree that you shall not directly or indirectly sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer or agree to engage in any of the foregoing transactions with respect to, any Shares acquired under this Award without the prior written consent of the Company. Such restriction shall be in effect for such period of time following the date of the final prospectus for the offering as may be determined by the Company. In no event, however, shall such period exceed one hundred eighty (180) days.
|
Tax Withholding:
|
To the extent that the vesting, receipt or payment of the Units, or the payment of dividend equivalents thereon, results in income to you for Federal, state or local income tax purposes, you shall deliver to the Company at the time the Company is obligated to withhold taxes in connection with such vesting, receipt or payment, as the case may be, such amount as the Company requires to meet its withholding obligation under applicable tax laws or regulations, and if you fail to do so, the Company has the right and authority to deduct or withhold from any compensation payable to you, including compensation due under this Award, an amount sufficient to satisfy its withholding obligations.
|
Recoupment:
|
If the Committee determines that recoupment of incentive compensation paid to you pursuant to this Award is required under any law or any recoupment policy of the Company, then this Award will terminate immediately on the date of such determination to the extent required by such law or recoupment policy and the Committee may recoup any such incentive compensation in accordance with such recoupment policy or as required by law. The Company shall have the right to offset against any other amounts due from the Company to you any amount owed by you hereunder.
|
Miscellaneous:
|
As a condition of the granting of this Award, you agree, for yourself and your legal representatives or guardians, that this Award shall be interpreted by the Committee and that any interpretation by the Committee of the terms of this Award or the Plan and any determination made by the Committee pursuant to this Award shall be final, binding and conclusive.
|
By:
|
|
|
|
|
[Name of Authorized Officer]
|
|
Recipient
|
|
|
|
|
Date:
|
|
|
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Quad/Graphics, 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)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
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
|
(d)
|
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:
|
August 7, 2014
|
|
|
|
|
|
|
/s/ J. Joel Quadracci
|
|
|
J. Joel Quadracci
|
|
|
Chairman, President and Chief Executive Officer
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Quad/Graphics, 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)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
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
|
(d)
|
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:
|
August 7, 2014
|
|
|
|
|
|
|
/s/ David J. Honan
|
|
|
David J. Honan
|
|
|
Vice President and Chief Financial Officer
|
|
/s/ J. Joel Quadracci
|
|
J. Joel Quadracci
|
|
Chairman, President and Chief Executive Officer
|
|
|
|
|
|
/s/ David J. Honan
|
|
David J. Honan
|
|
Vice President and Chief Financial Officer
|