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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 August 1, 2015
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Class A Common Stock
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35,410,003
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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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||||||||||||
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2015
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2014
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2015
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2014
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||||||||
Net sales
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Products
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$
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929.4
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$
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946.2
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$
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1,879.7
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$
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1,899.9
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Services
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149.6
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152.8
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307.3
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301.9
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Total net sales
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1,079.0
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1,099.0
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2,187.0
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2,201.8
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Cost of sales
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Products
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767.6
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782.3
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1,547.8
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1,565.9
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Services
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109.1
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110.6
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224.3
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219.6
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Total cost of sales
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876.7
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892.9
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1,772.1
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1,785.5
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Operating expenses
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Selling, general and administrative expenses
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110.4
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100.4
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220.1
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203.9
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Depreciation and amortization
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83.4
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85.3
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164.7
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169.1
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Restructuring, impairment and transaction-related charges
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34.3
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19.9
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44.4
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31.8
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Goodwill impairment
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—
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—
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23.3
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—
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Total operating expenses
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1,104.8
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1,098.5
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2,224.6
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2,190.3
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Operating income (loss)
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$
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(25.8
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)
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$
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0.5
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$
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(37.6
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)
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$
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11.5
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Interest expense
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21.6
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23.5
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44.1
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44.4
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Loss on debt extinguishment
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—
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6.0
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—
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6.0
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Loss before income taxes and equity in loss of unconsolidated entities
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(47.4
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(29.0
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(81.7
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(38.9
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Income tax benefit
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(3.8
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(9.6
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(4.8
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(10.8
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Loss before equity in loss of unconsolidated entities
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(43.6
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(19.4
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(76.9
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(28.1
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Equity in loss of unconsolidated entities
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(1.5
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(3.4
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(3.4
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(3.8
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Net loss
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$
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(45.1
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$
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(22.8
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$
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(80.3
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$
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(31.9
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)
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Net loss attributable to noncontrolling interests
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—
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—
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—
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0.3
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Net loss attributable to Quad/Graphics common shareholders
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$
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(45.1
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$
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(22.8
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$
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(80.3
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$
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(31.6
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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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(0.94
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$
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(0.48
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$
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(1.68
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$
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(0.67
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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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47.9
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47.5
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47.8
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47.4
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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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2015
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2014
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2015
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2014
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Net loss
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$
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(45.1
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$
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(22.8
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$
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(80.3
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$
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(31.9
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Other comprehensive income (loss)
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Translation adjustments
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1.8
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1.0
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(23.1
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0.2
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Pension and other postretirement benefit plan adjustments
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—
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(1.5
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—
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(3.0
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Other comprehensive income (loss), before tax
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1.8
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(0.5
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(23.1
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(2.8
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Income tax benefit related to items of other comprehensive loss
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—
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0.5
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—
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1.1
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Other comprehensive income (loss), net of tax
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1.8
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—
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(23.1
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(1.7
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||||||||
Total comprehensive loss
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(43.3
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)
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(22.8
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)
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(103.4
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)
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(33.6
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)
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||||
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||||||||
Less: comprehensive loss attributable to noncontrolling interests
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—
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—
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—
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0.3
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||||
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Comprehensive loss attributable to Quad/Graphics common shareholders
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$
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(43.3
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)
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$
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(22.8
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)
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$
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(103.4
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)
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$
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(33.3
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)
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June 30,
2015 |
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December 31,
2014 |
||||
ASSETS
|
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Cash and cash equivalents
|
$
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13.6
|
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$
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9.6
|
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Receivables, less allowances for doubtful accounts of $57.1 million at June 30, 2015 and $57.8 million at December 31, 2014
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610.2
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766.2
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Inventories
|
289.4
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287.8
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|
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Prepaid expenses and other current assets
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48.6
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39.1
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|
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Deferred income taxes
|
69.3
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48.4
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|
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Restricted cash
|
30.7
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31.2
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|
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Total current assets
|
1,061.8
|
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|
1,182.3
|
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||
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|
||||
Property, plant and equipment—net
|
1,802.9
|
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|
1,855.5
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|
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Goodwill
|
775.2
|
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|
775.5
|
|
||
Other intangible assets—net
|
157.3
|
|
|
149.1
|
|
||
Equity method investments in unconsolidated entities
|
18.6
|
|
|
42.0
|
|
||
Other long-term assets
|
65.4
|
|
|
52.8
|
|
||
Total assets
|
$
|
3,881.2
|
|
|
$
|
4,057.2
|
|
|
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|
||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
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|
||||
Accounts payable
|
$
|
327.9
|
|
|
$
|
406.9
|
|
Amounts owing in satisfaction of bankruptcy claims
|
1.4
|
|
|
1.4
|
|
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Accrued liabilities
|
318.0
|
|
|
358.1
|
|
||
Short-term debt and current portion of long-term debt
|
100.3
|
|
|
92.0
|
|
||
Current portion of capital lease obligations
|
4.4
|
|
|
4.2
|
|
||
Total current liabilities
|
752.0
|
|
|
862.6
|
|
||
|
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|
||||
Long-term debt
|
1,367.0
|
|
|
1,299.7
|
|
||
Unsecured notes to be issued
|
7.4
|
|
|
9.0
|
|
||
Capital lease obligations
|
9.1
|
|
|
9.7
|
|
||
Deferred income taxes
|
407.2
|
|
|
384.4
|
|
||
Other long-term liabilities
|
312.5
|
|
|
339.3
|
|
||
Total liabilities
|
2,855.2
|
|
|
2,904.7
|
|
||
|
|
|
|
||||
Commitments and contingencies (Note 8)
|
|
|
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|
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|
||||
Shareholders' equity (Note 17)
|
|
|
|
||||
Preferred stock
|
—
|
|
|
—
|
|
||
Common stock, Class A
|
1.0
|
|
|
1.0
|
|
||
Common stock, Class B
|
0.4
|
|
|
0.4
|
|
||
Common stock, Class C
|
—
|
|
|
—
|
|
||
Additional paid-in capital
|
954.8
|
|
|
971.3
|
|
||
Treasury stock, at cost
|
(194.2
|
)
|
|
(218.8
|
)
|
||
Retained earnings
|
403.7
|
|
|
515.2
|
|
||
Accumulated other comprehensive loss
|
(139.7
|
)
|
|
(116.6
|
)
|
||
Total shareholders' equity
|
1,026.0
|
|
|
1,152.5
|
|
||
|
|
|
|
||||
Total liabilities and shareholders' equity
|
$
|
3,881.2
|
|
|
$
|
4,057.2
|
|
|
|
|
|
|
Six Months Ended June 30,
|
||||||
|
2015
|
|
2014
|
||||
OPERATING ACTIVITIES
|
|
|
|
||||
Net loss
|
$
|
(80.3
|
)
|
|
$
|
(31.9
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
164.7
|
|
|
169.1
|
|
||
Impairment charges
|
24.1
|
|
|
3.1
|
|
||
Goodwill impairment
|
23.3
|
|
|
—
|
|
||
Amortization of debt issuance costs and original issue discount
|
2.2
|
|
|
2.1
|
|
||
Loss on debt extinguishment
|
—
|
|
|
6.0
|
|
||
Stock-based compensation
|
5.9
|
|
|
8.6
|
|
||
Gain on sale or disposal of property, plant and equipment
|
(0.3
|
)
|
|
—
|
|
||
Deferred income taxes
|
(10.1
|
)
|
|
(14.9
|
)
|
||
Equity in loss of unconsolidated entities
|
3.4
|
|
|
3.8
|
|
||
Changes in operating assets and liabilities—net of acquisitions
|
(9.5
|
)
|
|
(67.0
|
)
|
||
Net cash provided by operating activities
|
123.4
|
|
|
78.9
|
|
||
|
|
|
|
||||
INVESTING ACTIVITIES
|
|
|
|
||||
Purchases of property, plant and equipment
|
(83.3
|
)
|
|
(83.6
|
)
|
||
Cost investment in unconsolidated entities
|
(1.2
|
)
|
|
(4.1
|
)
|
||
Proceeds from the sale of property, plant and equipment
|
2.5
|
|
|
0.4
|
|
||
Proceeds from the sale of cost investment in unconsolidated entities
|
3.5
|
|
|
—
|
|
||
Transfers from restricted cash
|
0.5
|
|
|
7.4
|
|
||
Acquisition of businesses—net of cash acquired (Note 2)
|
(79.9
|
)
|
|
(107.8
|
)
|
||
Net cash used in investing activities
|
(157.9
|
)
|
|
(187.7
|
)
|
||
|
|
|
|
||||
FINANCING ACTIVITIES
|
|
|
|
||||
Proceeds from issuance of long-term debt
|
—
|
|
|
1,047.0
|
|
||
Payments of long-term debt
|
(44.6
|
)
|
|
(710.0
|
)
|
||
Payments of capital lease obligations
|
(2.4
|
)
|
|
(4.4
|
)
|
||
Borrowings on revolving credit facilities
|
793.2
|
|
|
675.0
|
|
||
Payments on revolving credit facilities
|
(678.5
|
)
|
|
(844.4
|
)
|
||
Payments of debt issuance costs
|
—
|
|
|
(14.3
|
)
|
||
Bankruptcy claim payments on unsecured notes to be issued
|
(0.1
|
)
|
|
(7.4
|
)
|
||
Sale of stock for options exercised
|
2.2
|
|
|
1.3
|
|
||
Shares withheld from employees for the tax obligation on equity grants
|
(1.6
|
)
|
|
(1.0
|
)
|
||
Tax benefit (expense) on equity award activity
|
1.6
|
|
|
(0.8
|
)
|
||
Payment of cash dividends
|
(30.1
|
)
|
|
(29.3
|
)
|
||
Net cash provided by financing activities
|
39.7
|
|
|
111.7
|
|
||
Effect of exchange rates on cash and cash equivalents
|
(1.2
|
)
|
|
1.4
|
|
||
Net increase in cash and cash equivalents
|
4.0
|
|
|
4.3
|
|
||
Cash and cash equivalents at beginning of period
|
9.6
|
|
|
13.1
|
|
||
Cash and cash equivalents at end of period
|
$
|
13.6
|
|
|
$
|
17.4
|
|
|
|
|
|
|
Purchase Price Allocation
|
||
Cash and cash equivalents
|
$
|
3.6
|
|
Accounts receivable
|
46.1
|
|
|
Other current assets
|
18.8
|
|
|
Property, plant and equipment
|
72.1
|
|
|
Identifiable intangible assets
|
4.7
|
|
|
Other long-term assets
|
7.5
|
|
|
Accounts payable and accrued liabilities
|
(35.1
|
)
|
|
Other long-term liabilities
|
(16.6
|
)
|
|
Purchase price
|
$
|
101.1
|
|
(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,
|
||||||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
|
(actual)
|
|
(pro forma)
|
|
(actual)
|
|
(pro forma)
|
||||||||
Pro forma net sales
|
$
|
1,079.0
|
|
|
$
|
1,154.7
|
|
|
$
|
2,187.0
|
|
|
$
|
2,347.0
|
|
Pro forma net loss attributable to common shareholders
|
(45.1
|
)
|
|
(23.9
|
)
|
|
(80.3
|
)
|
|
(32.4
|
)
|
||||
Pro forma diluted net loss per share attributable to common shareholders
|
(0.94
|
)
|
|
(0.51
|
)
|
|
(1.68
|
)
|
|
(0.69
|
)
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Employee termination charges
|
$
|
7.4
|
|
|
$
|
12.7
|
|
|
$
|
12.5
|
|
|
$
|
18.7
|
|
Impairment charges
|
17.8
|
|
|
2.0
|
|
|
24.1
|
|
|
3.1
|
|
||||
Transaction-related charges (income)
|
1.0
|
|
|
0.7
|
|
|
(8.2
|
)
|
|
1.3
|
|
||||
Integration costs
|
2.0
|
|
|
1.9
|
|
|
3.8
|
|
|
4.6
|
|
||||
Other restructuring charges
|
6.1
|
|
|
2.6
|
|
|
12.2
|
|
|
4.1
|
|
||||
Total
|
$
|
34.3
|
|
|
$
|
19.9
|
|
|
$
|
44.4
|
|
|
$
|
31.8
|
|
•
|
Employee termination charges of
$7.4 million
and
$12.5 million
during the
three and six months ended
June 30, 2015
, respectively, and
$12.7 million
and
$18.7 million
during the
three and six months ended
June 30, 2014
, respectively. The Company reduced its workforce through facility consolidations and involuntary separation programs.
|
•
|
Integration costs of
$2.0 million
and
$3.8 million
during the
three and six months ended
June 30, 2015
, respectively, and
$1.9 million
and
$4.6 million
during the
three and six months ended
June 30, 2014
, 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
$6.1 million
and
$12.2 million
during the
three and six months ended
June 30, 2015
, respectively, which consisted of: (1)
$4.5 million
and
$6.7 million
, respectively, of vacant facility carrying costs; (2)
$0.9 million
and
$1.3 million
, respectively, of equipment and infrastructure removal costs from closed plants; and (3)
$0.7 million
and
$4.2 million
, respectively, of lease exit charges primarily related to the closure of the Atlanta, Georgia facility. Other restructuring charges of
$2.6 million
and
$4.1 million
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.
|
|
Employee
Termination
Charges
|
|
Impairment
Charges
|
|
Transaction-Related
Charges (Income)
|
|
Integration
Costs
|
|
Other
Restructuring
Charges
|
|
Total
|
||||||||||||
Balance at December 31, 2014
|
$
|
10.0
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
1.8
|
|
|
$
|
13.6
|
|
|
$
|
25.9
|
|
Expense (income)
|
12.5
|
|
|
24.1
|
|
|
(8.2
|
)
|
|
3.8
|
|
|
12.2
|
|
|
44.4
|
|
||||||
Cash receipts (payments)
|
(11.9
|
)
|
|
—
|
|
|
8.0
|
|
|
(3.8
|
)
|
|
(11.7
|
)
|
|
(19.4
|
)
|
||||||
Non-cash adjustments
|
—
|
|
|
(24.1
|
)
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
(24.0
|
)
|
||||||
Balance at June 30, 2015
|
$
|
10.6
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
1.8
|
|
|
$
|
14.2
|
|
|
$
|
26.9
|
|
|
United States Print and Related Services
|
|
International
|
|
Total
|
||||||
Balance at December 31, 2014
|
$
|
751.3
|
|
|
$
|
24.2
|
|
|
$
|
775.5
|
|
Copac acquisition (see Note 2)
|
23.9
|
|
|
—
|
|
|
23.9
|
|
|||
Impairment
|
—
|
|
|
(23.3
|
)
|
|
(23.3
|
)
|
|||
Translation adjustments
|
—
|
|
|
(0.9
|
)
|
|
(0.9
|
)
|
|||
Balance at June 30, 2015
|
$
|
775.2
|
|
|
$
|
—
|
|
|
$
|
775.2
|
|
|
|
|
|
June 30, 2015
|
|
December 31, 2014
|
||||||||||||||||||||
|
Weighted
Average
Amortization
Period (years)
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
||||||||||||
Trademarks, patents, licenses and agreements
|
5
|
|
|
$
|
22.9
|
|
|
$
|
(5.0
|
)
|
|
$
|
17.9
|
|
|
$
|
5.1
|
|
|
$
|
(3.8
|
)
|
|
$
|
1.3
|
|
Customer relationships
|
6
|
|
|
473.2
|
|
|
(334.7
|
)
|
|
138.5
|
|
|
445.1
|
|
|
(298.5
|
)
|
|
146.6
|
|
||||||
Capitalized software
|
5
|
|
|
6.5
|
|
|
(6.1
|
)
|
|
0.4
|
|
|
6.7
|
|
|
(6.3
|
)
|
|
0.4
|
|
||||||
Acquired technology
|
5
|
|
|
6.3
|
|
|
(5.8
|
)
|
|
0.5
|
|
|
6.7
|
|
|
(5.9
|
)
|
|
0.8
|
|
||||||
Total
|
|
|
$
|
508.9
|
|
|
$
|
(351.6
|
)
|
|
$
|
157.3
|
|
|
$
|
463.6
|
|
|
$
|
(314.5
|
)
|
|
$
|
149.1
|
|
|
Amortization Expense
|
||
Remainder of 2015
|
$
|
42.4
|
|
2016
|
51.5
|
|
|
2017
|
19.8
|
|
|
2018
|
19.4
|
|
|
2019
|
15.4
|
|
|
2020 and thereafter
|
8.8
|
|
|
Total
|
$
|
157.3
|
|
|
June 30,
2015 |
|
December 31,
2014 |
||||
Raw materials and manufacturing supplies
|
$
|
182.2
|
|
|
$
|
185.4
|
|
Work in process
|
49.7
|
|
|
53.9
|
|
||
Finished goods
|
57.5
|
|
|
48.5
|
|
||
Total
|
$
|
289.4
|
|
|
$
|
287.8
|
|
|
June 30,
2015 |
|
December 31,
2014 |
||||
Land
|
$
|
138.9
|
|
|
$
|
143.4
|
|
Buildings
|
953.5
|
|
|
959.6
|
|
||
Machinery and equipment
|
3,629.9
|
|
|
3,600.7
|
|
||
Other
(1)
|
237.3
|
|
|
229.4
|
|
||
Construction in progress
|
46.5
|
|
|
40.1
|
|
||
Property, plant and equipment
—
gross
|
$
|
5,006.1
|
|
|
$
|
4,973.2
|
|
Less: accumulated depreciation
|
(3,203.2
|
)
|
|
(3,117.7
|
)
|
||
Property, plant and equipment
—
net
|
$
|
1,802.9
|
|
|
$
|
1,855.5
|
|
(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,
|
||||||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Net sales
|
$
|
29.7
|
|
|
$
|
44.7
|
|
|
$
|
67.9
|
|
|
$
|
96.3
|
|
Operating loss
|
(2.9
|
)
|
|
(5.7
|
)
|
|
(6.2
|
)
|
|
(5.6
|
)
|
||||
Net loss
|
(3.0
|
)
|
|
(6.8
|
)
|
|
(6.9
|
)
|
|
(7.6
|
)
|
|
Restricted Cash
|
|
Unsecured
Notes
to be Issued
|
||||
Balance at December 31, 2014
|
$
|
29.1
|
|
|
$
|
9.0
|
|
Class 3 claim payments
|
—
|
|
|
(0.1
|
)
|
||
Restricted cash refunded
|
(0.5
|
)
|
|
—
|
|
||
Non-cash adjustments
|
—
|
|
|
(1.5
|
)
|
||
Balance at June 30, 2015
|
$
|
28.6
|
|
|
$
|
7.4
|
|
|
June 30,
2015 |
|
December 31,
2014 |
||||
Defeasance of unsecured notes to be issued
|
$
|
28.6
|
|
|
$
|
29.1
|
|
Other
|
2.1
|
|
|
2.1
|
|
||
Total
|
$
|
30.7
|
|
|
$
|
31.2
|
|
|
June 30,
2015 |
|
December 31,
2014 |
||||
Master note and security agreement
|
$
|
286.3
|
|
|
$
|
316.6
|
|
Term loan A—$450.0 million due April 2019
|
427.5
|
|
|
438.8
|
|
||
Term loan B—$300.0 million due April 2021
|
294.5
|
|
|
295.8
|
|
||
Revolving credit facility—$850.0 million due April 2019
|
157.3
|
|
|
43.9
|
|
||
Senior unsecured notes—$300.0 million due May 2022
|
300.0
|
|
|
300.0
|
|
||
International revolving credit facility—$13.3 million
|
1.3
|
|
|
0.2
|
|
||
Equipment term loans
|
15.4
|
|
|
13.3
|
|
||
Other
|
3.1
|
|
|
3.1
|
|
||
Debt issuance costs
|
(18.1
|
)
|
|
(20.0
|
)
|
||
Total debt
|
$
|
1,467.3
|
|
|
$
|
1,391.7
|
|
Less: short-term debt and current portion of long-term debt
|
(100.3
|
)
|
|
(92.0
|
)
|
||
Long-term debt
|
$
|
1,367.0
|
|
|
$
|
1,299.7
|
|
|
Loss on Debt Extinguishment
|
||
Debt issuance costs:
|
|
||
Loss on debt extinguishment from July 26, 2011 $1.5 billion debt financing arrangement that were previously capitalized
|
$
|
2.1
|
|
Debt issuance costs from April 28, 2014 $1.9 billion debt financing arrangement
|
3.3
|
|
|
Original issue discount:
|
|
||
Loss on debt extinguishment from original issue discount on the July 26, 2011 $1.5 billion debt financing arrangement
|
0.6
|
|
|
Total
|
$
|
6.0
|
|
•
|
Total Leverage Ratio.
On a rolling twelve-month basis, the total leverage ratio, defined as total consolidated debt to consolidated EBITDA, shall not exceed
3.75
to 1.00 (for the twelve months ended
June 30, 2015
, the Company's total leverage ratio was
2.77
to 1.00).
|
•
|
Senior Secured Leverage Ratio.
On a rolling twelve-month basis, the senior secured leverage ratio, defined as senior secured debt to consolidated EBITDA, shall not exceed
3.50
to 1.00 (for the twelve months ended
June 30, 2015
, the Company's senior secured leverage ratio was
2.22
to 1.00).
|
•
|
Minimum Interest Coverage Ratio.
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, 2015
, the Company's minimum interest coverage ratio was
6.09
to 1.00).
|
•
|
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
$300.0 million
aggregate principal amount of its unsecured
7.0%
senior notes due
May 1, 2022
(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, 2015
.
|
|
June 30,
2015 |
|
December 31,
2014 |
||||
Single employer pension and postretirement obligations
|
$
|
150.0
|
|
|
$
|
161.5
|
|
Multiemployer pension plans—withdrawal liability
|
33.0
|
|
|
39.1
|
|
||
Tax-related liabilities
|
17.9
|
|
|
17.4
|
|
||
Employee-related liabilities
|
64.9
|
|
|
67.6
|
|
||
Restructuring reserve
|
4.8
|
|
|
6.1
|
|
||
Other
|
41.9
|
|
|
47.6
|
|
||
Total
|
$
|
312.5
|
|
|
$
|
339.3
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Pension income
|
|
|
|
|
|
|
|
||||||||
Interest cost
|
$
|
(6.7
|
)
|
|
$
|
(7.3
|
)
|
|
$
|
(13.4
|
)
|
|
$
|
(14.6
|
)
|
Expected return on plan assets
|
8.7
|
|
|
8.6
|
|
|
17.4
|
|
|
17.2
|
|
||||
Net pension income
|
$
|
2.0
|
|
|
$
|
1.3
|
|
|
$
|
4.0
|
|
|
$
|
2.6
|
|
|
|
|
|
|
|
|
|
||||||||
Postretirement benefits income
|
|
|
|
|
|
|
|
||||||||
Interest cost
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
Amortization of prior service credit
|
—
|
|
|
1.5
|
|
|
—
|
|
|
2.9
|
|
||||
Amortization of actuarial gain
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
||||
Net postretirement benefits income
|
$
|
—
|
|
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
2.9
|
|
|
Six Months Ended
|
||
|
June 30, 2015
|
||
Contributions on qualified pension plans
|
$
|
7.1
|
|
Benefit payments on non-qualified pension plans
|
0.4
|
|
|
Total
|
$
|
7.5
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Numerator
|
|
|
|
|
|
|
|
||||||||
Net loss attributable to Quad/Graphics common shareholders
|
$
|
(45.1
|
)
|
|
$
|
(22.8
|
)
|
|
$
|
(80.3
|
)
|
|
$
|
(31.6
|
)
|
Adjustments to net loss attributable to Quad/Graphics common shareholders
|
|
|
|
|
|
|
|
||||||||
Allocation to participating securities
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.3
|
)
|
||||
Net loss attributable to Quad/Graphics common shareholders – adjusted
|
$
|
(45.1
|
)
|
|
$
|
(22.9
|
)
|
|
$
|
(80.3
|
)
|
|
$
|
(31.9
|
)
|
|
|
|
|
|
|
|
|
||||||||
Denominator
|
|
|
|
|
|
|
|
||||||||
Basic weighted average number of common shares outstanding for all classes of common shares
|
47.9
|
|
|
47.5
|
|
|
47.8
|
|
|
47.4
|
|
||||
Plus: effect of dilutive equity incentive instruments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Diluted weighted average number of common shares outstanding for all classes of common shares
|
47.9
|
|
|
47.5
|
|
|
47.8
|
|
|
47.4
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Loss per share attributable to Quad/Graphics common shareholders
|
|
|
|
|
|
|
|
||||||||
Basic and diluted
|
$
|
(0.94
|
)
|
|
$
|
(0.48
|
)
|
|
$
|
(1.68
|
)
|
|
$
|
(0.67
|
)
|
|
|
|
|
|
|
|
|
||||||||
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, 2014
|
3,477,980
|
|
|
$
|
21.05
|
|
|
4.7
|
|
$
|
15.6
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|
||
Exercised
|
(153,287
|
)
|
|
14.04
|
|
|
|
|
|
|
||
Cancelled/forfeited/expired
|
(3,191
|
)
|
|
14.14
|
|
|
|
|
|
|
||
Outstanding at June 30, 2015
|
3,321,502
|
|
|
$
|
21.39
|
|
|
4.1
|
|
$
|
6.6
|
|
|
|
|
|
|
|
|
|
|||||
Exercisable at June 30, 2015
|
3,198,245
|
|
|
$
|
21.66
|
|
|
4.0
|
|
$
|
6.0
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Total intrinsic value of stock options exercised
|
$
|
0.4
|
|
|
$
|
0.3
|
|
|
$
|
1.3
|
|
|
$
|
0.8
|
|
Cash received from stock option exercises
|
0.9
|
|
|
0.5
|
|
|
2.2
|
|
|
1.3
|
|
||||
Total grant date fair value of stock options vested
|
—
|
|
|
—
|
|
|
1.8
|
|
|
1.9
|
|
|
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, 2014
|
343,568
|
|
|
$
|
20.39
|
|
|
1.2
|
|
16,208
|
|
|
$
|
20.50
|
|
|
1.2
|
Granted
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
||
Vested
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
|
||
Forfeited
|
(8,279
|
)
|
|
20.39
|
|
|
|
|
—
|
|
|
—
|
|
|
|
||
Nonvested at June 30, 2015
|
335,289
|
|
|
$
|
20.39
|
|
|
0.7
|
|
16,208
|
|
|
$
|
20.50
|
|
|
0.7
|
|
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, 2014
|
1,311,544
|
|
|
$
|
20.80
|
|
|
1.5
|
|
63,046
|
|
|
$
|
20.21
|
|
|
1.2
|
Granted
|
588,456
|
|
|
23.10
|
|
|
|
|
70,445
|
|
|
23.11
|
|
|
|
||
Vested
|
(259,743
|
)
|
|
14.34
|
|
|
|
|
(12,608
|
)
|
|
14.34
|
|
|
|
||
Forfeited
|
(19,654
|
)
|
|
22.12
|
|
|
|
|
(3,411
|
)
|
|
21.96
|
|
|
|
||
Nonvested at June 30, 2015
|
1,620,603
|
|
|
$
|
22.66
|
|
|
1.8
|
|
117,472
|
|
|
$
|
22.53
|
|
|
2.0
|
|
Deferred Stock Units
|
|||||
|
Units
|
|
Weighted-Average Grant Date Fair Value Per Share
|
|||
Outstanding at December 31, 2014
|
110,804
|
|
|
$
|
20.40
|
|
Granted
|
34,139
|
|
|
23.11
|
|
|
Dividend equivalents granted
|
3,730
|
|
|
20.59
|
|
|
Settled
|
—
|
|
|
—
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
Outstanding at June 30, 2015
|
148,673
|
|
|
$
|
21.03
|
|
|
|
|
Issued Common Stock
|
||||||||
|
Authorized Shares
|
|
Outstanding
|
|
Treasury
|
|
Total Issued Shares
|
||||
Class A stock ($0.025 par value)
|
80.0
|
|
|
|
|
|
|
|
|||
June 30, 2015
|
|
|
35.4
|
|
|
4.6
|
|
|
40.0
|
|
|
December 31, 2014
|
|
|
34.7
|
|
|
5.3
|
|
|
40.0
|
|
|
|
|
|
|
|
|
|
|
||||
Class B stock ($0.025 par value)
|
80.0
|
|
|
|
|
|
|
|
|||
June 30, 2015
|
|
|
14.2
|
|
|
0.8
|
|
|
15.0
|
|
|
December 31, 2014
|
|
|
14.2
|
|
|
0.8
|
|
|
15.0
|
|
|
|
|
|
|
|
|
|
|
||||
Class C stock ($0.025 par value)
|
20.0
|
|
|
|
|
|
|
|
|||
June 30, 2015
|
|
|
—
|
|
|
0.5
|
|
|
0.5
|
|
|
December 31, 2014
|
|
|
—
|
|
|
0.5
|
|
|
0.5
|
|
|
Shareholders' Equity
|
||
Balance at December 31, 2014
|
$
|
1,152.5
|
|
Net loss
|
(80.3
|
)
|
|
Translation adjustment
|
(23.1
|
)
|
|
Cash dividends declared
|
(31.2
|
)
|
|
Stock-based compensation
|
5.9
|
|
|
Sale of stock for options exercised
|
2.2
|
|
|
Shares withheld from employees for the tax obligation on equity grants
|
(1.6
|
)
|
|
Tax benefit on equity award activity
|
1.6
|
|
|
Balance at June 30, 2015
|
$
|
1,026.0
|
|
|
Translation Adjustments
|
|
Pension and Other Postretirement Benefit Plan Adjustments
|
|
Total
|
||||||
Balance at December 31, 2014
|
$
|
(88.7
|
)
|
|
$
|
(27.9
|
)
|
|
$
|
(116.6
|
)
|
Other comprehensive loss before reclassifications
|
(23.1
|
)
|
|
—
|
|
|
(23.1
|
)
|
|||
Amounts reclassified from accumulated other comprehensive loss to net loss
|
—
|
|
|
—
|
|
|
—
|
|
|||
Net other comprehensive loss
|
(23.1
|
)
|
|
—
|
|
|
(23.1
|
)
|
|||
Balance at June 30, 2015
|
$
|
(111.8
|
)
|
|
$
|
(27.9
|
)
|
|
$
|
(139.7
|
)
|
|
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 income (loss)
|
0.2
|
|
|
(1.9
|
)
|
|
(1.7
|
)
|
|||
Balance at June 30, 2014
|
$
|
(43.1
|
)
|
|
$
|
35.8
|
|
|
$
|
(7.3
|
)
|
Details about Accumulated Other
Comprehensive Loss Components |
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
Condensed Consolidated Statements of Operations Presentation
|
||||||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
||||||||||
Amortization of pension and other postretirement benefit plan adjustments
|
|
$
|
—
|
|
|
$
|
(1.5
|
)
|
|
$
|
—
|
|
|
$
|
(3.0
|
)
|
|
Selling, general and administrative expenses
|
Income tax benefit
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
1.1
|
|
|
Income tax benefit
|
||||
Amortization of pension and other postretirement benefit plan adjustments, net of tax
|
|
$
|
—
|
|
|
$
|
(1.0
|
)
|
|
$
|
—
|
|
|
$
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total reclassifications for the period, net of tax
|
|
$
|
—
|
|
|
$
|
(1.0
|
)
|
|
$
|
—
|
|
|
$
|
(1.9
|
)
|
|
|
|
Net Sales
|
|
Operating Income/(Loss)
|
|
Restructuring, Impairment and Transaction-Related Charges
|
|
Goodwill Impairment
|
||||||||||||
|
Products
|
|
Services
|
|
|
|
|||||||||||||
Three months ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
||||||||||
United States Print and Related Services
|
$
|
840.4
|
|
|
$
|
145.3
|
|
|
$
|
12.6
|
|
|
$
|
8.1
|
|
|
$
|
—
|
|
International
|
89.0
|
|
|
4.3
|
|
|
(27.9
|
)
|
|
24.5
|
|
|
—
|
|
|||||
Total operating segments
|
929.4
|
|
|
149.6
|
|
|
(15.3
|
)
|
|
32.6
|
|
|
—
|
|
|||||
Corporate
|
—
|
|
|
—
|
|
|
(10.5
|
)
|
|
1.7
|
|
|
—
|
|
|||||
Total
|
$
|
929.4
|
|
|
$
|
149.6
|
|
|
$
|
(25.8
|
)
|
|
$
|
34.3
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
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
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Six months ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
||||||||||
United States Print and Related Services
|
$
|
1,697.5
|
|
|
$
|
297.5
|
|
|
$
|
30.3
|
|
|
$
|
22.7
|
|
|
$
|
—
|
|
International
|
182.2
|
|
|
9.8
|
|
|
(55.4
|
)
|
|
27.4
|
|
|
23.3
|
|
|||||
Total operating segments
|
1,879.7
|
|
|
307.3
|
|
|
(25.1
|
)
|
|
50.1
|
|
|
23.3
|
|
|||||
Corporate
|
—
|
|
|
—
|
|
|
(12.5
|
)
|
|
(5.7
|
)
|
|
—
|
|
|||||
Total
|
$
|
1,879.7
|
|
|
$
|
307.3
|
|
|
$
|
(37.6
|
)
|
|
$
|
44.4
|
|
|
$
|
23.3
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
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
|
|
|
$
|
—
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Operating income (loss)
|
$
|
(25.8
|
)
|
|
$
|
0.5
|
|
|
$
|
(37.6
|
)
|
|
$
|
11.5
|
|
Less: interest expense
|
21.6
|
|
|
23.5
|
|
|
44.1
|
|
|
44.4
|
|
||||
Less: loss on debt extinguishment
|
—
|
|
|
6.0
|
|
|
—
|
|
|
6.0
|
|
||||
Loss before income taxes and equity in loss of unconsolidated entities
|
$
|
(47.4
|
)
|
|
$
|
(29.0
|
)
|
|
$
|
(81.7
|
)
|
|
$
|
(38.9
|
)
|
•
|
the designation of any of the Guarantor Subsidiaries as an unrestricted subsidiary;
|
•
|
the release or discharge of any guarantee or indebtedness that resulted in the creation of the guarantee of the Senior Unsecured Notes by any of the Guarantor subsidiaries; or
|
•
|
the sale or disposition, including the sale of substantially all the assets, of any of the Guarantor Subsidiaries.
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
Net sales
|
$
|
407.1
|
|
|
$
|
666.1
|
|
|
$
|
105.3
|
|
|
$
|
(99.5
|
)
|
|
$
|
1,079.0
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cost of sales
|
314.0
|
|
|
573.5
|
|
|
88.7
|
|
|
(99.5
|
)
|
|
876.7
|
|
|||||
Selling, general and administrative expenses
|
63.6
|
|
|
36.0
|
|
|
10.8
|
|
|
—
|
|
|
110.4
|
|
|||||
Depreciation and amortization
|
44.9
|
|
|
30.0
|
|
|
8.5
|
|
|
—
|
|
|
83.4
|
|
|||||
Restructuring, impairment and transaction-related charges
|
1.7
|
|
|
7.9
|
|
|
24.7
|
|
|
—
|
|
|
34.3
|
|
|||||
Total operating expenses
|
424.2
|
|
|
647.4
|
|
|
132.7
|
|
|
(99.5
|
)
|
|
1,104.8
|
|
|||||
Operating income (loss)
|
$
|
(17.1
|
)
|
|
$
|
18.7
|
|
|
$
|
(27.4
|
)
|
|
$
|
—
|
|
|
$
|
(25.8
|
)
|
Interest expense (income)
|
20.8
|
|
|
(0.5
|
)
|
|
1.3
|
|
|
—
|
|
|
21.6
|
|
|||||
Earnings (loss) before income taxes and equity in earnings (loss) of consolidated and unconsolidated entities
|
(37.9
|
)
|
|
19.2
|
|
|
(28.7
|
)
|
|
—
|
|
|
(47.4
|
)
|
|||||
Income tax expense (benefit)
|
(11.2
|
)
|
|
5.2
|
|
|
2.2
|
|
|
—
|
|
|
(3.8
|
)
|
|||||
Earnings (loss) before equity in earnings (loss) of consolidated and unconsolidated entities
|
(26.7
|
)
|
|
14.0
|
|
|
(30.9
|
)
|
|
—
|
|
|
(43.6
|
)
|
|||||
Equity in earnings (loss) of consolidated entities
|
(18.4
|
)
|
|
(1.2
|
)
|
|
—
|
|
|
19.6
|
|
|
—
|
|
|||||
Equity in earnings (loss) of unconsolidated entities
|
—
|
|
|
—
|
|
|
(1.5
|
)
|
|
—
|
|
|
(1.5
|
)
|
|||||
Net earnings (loss) attributable to Quad/Graphics common shareholders
|
$
|
(45.1
|
)
|
|
$
|
12.8
|
|
|
$
|
(32.4
|
)
|
|
$
|
19.6
|
|
|
$
|
(45.1
|
)
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
Net earnings (loss)
|
$
|
(45.1
|
)
|
|
$
|
12.8
|
|
|
$
|
(32.4
|
)
|
|
$
|
19.6
|
|
|
$
|
(45.1
|
)
|
Other comprehensive income (loss), net of tax
|
1.8
|
|
|
0.1
|
|
|
1.3
|
|
|
(1.4
|
)
|
|
1.8
|
|
|||||
Comprehensive income (loss) attributable to Quad/Graphics common shareholders
|
$
|
(43.3
|
)
|
|
$
|
12.9
|
|
|
$
|
(31.1
|
)
|
|
$
|
18.2
|
|
|
$
|
(43.3
|
)
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
Net sales
|
$
|
432.1
|
|
|
$
|
652.2
|
|
|
$
|
110.7
|
|
|
$
|
(96.0
|
)
|
|
$
|
1,099.0
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cost of sales
|
334.7
|
|
|
557.9
|
|
|
96.3
|
|
|
(96.0
|
)
|
|
892.9
|
|
|||||
Selling, general and administrative expenses
|
45.7
|
|
|
48.1
|
|
|
6.6
|
|
|
—
|
|
|
100.4
|
|
|||||
Depreciation and amortization
|
32.3
|
|
|
45.6
|
|
|
7.4
|
|
|
—
|
|
|
85.3
|
|
|||||
Restructuring, impairment and transaction-related charges
|
3.0
|
|
|
16.4
|
|
|
0.5
|
|
|
—
|
|
|
19.9
|
|
|||||
Total operating expenses
|
415.7
|
|
|
668.0
|
|
|
110.8
|
|
|
(96.0
|
)
|
|
1,098.5
|
|
|||||
Operating income (loss)
|
$
|
16.4
|
|
|
$
|
(15.8
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
|
$
|
0.5
|
|
Interest expense (income)
|
22.0
|
|
|
(0.2
|
)
|
|
1.7
|
|
|
—
|
|
|
23.5
|
|
|||||
Loss on debt extinguishment
|
6.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.0
|
|
|||||
Earnings (loss) before income taxes and equity in earnings (loss) of consolidated and unconsolidated entities
|
(11.6
|
)
|
|
(15.6
|
)
|
|
(1.8
|
)
|
|
—
|
|
|
(29.0
|
)
|
|||||
Income tax expense (benefit)
|
(0.8
|
)
|
|
(8.4
|
)
|
|
(0.4
|
)
|
|
—
|
|
|
(9.6
|
)
|
|||||
Earnings (loss) before equity in earnings (loss) of consolidated and unconsolidated entities
|
(10.8
|
)
|
|
(7.2
|
)
|
|
(1.4
|
)
|
|
—
|
|
|
(19.4
|
)
|
|||||
Equity in earnings (loss) of consolidated entities
|
(12.0
|
)
|
|
(0.1
|
)
|
|
—
|
|
|
12.1
|
|
|
—
|
|
|||||
Equity in earnings (loss) of unconsolidated entities
|
—
|
|
|
—
|
|
|
(3.4
|
)
|
|
—
|
|
|
(3.4
|
)
|
|||||
Net earnings (loss) attributable to Quad/Graphics common shareholders
|
$
|
(22.8
|
)
|
|
$
|
(7.3
|
)
|
|
$
|
(4.8
|
)
|
|
$
|
12.1
|
|
|
$
|
(22.8
|
)
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
Net earnings (loss)
|
$
|
(22.8
|
)
|
|
$
|
(7.3
|
)
|
|
$
|
(4.8
|
)
|
|
$
|
12.1
|
|
|
$
|
(22.8
|
)
|
Other comprehensive income (loss), net of tax
|
—
|
|
|
0.7
|
|
|
(1.1
|
)
|
|
0.4
|
|
|
—
|
|
|||||
Comprehensive income (loss) attributable to Quad/Graphics common shareholders
|
$
|
(22.8
|
)
|
|
$
|
(6.6
|
)
|
|
$
|
(5.9
|
)
|
|
$
|
12.5
|
|
|
$
|
(22.8
|
)
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
Net sales
|
$
|
867.7
|
|
|
$
|
1,314.8
|
|
|
$
|
204.1
|
|
|
$
|
(199.6
|
)
|
|
$
|
2,187.0
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cost of sales
|
663.3
|
|
|
1,135.5
|
|
|
172.9
|
|
|
(199.6
|
)
|
|
1,772.1
|
|
|||||
Selling, general and administrative expenses
|
123.0
|
|
|
79.1
|
|
|
18.0
|
|
|
—
|
|
|
220.1
|
|
|||||
Depreciation and amortization
|
89.7
|
|
|
59.5
|
|
|
15.5
|
|
|
—
|
|
|
164.7
|
|
|||||
Restructuring, impairment and transaction-related charges
|
(6.3
|
)
|
|
23.6
|
|
|
27.1
|
|
|
—
|
|
|
44.4
|
|
|||||
Goodwill impairment
|
—
|
|
|
—
|
|
|
23.3
|
|
|
—
|
|
|
23.3
|
|
|||||
Total operating expenses
|
869.7
|
|
|
1,297.7
|
|
|
256.8
|
|
|
(199.6
|
)
|
|
2,224.6
|
|
|||||
Operating income (loss)
|
$
|
(2.0
|
)
|
|
$
|
17.1
|
|
|
$
|
(52.7
|
)
|
|
$
|
—
|
|
|
$
|
(37.6
|
)
|
Interest expense (income)
|
42.1
|
|
|
(0.7
|
)
|
|
2.7
|
|
|
—
|
|
|
44.1
|
|
|||||
Earnings (loss) before income taxes and equity in earnings (loss) of consolidated and unconsolidated entities
|
(44.1
|
)
|
|
17.8
|
|
|
(55.4
|
)
|
|
—
|
|
|
(81.7
|
)
|
|||||
Income tax expense (benefit)
|
(7.6
|
)
|
|
0.4
|
|
|
2.4
|
|
|
—
|
|
|
(4.8
|
)
|
|||||
Earnings (loss) before equity in earnings (loss) of consolidated and unconsolidated entities
|
(36.5
|
)
|
|
17.4
|
|
|
(57.8
|
)
|
|
—
|
|
|
(76.9
|
)
|
|||||
Equity in earnings (loss) of consolidated entities
|
(43.8
|
)
|
|
(2.2
|
)
|
|
—
|
|
|
46.0
|
|
|
—
|
|
|||||
Equity in earnings (loss) of unconsolidated entities
|
—
|
|
|
—
|
|
|
(3.4
|
)
|
|
—
|
|
|
(3.4
|
)
|
|||||
Net earnings (loss) attributable to Quad/Graphics common shareholders
|
$
|
(80.3
|
)
|
|
$
|
15.2
|
|
|
$
|
(61.2
|
)
|
|
$
|
46.0
|
|
|
$
|
(80.3
|
)
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
Net earnings (loss)
|
$
|
(80.3
|
)
|
|
$
|
15.2
|
|
|
$
|
(61.2
|
)
|
|
$
|
46.0
|
|
|
$
|
(80.3
|
)
|
Other comprehensive income (loss), net of tax
|
(23.1
|
)
|
|
—
|
|
|
(24.0
|
)
|
|
24.0
|
|
|
(23.1
|
)
|
|||||
Comprehensive income (loss) attributable to Quad/Graphics common shareholders
|
$
|
(103.4
|
)
|
|
$
|
15.2
|
|
|
$
|
(85.2
|
)
|
|
$
|
70.0
|
|
|
$
|
(103.4
|
)
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
Net sales
|
$
|
864.6
|
|
|
$
|
1,298.6
|
|
|
$
|
227.3
|
|
|
$
|
(188.7
|
)
|
|
$
|
2,201.8
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cost of sales
|
674.1
|
|
|
1,103.1
|
|
|
197.0
|
|
|
(188.7
|
)
|
|
1,785.5
|
|
|||||
Selling, general and administrative expenses
|
95.3
|
|
|
97.2
|
|
|
11.4
|
|
|
—
|
|
|
203.9
|
|
|||||
Depreciation and amortization
|
65.0
|
|
|
89.7
|
|
|
14.4
|
|
|
—
|
|
|
169.1
|
|
|||||
Restructuring, impairment and transaction-related charges
|
5.9
|
|
|
24.6
|
|
|
1.3
|
|
|
—
|
|
|
31.8
|
|
|||||
Total operating expenses
|
840.3
|
|
|
1,314.6
|
|
|
224.1
|
|
|
(188.7
|
)
|
|
2,190.3
|
|
|||||
Operating income (loss)
|
$
|
24.3
|
|
|
$
|
(16.0
|
)
|
|
$
|
3.2
|
|
|
$
|
—
|
|
|
$
|
11.5
|
|
Interest expense (income)
|
40.8
|
|
|
(0.5
|
)
|
|
4.1
|
|
|
—
|
|
|
44.4
|
|
|||||
Loss on debt extinguishment
|
6.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.0
|
|
|||||
Earnings (loss) before income taxes and equity in earnings (loss) of consolidated and unconsolidated entities
|
(22.5
|
)
|
|
(15.5
|
)
|
|
(0.9
|
)
|
|
—
|
|
|
(38.9
|
)
|
|||||
Income tax expense (benefit)
|
(1.3
|
)
|
|
(11.6
|
)
|
|
2.1
|
|
|
—
|
|
|
(10.8
|
)
|
|||||
Earnings (loss) before equity in earnings (loss) of consolidated and unconsolidated entities
|
(21.2
|
)
|
|
(3.9
|
)
|
|
(3.0
|
)
|
|
—
|
|
|
(28.1
|
)
|
|||||
Equity in earnings (loss) of consolidated entities
|
(10.4
|
)
|
|
3.3
|
|
|
—
|
|
|
7.1
|
|
|
—
|
|
|||||
Equity in earnings (loss) of unconsolidated entities
|
—
|
|
|
—
|
|
|
(3.8
|
)
|
|
—
|
|
|
(3.8
|
)
|
|||||
Net earnings (loss)
|
$
|
(31.6
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
7.1
|
|
|
$
|
(31.9
|
)
|
Net (earnings) loss attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|||||
Net earnings (loss) attributable to Quad/Graphics common shareholders
|
$
|
(31.6
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
(6.5
|
)
|
|
$
|
7.1
|
|
|
$
|
(31.6
|
)
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
Net earnings (loss)
|
$
|
(31.6
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
7.1
|
|
|
$
|
(31.9
|
)
|
Other comprehensive income (loss), net of tax
|
(1.7
|
)
|
|
(1.0
|
)
|
|
(1.4
|
)
|
|
2.4
|
|
|
(1.7
|
)
|
|||||
Total comprehensive income (loss)
|
(33.3
|
)
|
|
(1.6
|
)
|
|
(8.2
|
)
|
|
9.5
|
|
|
(33.6
|
)
|
|||||
Less: comprehensive (income) loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|||||
Comprehensive income (loss) attributable to Quad/Graphics common shareholders
|
$
|
(33.3
|
)
|
|
$
|
(1.6
|
)
|
|
$
|
(7.9
|
)
|
|
$
|
9.5
|
|
|
$
|
(33.3
|
)
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash from operating activities
|
$
|
78.4
|
|
|
$
|
31.7
|
|
|
$
|
13.3
|
|
|
$
|
—
|
|
|
$
|
123.4
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
||||||||||
Purchases of property, plant and equipment
|
(29.8
|
)
|
|
(46.6
|
)
|
|
(6.9
|
)
|
|
—
|
|
|
(83.3
|
)
|
|||||
Acquisition related investing activities—net of cash acquired
|
—
|
|
|
(1.7
|
)
|
|
(78.2
|
)
|
|
—
|
|
|
(79.9
|
)
|
|||||
Intercompany investing activities
|
(85.0
|
)
|
|
(92.3
|
)
|
|
(0.2
|
)
|
|
177.5
|
|
|
—
|
|
|||||
Other investing activities
|
(1.1
|
)
|
|
6.3
|
|
|
0.1
|
|
|
—
|
|
|
5.3
|
|
|||||
Net cash from investing activities
|
(115.9
|
)
|
|
(134.3
|
)
|
|
(85.2
|
)
|
|
177.5
|
|
|
(157.9
|
)
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
||||||||||
Payments of long-term debt and capital lease obligations
|
(45.4
|
)
|
|
(1.6
|
)
|
|
—
|
|
|
—
|
|
|
(47.0
|
)
|
|||||
Borrowings on revolving credit facilities
|
764.8
|
|
|
—
|
|
|
28.4
|
|
|
—
|
|
|
793.2
|
|
|||||
Payments on revolving credit facilities
|
(651.4
|
)
|
|
—
|
|
|
(27.1
|
)
|
|
—
|
|
|
(678.5
|
)
|
|||||
Payment of cash dividends
|
(30.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(30.1
|
)
|
|||||
Intercompany financing activities
|
(1.0
|
)
|
|
103.0
|
|
|
75.5
|
|
|
(177.5
|
)
|
|
—
|
|
|||||
Other financing activities
|
2.2
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
2.1
|
|
|||||
Net cash from financing activities
|
39.1
|
|
|
101.3
|
|
|
76.8
|
|
|
(177.5
|
)
|
|
39.7
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Effect of exchange rates on cash and cash equivalents
|
—
|
|
|
—
|
|
|
(1.2
|
)
|
|
—
|
|
|
(1.2
|
)
|
|||||
Net increase (decrease) in cash and cash equivalents
|
1.6
|
|
|
(1.3
|
)
|
|
3.7
|
|
|
—
|
|
|
4.0
|
|
|||||
Cash and cash equivalents at beginning of period
|
1.9
|
|
|
5.6
|
|
|
2.1
|
|
|
—
|
|
|
9.6
|
|
|||||
Cash and cash equivalents at end of period
|
$
|
3.5
|
|
|
$
|
4.3
|
|
|
$
|
5.8
|
|
|
$
|
—
|
|
|
$
|
13.6
|
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash from operating activities
|
$
|
71.5
|
|
|
$
|
20.5
|
|
|
$
|
(13.1
|
)
|
|
$
|
—
|
|
|
$
|
78.9
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
||||||||||
Purchases of property, plant and equipment
|
(30.3
|
)
|
|
(38.8
|
)
|
|
(14.5
|
)
|
|
—
|
|
|
(83.6
|
)
|
|||||
Acquisition related investing activities—net of cash acquired
|
(2.5
|
)
|
|
(105.3
|
)
|
|
—
|
|
|
—
|
|
|
(107.8
|
)
|
|||||
Intercompany investing activities
|
(186.8
|
)
|
|
12.0
|
|
|
—
|
|
|
174.8
|
|
|
—
|
|
|||||
Other investing activities
|
(0.2
|
)
|
|
3.9
|
|
|
—
|
|
|
—
|
|
|
3.7
|
|
|||||
Net cash from investing activities
|
(219.8
|
)
|
|
(128.2
|
)
|
|
(14.5
|
)
|
|
174.8
|
|
|
(187.7
|
)
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
||||||||||
Proceeds from issuance of long-term debt
|
1,047.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,047.0
|
|
|||||
Payments of long-term debt and capital lease obligations
|
(652.4
|
)
|
|
(3.9
|
)
|
|
(58.1
|
)
|
|
—
|
|
|
(714.4
|
)
|
|||||
Borrowings on revolving credit facilities
|
607.3
|
|
|
—
|
|
|
67.7
|
|
|
—
|
|
|
675.0
|
|
|||||
Payments on revolving credit facilities
|
(786.1
|
)
|
|
—
|
|
|
(58.3
|
)
|
|
—
|
|
|
(844.4
|
)
|
|||||
Payment of cash dividends
|
(29.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(29.3
|
)
|
|||||
Intercompany financing activities
|
(23.4
|
)
|
|
123.9
|
|
|
74.3
|
|
|
(174.8
|
)
|
|
—
|
|
|||||
Other financing activities
|
(14.8
|
)
|
|
(7.4
|
)
|
|
—
|
|
|
—
|
|
|
(22.2
|
)
|
|||||
Net cash from financing activities
|
148.3
|
|
|
112.6
|
|
|
25.6
|
|
|
(174.8
|
)
|
|
111.7
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Effect of exchange rates on cash and cash equivalents
|
—
|
|
|
—
|
|
|
1.4
|
|
|
—
|
|
|
1.4
|
|
|||||
Net increase (decrease) in cash and cash equivalents
|
—
|
|
|
4.9
|
|
|
(0.6
|
)
|
|
—
|
|
|
4.3
|
|
|||||
Cash and cash equivalents at beginning of period
|
4.8
|
|
|
3.5
|
|
|
4.8
|
|
|
—
|
|
|
13.1
|
|
|||||
Cash and cash equivalents at end of period
|
$
|
4.8
|
|
|
$
|
8.4
|
|
|
$
|
4.2
|
|
|
$
|
—
|
|
|
$
|
17.4
|
|
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, 2015
, to the
three months ended
June 30, 2014
, and (2) the
six months ended
June 30, 2015
, to the
six months ended
June 30, 2014
. The comparability of the Company's results of operations between periods was impacted by acquisitions, including the 2014 acquisitions of Brown Printing and UniGraphic and the 2015 acquisitions of Marin's and Copac. 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, cash flows, a statement about off-balance sheet arrangements, and a discussion of outstanding debt and commitments. Forward-looking statements important to understanding the Company's financial condition are 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.
|
•
|
Application of Critical Accounting Policies and Estimates.
This section provides a discussion of the Company's application of critical accounting policies and related significant estimates identified within the Company's Annual Report on Form 10-K filed with the SEC on
March 2, 2015
, as it relates to significant events or changes in circumstances in the current period.
|
•
|
The impact of decreasing demand for printed materials and significant overcapacity in the highly competitive commercial printing industry creates downward pricing pressures;
|
•
|
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 changing future economic conditions;
|
•
|
The failure of clients to perform under contracts or to renew contracts with clients on favorable terms or at all;
|
•
|
The failure to successfully identify, manage, complete and integrate acquisitions and investments;
|
•
|
The impact of changes in postal rates, service levels or regulations;
|
•
|
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 and 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 cyber-security, privacy and environmental laws;
|
•
|
The impact on the 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.
Including retail inserts, publications, catalogs, special interest publications, journals, direct mail, books, directories, in-store marketing, packaging, newspapers, custom products, other commercial and specialty printed products and paper services.
|
•
|
Logistics Services.
Including mailing solutions, postal consultation, delivery optimization and hygiene services, delivery monitoring and tracking, and distribution, logistics and transportation services.
|
•
|
Digital Solutions.
Including email, image recognition, near field communication technology, mobile apps, mobile websites and digital publishing.
|
•
|
Strategy.
Including brand, campaign and media planning and placement.
|
•
|
Data.
Including data insights, segmentation and response analysis.
|
•
|
Creative.
Including concept and design, page layout and production, copywriting, interactive solutions, photography, retouching, and video production and optimization.
|
•
|
Workflow.
Including content management, process management, facilities management services, color management, and digital file processing and proofing.
|
•
|
Strengthen the Core.
Quad/Graphics core print categories—retail inserts, magazines, catalogs, books and directories—have been under pressure in recent years, but remain foundational to most marketer's and publisher's business strategies and generate a significant amount of cash flow for the Company. Using a disciplined return on capital framework, Quad/Graphics makes significant ongoing investments in its core manufacturing and distribution platform including equipment automation and continuous process improvements, resulting in what it believes is one of the most integrated, automated, efficient and modern manufacturing platforms in the industry. The Company's ability to maintain the strength of its core product lines promotes continued value creation to support future growth opportunities.
|
•
|
Grow the Business Profitably.
The Company believes it is well positioned to grow the business profitably through ongoing innovation, organic growth and disciplined acquisitions. Regarding acquisitions, Quad/Graphics continues to take a disciplined approach to pursue opportunities that expand the Company's business into new product categories and geographies, transform an existing product, or create value-driven industry consolidation. The Company will also look to continue to capitalize on growth opportunities through ongoing investments and innovations in Quad/Graphics existing platform, in addition to helping marketer's and publisher's deliver their brands consistently across multiple media channels.
|
•
|
Walk in the Shoes of our Clients.
The Company
is focused on creating a client experience that creates loyalty to the Quad/Graphics brand by partnering with our clients to fully understand their internal processes, marketing strategies and challenges so the Company can better deliver the solutions that will help them achieve their business objectives. As a business solutions consultant, Quad/Graphics examines everything from clients marketing strategy—including how clients manage their customer data—to production and marketing workflow processes. Through a consultative
|
•
|
Engage Employees.
Quad/Graphics looks to engage employees through the Company's unique corporate culture, which encourages employees to take pride and ownership in their work, take advantage of continuous learning and job advancement opportunities, share knowledge by mentoring others, and innovate solutions. One key way the Company drives employee engagement is by acting on employee feedback gathered through daily conversations, surveys, roundtable discussions and open forums at Company and departmental meetings.
|
•
|
Enhance Financial Strength and Create Shareholder Value.
Quad/Graphics follows a disciplined approach to maintaining and enhancing financial strength to create shareholder value, which is essential given ongoing industry challenges. This key strategic goal is centered on the Company's ability to maximize Free Cash Flow, net earnings and EBITDA; maintain consistent financial policies to ensure a strong balance sheet and liquidity level; and retain the financial flexibility needed to strategically allocate and deploy capital as circumstances change.
|
•
|
The Company completed the acquisition of Copac, a leading international provider of innovative packaging and supply chain solutions, including turnkey packaging design, production and fulfillment services across a range of end markets, on
April 14, 2015
, for a net purchase price excluding acquired cash of
$59 million
. Copac, headquartered in Spartanburg, South Carolina, has production facilities in Spartanburg and Santo Domingo, Dominican Republic, and strategically sources product manufacturing over multiple end markets in Central America and Asia, giving it a global footprint. Copac manufactures products such as folding cartons, labels, inserts, tags and specialty envelopes.
|
•
|
The Company completed the acquisition of Marin's, a worldwide leader in the point-of-sale display industry headquartered in Paris, France, on
February 3, 2015
, for a net purchase price excluding acquired cash of
$19 million
. Marin's specializes in the research and design of display solutions, and its products are produced by a global network of licensees as well as one wide-format digital print, kitting and fulfillment facility in Paris that Marin's owns. Marin's uses its own European–based sales force and the global licensees to sell its patented product portfolio.
|
•
|
The Company announced its plan to invest in multiple high-speed color digital web presses on January 14, 2015, as part of a three-year strategy to transform the Company's book platform that includes 20 or more of the widest, most productive digital web presses available in the marketplace today. As of
June 30, 2015
, six digital web presses have been installed.
|
•
|
The Company completed the acquisition of Brown Printing on
May 30, 2014
, for a net purchase price excluding acquired cash of
$98 million
. Brown Printing provides magazine and catalog printing, distribution services and integrated media solutions to magazine publishers and catalog marketers 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, 2014
|
$
|
0.5
|
|
|
—
|
%
|
|
$
|
(22.8
|
)
|
|
$
|
(0.48
|
)
|
2015 restructuring, impairment and transaction-related charges
(1)
|
(34.3
|
)
|
|
(3.2
|
)%
|
|
(27.3
|
)
|
|
(0.57
|
)
|
|||
2014 restructuring, impairment and transaction-related charges
(2)
|
19.9
|
|
|
1.8
|
%
|
|
11.9
|
|
|
0.25
|
|
|||
Decrease in interest expense
(3)
|
N/A
|
|
|
N/A
|
|
|
1.2
|
|
|
0.03
|
|
|||
2014 loss on debt extinguishment
(4)
|
N/A
|
|
|
N/A
|
|
|
3.6
|
|
|
0.08
|
|
|||
Impact of income taxes
(5)
|
N/A
|
|
|
N/A
|
|
|
(6.5
|
)
|
|
(0.14
|
)
|
|||
Increase attributable to investments in unconsolidated entities, net of tax
(6)
|
N/A
|
|
|
N/A
|
|
|
1.9
|
|
|
0.04
|
|
|||
Decrease in operating income
(7)
|
(11.9
|
)
|
|
(1.0
|
)%
|
|
(7.1
|
)
|
|
(0.15
|
)
|
|||
For the Three Months Ended June 30, 2015
|
$
|
(25.8
|
)
|
|
(2.4
|
)%
|
|
$
|
(45.1
|
)
|
|
$
|
(0.94
|
)
|
(1)
|
Restructuring, impairment and transaction-related charges of
$34.3 million
(
$27.3 million
, net of tax, as the
$16.7 million
Chile equity method investment impairment charge is nondeductible) incurred during the
three months ended
June 30, 2015
, included:
|
a.
|
$7.4 million
of employee termination charges related to workforce reductions through facility consolidations and involuntary separation programs;
|
b.
|
$17.8 million
of impairment charges, including
$16.7 million
of impairment charges to reduce the book value of the Company's equity method investment in Chile to fair value (see
Note 7
, "
Equity Method Investments in Unconsolidated Entities
," to the condensed consolidated financial statements in
Item 1
, "
Condensed Consolidated Financial Statements (Unaudited)
," of this Quarterly Report on Form 10-Q for additional details related to the impairment of the Company's equity method investment in Chile), and
$1.1 million
of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations including Atlanta, Georgia and Dickson, Tennessee; as well as other capacity reduction restructuring initiatives;
|
c.
|
$1.0 million
of transaction-related charges consisting of professional service fees for business acquisition and divestiture activities;
|
d.
|
$2.0 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.
|
$6.1 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
$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.
|
(3)
|
Interest expense
decreased
$1.9 million
(
$1.2 million
, net of tax) during the
three months ended
June 30, 2015
, to
$21.6 million
. This change was due to a lower weighted average interest rate on borrowings and lower average debt levels in the
second
quarter of
2015
as compared to 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 decrease in income tax benefit of
$6.5 million
as calculated in the following table is primarily due to decreased tax benefits from losses in foreign jurisdictions where the Company does not receive a tax benefit.
|
|
Three Months Ended June 30,
|
|
|
||||||||
|
2015
|
|
2014
|
|
$ Change
|
||||||
Loss before income taxes and equity in loss of unconsolidated entities
|
$
|
(47.4
|
)
|
|
$
|
(29.0
|
)
|
|
$
|
(18.4
|
)
|
Nondeductible equity method investment impairment
|
16.7
|
|
—
|
|
|
16.7
|
|||||
Loss subject to income taxes
|
$
|
(30.7
|
)
|
|
$
|
(29.0
|
)
|
|
$
|
(1.7
|
)
|
40% normalized tax rate
|
40.0
|
%
|
|
40.0
|
%
|
|
40.0
|
%
|
|||
Income tax benefit at 40% normalized tax rate
|
(12.3
|
)
|
|
(11.6
|
)
|
|
(0.7
|
)
|
|||
|
|
|
|
|
|
||||||
Income tax benefit from the condensed consolidated statements of operations
|
(3.8
|
)
|
|
(9.6
|
)
|
|
(5.8
|
)
|
|||
|
|
|
|
|
|
||||||
Decrease in income tax benefit
|
$
|
(8.5
|
)
|
|
$
|
(2.0
|
)
|
|
$
|
(6.5
|
)
|
(6)
|
The increase attributable to investments in unconsolidated entities, net of tax, of
$1.9 million
during the
three months ended
June 30, 2015
, was primarily related to a $1.7 million decrease in losses from unconsolidated entities at the Company's investment in Plural, the Company's Brazilian joint venture.
|
(7)
|
Operating income, excluding restructuring, impairment and transaction-related charges, decreased
$11.9 million
(
$7.1 million
, net of tax) primarily due to a decline in earnings from ongoing industry volume and pricing pressures and $3.6 million in net gains in 2014 related to favorable legal and bankruptcy settlements. These declines were partially offset by the operating results from the acquisition of Brown Printing, a $2.5 million gain from the sale of a cost method investment, a $1.1 million favorable impact from the resolution of certain acquisition related contingencies and $1.0 million in lower workers' compensation expense. The following discussion provides additional details.
|
|
Three Months Ended June 30,
|
|
|
|
|
|||||||||||||||
|
2015
|
|
2014
|
|
|
|
|
|||||||||||||
|
(dollars in millions)
|
|
|
|||||||||||||||||
|
Amount
|
|
% of
Sales
|
|
Amount
|
|
% of
Sales
|
|
$ Change
|
|
%
Change
|
|||||||||
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Products
|
$
|
929.4
|
|
|
86.1
|
%
|
|
$
|
946.2
|
|
|
86.1
|
%
|
|
$
|
(16.8
|
)
|
|
(1.8
|
)%
|
Services
|
149.6
|
|
|
13.9
|
%
|
|
152.8
|
|
|
13.9
|
%
|
|
(3.2
|
)
|
|
(2.1
|
)%
|
|||
Total net sales
|
1,079.0
|
|
|
100.0
|
%
|
|
1,099.0
|
|
|
100.0
|
%
|
|
(20.0
|
)
|
|
(1.8
|
)%
|
|||
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Products
|
767.6
|
|
|
71.1
|
%
|
|
782.3
|
|
|
71.2
|
%
|
|
(14.7
|
)
|
|
(1.9
|
)%
|
|||
Services
|
109.1
|
|
|
10.1
|
%
|
|
110.6
|
|
|
10.1
|
%
|
|
(1.5
|
)
|
|
(1.4
|
)%
|
|||
Total cost of sales
|
876.7
|
|
|
81.2
|
%
|
|
892.9
|
|
|
81.3
|
%
|
|
(16.2
|
)
|
|
(1.8
|
)%
|
|||
Selling, general & administrative expenses
|
110.4
|
|
|
10.2
|
%
|
|
100.4
|
|
|
9.1
|
%
|
|
10.0
|
|
|
10.0
|
%
|
|||
Depreciation and amortization
|
83.4
|
|
|
7.7
|
%
|
|
85.3
|
|
|
7.8
|
%
|
|
(1.9
|
)
|
|
(2.2
|
)%
|
|||
Restructuring, impairment and transaction-related charges
|
34.3
|
|
|
3.2
|
%
|
|
19.9
|
|
|
1.8
|
%
|
|
14.4
|
|
|
72.4
|
%
|
|||
Total operating expenses
|
1,104.8
|
|
|
102.3
|
%
|
|
1,098.5
|
|
|
100.0
|
%
|
|
6.3
|
|
|
0.6
|
%
|
|||
Operating income (loss)
|
$
|
(25.8
|
)
|
|
(2.4
|
)%
|
|
$
|
0.5
|
|
|
—
|
%
|
|
$
|
(26.3
|
)
|
|
nm
|
|
|
Three Months Ended June 30,
|
||||||||||||
|
2015
|
|
2014
|
||||||||||
|
Amount
|
|
% of Net Sales
|
|
Amount
|
|
% of Net Sales
|
||||||
|
(dollars in millions)
|
||||||||||||
EBITDA and EBITDA margin
|
$
|
56.1
|
|
|
5.2
|
%
|
|
$
|
76.4
|
|
|
7.0
|
%
|
|
Three Months Ended June 30,
|
||||||
|
2015
|
|
2014
|
||||
|
(dollars in millions)
|
||||||
Net loss attributable to Quad/Graphics common shareholders
(1)
|
$
|
(45.1
|
)
|
|
$
|
(22.8
|
)
|
Interest expense
|
21.6
|
|
|
23.5
|
|
||
Income tax benefit
|
(3.8
|
)
|
|
(9.6
|
)
|
||
Depreciation and amortization
|
83.4
|
|
|
85.3
|
|
||
EBITDA
|
$
|
56.1
|
|
|
$
|
76.4
|
|
(1)
|
Net loss attributable to Quad/Graphics common shareholders includes the effects of:
|
a.
|
Restructuring, impairment and transaction-related charges of
$34.3 million
and
$19.9 million
for the
three months ended
June 30, 2015
, and
2014
, respectively.
|
b.
|
Loss on debt extinguishment of
$6.0 million
for the
three months ended
June 30, 2014
.
|
|
Three Months Ended June 30,
|
|
|
|
|
|||||||||
|
2015
|
|
2014
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Net sales:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
840.4
|
|
|
$
|
840.3
|
|
|
$
|
0.1
|
|
|
—
|
%
|
Services
|
145.3
|
|
|
148.0
|
|
|
(2.7
|
)
|
|
(1.8
|
)%
|
|||
Operating income (including restructuring, impairment and transaction-related charges)
|
12.6
|
|
|
15.1
|
|
|
(2.5
|
)
|
|
(16.6
|
)%
|
|||
Operating margin
|
1.3
|
%
|
|
1.5
|
%
|
|
N/A
|
|
|
N/A
|
|
|||
Restructuring, impairment and transaction-related charges
|
$
|
8.1
|
|
|
$
|
15.8
|
|
|
$
|
(7.7
|
)
|
|
(48.7
|
)%
|
|
Three Months Ended June 30,
|
|
|
|
|
|||||||||
|
2015
|
|
2014
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Net sales:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
89.0
|
|
|
$
|
105.9
|
|
|
$
|
(16.9
|
)
|
|
(16.0
|
)%
|
Services
|
4.3
|
|
|
4.8
|
|
|
(0.5
|
)
|
|
(10.4
|
)%
|
|||
Operating loss (including restructuring, impairment and transaction-related charges)
|
(27.9
|
)
|
|
(0.9
|
)
|
|
(27.0
|
)
|
|
nm
|
|
|||
Operating margin
|
(29.9
|
)%
|
|
(0.8
|
)%
|
|
N/A
|
|
|
N/A
|
|
|||
Restructuring, impairment and transaction-related charges
|
$
|
24.5
|
|
|
$
|
0.2
|
|
|
$
|
24.3
|
|
|
nm
|
|
Equity in loss of unconsolidated entities
|
(1.5
|
)
|
|
(3.4
|
)
|
|
1.9
|
|
|
(55.9
|
)%
|
|
Three Months Ended June 30,
|
|
|
|
|
|||||||||
|
2015
|
|
2014
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Operating expenses (including restructuring, impairment and transaction-related charges)
|
$
|
10.5
|
|
|
$
|
13.7
|
|
|
$
|
(3.2
|
)
|
|
(23.4
|
)%
|
Restructuring, impairment and transaction-related charges
|
1.7
|
|
|
3.9
|
|
|
(2.2
|
)
|
|
(56.4
|
)%
|
|
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, 2014
|
$
|
11.5
|
|
|
0.5
|
%
|
|
$
|
(31.6
|
)
|
|
$
|
(0.67
|
)
|
2015 restructuring, impairment and transaction-related charges
(1)
|
(44.4
|
)
|
|
(2.0
|
)%
|
|
(33.4
|
)
|
|
(0.70
|
)
|
|||
2014 restructuring, impairment and transaction-related charges
(2)
|
31.8
|
|
|
1.4
|
%
|
|
19.1
|
|
|
0.40
|
|
|||
Goodwill impairment
(3)
|
(23.3
|
)
|
|
(1.1
|
)%
|
|
(23.3
|
)
|
|
(0.49
|
)
|
|||
Decrease in interest expense
(4)
|
N/A
|
|
|
N/A
|
|
|
0.2
|
|
|
0.01
|
|
|||
2014 loss on debt extinguishment
(5)
|
N/A
|
|
|
N/A
|
|
|
3.6
|
|
|
0.08
|
|
|||
Impact of income taxes
(6)
|
N/A
|
|
|
N/A
|
|
|
(7.1
|
)
|
|
(0.15
|
)
|
|||
Increase attributable to investments in unconsolidated entities, net of tax
(7)
|
N/A
|
|
|
N/A
|
|
|
0.1
|
|
|
—
|
|
|||
Decrease in operating income
(8)
|
(13.2
|
)
|
|
(0.5
|
)%
|
|
(7.9
|
)
|
|
(0.16
|
)
|
|||
For the six months ended June 30, 2015
|
$
|
(37.6
|
)
|
|
(1.7
|
)%
|
|
$
|
(80.3
|
)
|
|
$
|
(1.68
|
)
|
(1)
|
Restructuring, impairment and transaction-related charges of
$44.4 million
(
$33.4 million
, net of tax, as the
$16.7 million
Chile equity method investment impairment charge is nondeductible) incurred during the
six months ended
June 30, 2015
, included:
|
a.
|
$12.5 million
of employee termination charges related to workforce reductions through facility consolidations and involuntary separation programs;
|
b.
|
$24.1 million
of impairment charges including: (1)
$16.7 million
of impairment charges to reduce the book value of the Company's equity method investment in Chile to fair value (see
Note 7
, "
Equity Method Investments in Unconsolidated Entities
," to the condensed consolidated financial statements in
Item 1
, "
Condensed Consolidated Financial Statements (Unaudited)
," of this Quarterly Report on Form 10-Q for additional details related to the impairment of the Company's equity method investment in Chile); (2)
$5.2 million
of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations including Atlanta, Georgia; Dickson, Tennessee and Queretaro, Mexico, as well as other capacity reduction restructuring initiatives; and (3)
$2.2 million
of impairment charges recorded in the first quarter of
2015
as a result of the restructuring proceedings in Argentina for the Company's Argentina subsidiaries for land, building, machinery and equipment and other intangible assets;
|
c.
|
$(8.2) million
of transaction-related charges (income) including a
$10.0 million
non-recurring gain as a result of Courier's termination of the agreement pursuant to which Quad/Graphics was to acquire Courier, partially offset by
$1.8 million
of professional service fees primarily for the terminated acquisition of Courier and the acquisitions of Marin's and Copac;
|
d.
|
$3.8 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.
|
$12.2 million
of various other restructuring charges, including $3.0 million of lease exit charges related to the closure of the Atlanta, Georgia facility, as well as other costs to maintain and exit closed facilities.
|
(2)
|
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.
|
(3)
|
A
$23.3 million
nondeductible non-cash goodwill impairment charge was recorded during the
six months ended
June 30, 2015
, within the Latin America reporting unit.
|
(4)
|
Interest expense
decreased
$0.3 million
(
$0.2 million
, net of tax) during the
six months ended
June 30, 2015
, to
$44.1 million
. This change was due to lower average debt levels and a lower weighted average interest rate on borrowings in the six months of
2015
as compared to the six months of
2014
.
|
(5)
|
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.
|
(6)
|
The decrease in income tax benefit of
$7.1 million
as calculated in the following table is primarily due to decreased tax benefits from losses in foreign jurisdictions where the Company does not receive a tax benefit.
|
|
Six Months Ended June 30,
|
|
|
||||||||
|
2015
|
|
2014
|
|
$ Change
|
||||||
Loss before income taxes and equity in loss of unconsolidated entities
|
$
|
(81.7
|
)
|
|
$
|
(38.9
|
)
|
|
$
|
(42.8
|
)
|
Nondeductible goodwill impairment
|
23.3
|
|
|
—
|
|
|
23.3
|
|
|||
Nondeductible equity method investment impairment
|
16.7
|
|
|
—
|
|
|
16.7
|
|
|||
Loss subject to income taxes
|
(41.7
|
)
|
|
(38.9
|
)
|
|
(2.8
|
)
|
|||
40% normalized tax rate
|
40.0
|
%
|
|
40.0
|
%
|
|
40.0
|
%
|
|||
Income tax benefit at 40% normalized tax rate
|
(16.7
|
)
|
|
(15.6
|
)
|
|
(1.1
|
)
|
|||
|
|
|
|
|
|
||||||
Income tax benefit from the condensed consolidated statements of operations
|
(4.8
|
)
|
|
(10.8
|
)
|
|
(6.0
|
)
|
|||
|
|
|
|
|
|
||||||
Decrease in income tax benefit
|
$
|
(11.9
|
)
|
|
$
|
(4.8
|
)
|
|
$
|
(7.1
|
)
|
(7)
|
The increase attributable to investments in unconsolidated entities, net of tax, of
$0.1 million
during the
six months ended
June 30, 2015
, was primarily related to a
$0.4 million
decrease in losses from unconsolidated entities, primarily at the Company's investment in Plural, the Company's Brazilian joint venture.
|
(8)
|
Operating income, excluding restructuring, impairment and transaction-related charges and goodwill impairment charges, decreased
$13.2 million
(
$7.9 million
, net of tax) primarily due to a decline in earnings from ongoing industry volume and pricing pressures and $1.3 million in net gains in 2014 related to favorable legal and bankruptcy settlements. This decline was partially offset by operating results from the incremental earnings of acquisitions, $4.0 million in lower vacation expense due to a change in the vacation policy, a
|
|
Six Months Ended June 30,
|
|
|
|
|
|||||||||||||||
|
2015
|
|
2014
|
|
|
|
|
|||||||||||||
|
(dollars in millions)
|
|
|
|||||||||||||||||
|
Amount
|
|
% of
Sales
|
|
Amount
|
|
% of
Sales
|
|
$ Change
|
|
%
Change
|
|||||||||
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Products
|
$
|
1,879.7
|
|
|
85.9
|
%
|
|
$
|
1,899.9
|
|
|
86.3
|
%
|
|
$
|
(20.2
|
)
|
|
(1.1
|
)%
|
Services
|
307.3
|
|
|
14.1
|
%
|
|
301.9
|
|
|
13.7
|
%
|
|
5.4
|
|
|
1.8
|
%
|
|||
Total net sales
|
2,187.0
|
|
|
100.0
|
%
|
|
2,201.8
|
|
|
100.0
|
%
|
|
(14.8
|
)
|
|
(0.7
|
)%
|
|||
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Products
|
1,547.8
|
|
|
70.8
|
%
|
|
1,565.9
|
|
|
71.1
|
%
|
|
(18.1
|
)
|
|
(1.2
|
)%
|
|||
Services
|
224.3
|
|
|
10.3
|
%
|
|
219.6
|
|
|
10.0
|
%
|
|
4.7
|
|
|
2.1
|
%
|
|||
Total cost of sales
|
1,772.1
|
|
|
81.1
|
%
|
|
1,785.5
|
|
|
81.1
|
%
|
|
(13.4
|
)
|
|
(0.8
|
)%
|
|||
Selling, general & administrative expenses
|
220.1
|
|
|
10.1
|
%
|
|
203.9
|
|
|
9.3
|
%
|
|
16.2
|
|
|
7.9
|
%
|
|||
Depreciation and amortization
|
164.7
|
|
|
7.5
|
%
|
|
169.1
|
|
|
7.7
|
%
|
|
(4.4
|
)
|
|
(2.6
|
)%
|
|||
Restructuring, impairment and transaction-related charges
|
44.4
|
|
|
2.0
|
%
|
|
31.8
|
|
|
1.4
|
%
|
|
12.6
|
|
|
39.6
|
%
|
|||
Goodwill impairment
|
23.3
|
|
|
1.1
|
%
|
|
—
|
|
|
—
|
%
|
|
23.3
|
|
|
100.0
|
%
|
|||
Total operating expenses
|
2,224.6
|
|
|
101.8
|
%
|
|
2,190.3
|
|
|
99.5
|
%
|
|
34.3
|
|
|
1.6
|
%
|
|||
Operating income (loss)
|
$
|
(37.6
|
)
|
|
(1.7
|
)%
|
|
$
|
11.5
|
|
|
0.5
|
%
|
|
$
|
(49.1
|
)
|
|
nm
|
|
|
Six Months Ended June 30,
|
||||||||||||
|
2015
|
|
2014
|
||||||||||
|
Amount
|
|
% of Net Sales
|
|
Amount
|
|
% of Net Sales
|
||||||
|
(dollars in millions)
|
||||||||||||
EBITDA and EBITDA margin
|
$
|
123.7
|
|
|
5.7
|
%
|
|
$
|
171.1
|
|
|
7.8
|
%
|
|
Six Months Ended June 30,
|
||||||
|
2015
|
|
2014
|
||||
|
(dollars in millions)
|
||||||
Net loss attributable to Quad/Graphics common shareholders
(1)
|
$
|
(80.3
|
)
|
|
$
|
(31.6
|
)
|
Interest expense
|
44.1
|
|
|
44.4
|
|
||
Income tax benefit
|
(4.8
|
)
|
|
(10.8
|
)
|
||
Depreciation and amortization
|
164.7
|
|
|
169.1
|
|
||
EBITDA
|
$
|
123.7
|
|
|
$
|
171.1
|
|
(1)
|
Net loss attributable to Quad/Graphics common shareholders includes the effects of:
|
a.
|
Restructuring, impairment and transaction-related charges of
$44.4 million
and
$31.8 million
for the
six months ended
June 30, 2015
, and
2014
, respectively.
|
b.
|
Loss on debt extinguishment of
$6.0 million
for the
six months ended
June 30, 2014
.
|
c.
|
Non-cash goodwill impairment charge of
$23.3 million
for the
six months ended
June 30, 2015
.
|
|
Six Months Ended June 30,
|
|
|
|
|
|||||||||
|
2015
|
|
2014
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Net sales:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
1,697.5
|
|
|
$
|
1,682.9
|
|
|
$
|
14.6
|
|
|
0.9
|
%
|
Services
|
297.5
|
|
|
291.6
|
|
|
5.9
|
|
|
2.0
|
%
|
|||
Operating income (including restructuring, impairment and transaction-related charges)
|
30.3
|
|
|
37.4
|
|
|
(7.1
|
)
|
|
(19.0
|
)%
|
|||
Operating margin
|
1.5
|
%
|
|
1.9
|
%
|
|
N/A
|
|
|
N/A
|
|
|||
Restructuring, impairment and transaction-related charges
|
$
|
22.7
|
|
|
$
|
25.3
|
|
|
$
|
(2.6
|
)
|
|
(10.3
|
)%
|
|
Six Months Ended June 30,
|
|
|
|
|
|||||||||
|
2015
|
|
2014
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Net sales:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
182.2
|
|
|
$
|
217.0
|
|
|
$
|
(34.8
|
)
|
|
(16.0
|
)%
|
Services
|
9.8
|
|
|
10.3
|
|
|
(0.5
|
)
|
|
(4.9
|
)%
|
|||
Operating loss (including restructuring, impairment and transaction-related charges and goodwill impairment)
|
(55.4
|
)
|
|
(0.8
|
)
|
|
(54.6
|
)
|
|
nm
|
|
|||
Operating margin
|
(28.9
|
)%
|
|
(0.4
|
)%
|
|
N/A
|
|
|
N/A
|
|
|||
Restructuring, impairment and transaction-related charges
|
$
|
27.4
|
|
|
$
|
0.7
|
|
|
$
|
26.7
|
|
|
nm
|
|
Goodwill impairment
|
23.3
|
|
|
—
|
|
|
23.3
|
|
|
100.0
|
%
|
|||
Equity in loss of unconsolidated entities
|
(3.4
|
)
|
|
(3.8
|
)
|
|
0.4
|
|
|
10.5
|
%
|
|
Six Months Ended June 30,
|
|
|
|
|
|||||||||
|
2015
|
|
2014
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Operating expenses (including restructuring, impairment and transaction-related charges)
|
$
|
12.5
|
|
|
$
|
25.1
|
|
|
$
|
(12.6
|
)
|
|
(50.2
|
)%
|
Restructuring, impairment and transaction-related charges
|
(5.7
|
)
|
|
5.8
|
|
|
(11.5
|
)
|
|
nm
|
|
|
Six Months Ended June 30,
|
||||||
|
2015
|
|
2014
|
||||
|
(dollars in millions)
|
||||||
Net cash provided by operating activities
|
$
|
123.4
|
|
|
$
|
78.9
|
|
Less: purchases of property, plant and equipment
|
(83.3
|
)
|
|
(83.6
|
)
|
||
Free Cash Flow
|
$
|
40.1
|
|
|
$
|
(4.7
|
)
|
|
June 30,
2015 |
|
December 31,
2014 |
||||
|
(dollars in millions)
|
||||||
Total debt and capital lease obligations on the condensed consolidated balance sheets
|
$
|
1,480.8
|
|
|
$
|
1,405.6
|
|
|
|
|
|
||||
Divided by:
|
|
|
|
||||
Quad/Graphics EBITDA as adjusted for purposes of calculating the Debt Leverage Ratio
|
$
|
525.1
|
|
|
$
|
542.6
|
|
Brown Printing pro forma EBITDA as adjusted for purposes of calculating the Debt Leverage Ratio
(1)
|
—
|
|
|
5.2
|
|
||
Pro forma EBITDA as adjusted for purposes of calculating the Debt Leverage Ratio
|
$
|
525.1
|
|
|
$
|
547.8
|
|
|
|
|
|
||||
Debt Leverage Ratio
|
2.82
|
x
|
|
2.57
|
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
December 31, 2014
. As the acquisition of Brown Printing was completed on
May 30, 2014
, the
$5.2 million
pro forma EBITDA as adjusted for purposes of calculating the Debt Leverage Ratio represents the period from January 1, 2014 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 subsequent to the
May 30, 2014
acquisition 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 that date. If the five months of 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 2.59x as of
December 31, 2014
.
|
|
|
|
Add
|
|
Subtract
|
|
Trailing Twelve
Months Ended
|
||||||||
|
Year Ended
|
|
Six Months Ended
|
|
|||||||||||
|
December 31,
2014 |
|
June 30,
2015 |
|
June 30,
2014 |
|
June 30,
2015 |
||||||||
Net earnings (loss) attributable to Quad/Graphics common shareholders
(1)
|
$
|
18.6
|
|
|
$
|
(80.3
|
)
|
|
$
|
(31.6
|
)
|
|
$
|
(30.1
|
)
|
Interest expense
(1)
|
92.9
|
|
|
44.1
|
|
|
44.4
|
|
|
92.6
|
|
||||
Income tax expense (benefit)
(1)
|
20.2
|
|
|
(4.8
|
)
|
|
(10.8
|
)
|
|
26.2
|
|
||||
Depreciation and amortization
(1)
|
336.4
|
|
|
164.7
|
|
|
169.1
|
|
|
332.0
|
|
||||
EBITDA
|
$
|
468.1
|
|
|
$
|
123.7
|
|
|
$
|
171.1
|
|
|
$
|
420.7
|
|
Restructuring, impairment and transaction-related charges
(1)
|
67.3
|
|
|
44.4
|
|
|
31.8
|
|
|
79.9
|
|
||||
Goodwill impairment
|
—
|
|
|
23.3
|
|
|
—
|
|
|
23.3
|
|
||||
Loss on debt extinguishment
(1)
|
7.2
|
|
|
—
|
|
|
6.0
|
|
|
1.2
|
|
||||
Quad/Graphics EBITDA as adjusted for purposes of calculating the Debt Leverage Ratio
|
$
|
542.6
|
|
|
$
|
191.4
|
|
|
$
|
208.9
|
|
|
$
|
525.1
|
|
(1)
|
Financial information for the year ended
December 31, 2014
, is included as reported in the Company's
2014
Annual Report on Form 10-K filed with the SEC on
March 2, 2015
.
|
•
|
$1.9 billion
Debt Financing Arrangements which includes:
|
◦
|
Senior Secured Credit Facility:
|
▪
|
$850.0 million
Revolving Credit Facility (
$157.3 million
outstanding as of
June 30, 2015
);
|
▪
|
$450.0 million
Term Loan A (
$427.5 million
outstanding as of
June 30, 2015
); and
|
▪
|
$300.0 million
Term Loan B (
$294.5 million
outstanding as of
June 30, 2015
);
|
◦
|
Senior Unsecured Notes (
$300.0 million
outstanding as of
June 30, 2015
);
|
•
|
Master Note and Security Agreement (
$286.3 million
outstanding as of
June 30, 2015
); and a
|
•
|
$13.3 million international revolving credit facility ($1.3 million outstanding as of
June 30, 2015
).
|
•
|
Total leverage ratio.
On a rolling twelve-month basis, the total leverage ratio, defined as total consolidated debt to consolidated EBITDA, shall not exceed
3.75
to 1.00 (for the twelve months ended
June 30, 2015
, the Company's total leverage ratio was
2.77
to 1.00).
|
•
|
Senior Secured Leverage Ratio.
On a rolling twelve-month basis, the senior secured leverage ratio, defined as senior secured debt to consolidated EBITDA, shall not exceed
3.50
to 1.00 (for the twelve months ended
June 30, 2015
, the Company's senior secured leverage ratio was
2.22
to 1.00).
|
•
|
Minimum Interest Coverage Ratio.
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, 2015
, the Company's minimum interest coverage ratio was
6.09
to 1.00).
|
•
|
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.
|
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, 2015
. As of
June 30, 2015
, there were
$91.8 million
of authorized repurchases remaining under the program.
|
ITEM 5.
|
Other Information
|
(a)
|
On August 3, 2015, the Compensation Committee (the "Committee") of the Company's Board of Directors approved an amendment to an award of 43,347 restricted stock units originally granted to John C. Fowler, the Company's Vice Chairman and Executive Vice President, on April 1, 2015 under the Omnibus Plan. The amendment provides that, upon a retirement after age 65, the restricted stock units will vest in full, rather than on a pro rata basis.
|
(b)
|
Not applicable.
|
ITEM 6.
|
Exhibits
|
|
|
|
|
QUAD/GRAPHICS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
August 5, 2015
|
|
By:
|
/s/ J. Joel Quadracci
|
|
|
|
|
J. Joel Quadracci
|
|
|
|
|
Chairman, President and Chief Executive Officer
|
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
Date:
|
August 5, 2015
|
|
By:
|
/s/ David J. Honan
|
|
|
|
|
David J. Honan
|
|
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
(Principal Financial Officer)
|
Exhibit Number
|
|
Exhibit Description
|
|
|
|
(10)
|
|
Form of Restricted Stock Unit Award Agreement, with full retirement vesting, under the Quad/Graphics 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, 2015 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.
|
Grant Date:
|
_______________
|
Vesting Commencement Date:
|
_______________
|
Stock Units:
|
[[SHARESGRANTED]]
|
Vesting Schedule:
|
One hundred percent (100%) of the Restricted Stock Units will vest on the third (3
rd
) anniversary of the Vesting Commencement Date, provided you are continuously employed by the Company or an Affiliate until the vesting date.
|
•
|
If you are continuously employed with, or in the service of, the Company or its Affiliates through the date preceding the date of a “Change in Control” (as defined below), then 100% of the Restricted Stock Units will vest in full on the date of such Change in Control.
|
•
|
If your employment or service relationship with the Company and its Affiliates is terminated as a result of your death or disability (within the meaning of Code Section 22(e)(3), and provided that such termination as a result of disability is also a "separation from service" within the meaning of Code Section 409A), then 100% of the Restricted Stock Units will vest in full on the date of such termination.
|
•
|
If your employment or service relationship with the Company and its Affiliates terminates as a result of your retirement upon or after age 65 (your “Retirement”), then one hundred percent (100%) of the Restricted Stock Units will vest on the date of your Retirement. If, however, you do not experience a "separation from service" within the meaning of Code Section 409A upon your Retirement, then the vested Restricted Stock Units will not be settled until your separation from service.
|
Stock Units:
|
Except as provided above for Retirement, as soon as practicable after your Restricted Stock Units vest (but no later than two-and-one-half months from the end of the fiscal year in which vesting occurs), the Company will settle such vested Restricted Stock Units by electing either to (i) issue in your name certificate(s) or make an appropriate book entry for a number of Shares equal to the number of Restricted Stock Units that have vested or (ii) deliver an amount of cash equal to the Fair Market Value, determined as of the vesting date, of a number of Shares equal to the number of Restricted Stock Units that have vested.
|
Restricted Stock Units:
|
You may not sell, transfer or otherwise alienate or hypothecate any of your Restricted Stock Units until they are vested. In addition, by accepting this Award, you agree not to sell any Shares acquired under this Award other than as set forth in the Plan and at a time when applicable laws, Company policies or an agreement between the Company and its underwriters do not prohibit a sale. The Company also may require you to enter into a shareholder’s agreement that will include additional restrictions on the transfer of Shares acquired under this Award.
|
Dividend Equivalents:
|
You will be credited with dividend equivalents equal to the amount of any dividends or other distributions paid with respect to the Shares underlying the Restricted Stock Units, so long as the applicable record date occurs before you forfeit the Restricted Stock Units, but any such dividend equivalents will be subject to the same terms and conditions (including the risk of forfeiture) as apply to the Restricted Stock Units with respect to which the dividend equivalents were paid and will be earned and distributed only to the extent that, and at the same time as, such Restricted Stock Units are settled.
|
Rights as Shareholder:
|
You will not be deemed for any purposes to be a shareholder of the Company with respect to any of the Restricted Stock Units unless and until a certificate for Shares is issued upon settlement of the Restricted Stock Units.
|
Transferability of Award:
|
You may not transfer or assign this Award for any reason, other than as set forth in the Plan. Any attempted transfer or assignment will be null and void.
|
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:
|
You understand that you (and not the Company or any Affiliate) shall be responsible for your own federal, state, local or foreign tax liability and any of your other tax consequences that may arise as a result of the transactions contemplated by this Award. You shall rely solely on the determinations of your tax advisors or your own determinations, and not on any statements or representations by the Company or any of its agents, with regard to all such tax matters.
|
Miscellaneous:
|
As a condition of the granting of this Restricted Stock Unit Award, you agree, for yourself and your legal representatives or guardians, that this Restricted Stock Unit Award shall be interpreted by the Committee and that any interpretation by the Committee of the terms of this Restricted Stock Unit Award or the Plan and any determination made by the Committee pursuant to this Restricted Stock Unit Award shall be final, binding and conclusive.
|
By:
|
|
|
|
Joel Quadracci
|
|
|
Chairman, President & CEO
|
|
|
Quad/Graphics
|
|
|
|
|
|
|
|
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 5, 2015
|
|
|
|
|
|
|
/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.
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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;
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3.
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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;
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4.
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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:
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(a)
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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;
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(b)
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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;
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(c)
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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
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(d)
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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
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5.
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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):
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(a)
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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
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(b)
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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.
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Date:
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August 5, 2015
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/s/ David J. Honan
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David J. Honan
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Executive Vice President and Chief Financial Officer
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/s/ J. Joel Quadracci
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J. Joel Quadracci
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Chairman, President and Chief Executive Officer
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/s/ David J. Honan
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David J. Honan
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Executive Vice President and Chief Financial Officer
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