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Item 7. Management’s Discussion and Analysis

2021-02-24 compared with 2020-02-19 · 343 added, 538 removed, 475 unchanged (65% of the section changed)

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This section contains an analysis of the Company’s results of operations by comparing the results for the year ended December 31, 2020, to the year ended December 31, 2019.

and (2) the year ended December 31, 2018 , to the year ended December 31, 2017 .

The comparability of the Company’s results of operations between periods was impacted by acquisitions, strategic investments and divestitures, including the 2019 acquisition of Periscope;

and the 2018 acquisition of Ivie and the strategic investment in Rise.

The results of operations of these acquisitions and investments are included in the Company’s consolidated results prospectively from their respective dates of acquisition or consolidation.

The results of the Company’s United States Book business have been reported as discontinued operations for all periods presented.

The comparability of the Company’s results of operations between periods was impacted by acquisitions, strategic investments and divestitures, including the the divestiture of the Omaha, Nebraska packaging plant, which was sold on January 31, 2020, and the additional investment in Rise in June 2020.

The results of operations of the packaging plant divestiture are included in the Company’s consolidated results until the date of disposition, and the results of operations of the investment in Rise reflect the Company’s ownership interest from the respective dates of change in ownership.

The results of the Company’s United States Book business (“Book buiness”) have been reported as discontinued operations for all periods presented.

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.

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• 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 and table of outstanding debt and commitments.

This section provides an analysis of the Company’s capitalization, cash flows and a discussion and table of outstanding debt and commitments.

Forward-looking statements important to understanding the Company’s financial condition are included in this section.

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Business Overview

Quad is a worldwide marketing solutions partner dedicated to creating a better way for its clients through a data-driven, integrated marketing platform that helps reduce complexity, increase efficiency and enhance marketing spend effectiveness.

As a worldwide marketing solutions partner, Quad leverages its 50-year heritage of platform excellence, innovation, strong culture and social purpose to create a better way for its clients, employees and communities.

The Company’s integrated marketing platform helps brands and marketers reduce complexity, increase efficiency and enhance marketing spend effectiveness.

For a full description of the Company’s business overview, refer to Part I, Item 1, “Business,” of this Annual Report on Form 10-K.

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The Company uses net cash provided by operating activities as a metric to assess liquidity.

The Company’s management assesses net cash provided by operating activities based on the ability to meet recurring cash obligations while increasing available cash to fund cash restructuring requirements related to cost reduction activities, as well as to fund capital expenditures, debt service requirements, World Color Press single employer pension plan contributions, World Color Press MEPPs withdrawal liabilities, acquisitions and other investments in future growth, shareholder dividends and share repurchases.

The Company’s management assesses net cash provided by operating activities based on the ability to meet recurring cash obligations while increasing available cash to fund debt service requirements, capital expenditures, cash restructuring requirements related to cost reduction activities, World Color Press single employer pension plan contributions, World Color Press MEPPs withdrawal liabilities, acquisitions and other investments in future growth, shareholder dividends and share repurchases.

Net cash provided by operating activities can be significantly impacted by the timing of non-recurring or infrequent receipts or expenditures.

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The Company’s management assesses Free Cash Flow as a measure to quantify cash available for strengthening the balance sheet (debt and pension liability reduction), for strategic capital allocation and deployment through investments in the business (acquisitions and strategic investments) and for returning capital to the shareholders (dividends and share repurchases).

The priorities for capital allocation and deployment will change as circumstances dictate for the business, and Free Cash Flow can be significantly impacted by the Company’s restructuring activities and other unusual items.

The Company’s priorities for capital allocation and deployment will change as circumstances dictate for the business, and Free Cash Flow can be significantly impacted by the Company’s restructuring activities and other unusual items.

Debt Leverage Ratio.

The Company uses the Debt Leverage Ratio as a metric to assess liquidity and the flexibility of its balance sheet.

Consistent with other liquidity metrics, the Company monitors the Debt Leverage Ratio as a measure to determine the appropriate level of debt the Company believes is optimal to operate its business, and accordingly, to quantify debt capacity available for strategic capital allocation and deployment through investments in the business (capital expenditures, acquisitions and strategic investments), for strengthening the balance sheet (pension liability reduction), and for returning capital to the shareholders (dividends and share repurchases).

Consistent with other liquidity metrics, the Company monitors the Debt Leverage Ratio as a measure to determine the appropriate level of debt the Company believes is optimal to operate its business, and accordingly, to quantify debt capacity available for strengthening the balance sheet (debt and pension liability reduction), for strategic capital allocation and deployment through investments in the business (capital expenditures, acquisitions and strategic investments), and for returning capital to the shareholders (dividends and share repurchases).

The Company’s priorities for capital allocation and deployment will change as circumstances dictate for the business, and the Debt Leverage Ratio can be significantly impacted by the amount and timing of large expenditures requiring debt financing, as well as changes in profitability.

The Company remains disciplined with its debt leverage.

The Company’s consolidated debt and finance lease obligations increased by $171 million during the year ended December 31, 2019 , primarily to fund the acquisition of Periscope.

Since the Company completed the World Color Press acquisition in July 2010, the Company has reduced debt and finance lease obligations by $627 million and has reduced the obligations for pension, postretirement and MEPPs by $439 million , for a total obligation reduction since July 2010 of over $1.0 billion.

The Company’s consolidated debt and finance lease obligations decreased by $184 million during the year ended December 31, 2020, primarily due to the use of cash proceeds from the sale of the Omaha packaging plant and from the sale of the Book business to reduce debt obligations, and due to the redemption of certain of its senior notes under the Master Note and Security Agreement, at par (the outstanding principal balance as of the date of payment).

Since the Company completed the World Color Press acquisition in July 2010, the Company has reduced debt and finance lease obligations by $811 million and has reduced the obligations for pension, postretirement and MEPPs by $470 million, for a total obligation reduction since July 2010 of approximately $1.3 billion.

Overview of Trends Affecting Quad

As consumer media consumption habits change, marketing services providers face increased demand to offer end-to-end marketing services, from strategy and creative through execution, across all media channels.

As new marketing and advertising channels emerge, marketing services providers must expand their services beyond traditional channels, such as for television, newspapers, print publications and radio, to digital channels, such as mobile, internet search, internet display and video, to create effective multichannel campaigns for their clients.

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The Company leverages its data-driven print expertise as part of an integrated marketing platform that helps its clients not only plan and produce marketing programs, but also deploy, manage and measure them across all media channels.

Competition in the printing industry remains highly fragmented and intense, and the Company believes that there are indicators of heightened competitive pressures.

The industry has excess manufacturing capacity created by continued declines in industry volumes which, in turn, has created accelerated downward pricing pressures.

In addition, digital delivery of documents and data, including the online distribution and hosting of media content and mobile technologies, offer alternatives to traditional delivery of printed documents.

Increasing consumer acceptance of digital delivery of content has resulted in marketers and publishers allocating their marketing and advertising spend across the expanding selection of digital delivery options, which further reduces printing demand and contributes to print industry

overcapacity.

The Company also faces competition from print management firms, which look to streamline processes and reduce the overall print spend of the Company’s clients, as well as from strategic marketing firms focused on helping businesses integrate multiple channels into their marketing campaigns.

Competition in the printing industry remains highly fragmented and intense, and the Company believes that

there are indicators of heightened competitive pressures.

The industry has excess manufacturing capacity created by continued declines in industry volumes, compounded by the COVID-19 pandemic, which, in turn, have created accelerated downward pricing pressures.

The Company faces competition due to the increased accessibility and quality of digital alternatives to traditional delivery of printed documents through the online distribution and hosting of media content, and the digital distribution of documents and data.

The Company faces competition from print management and marketing consulting firms that look to streamline processes and reduce the overall print spend of the Company’s clients.

For a full description of the Company’s industry and competition overview, refer to Part I, Item 1, “Business,” of this Annual Report on Form 10-K.

The Company believes that a disciplined approach for capital management and a strong balance sheet are critical to be able to invest in profitable growth opportunities and technological advances, thereby providing the highest return for shareholders.

Management balances the use of cash between deleveraging the Company’s balance sheet (through reduction in debt and pension obligations), compelling investment opportunities (through capital expenditures, acquisitions and strategic investments) and returns to shareholders (through share repurchases and quarterly dividends).

The Company continues to make progress on integrating and streamlining all aspects of its business, thereby lowering its cost structure by consolidating its manufacturing platform into its most efficient facilities, as well as realizing purchasing, mailing and logistics efficiencies by centralizing and consolidating print manufacturing volumes and eliminating redundancies in its administrative and corporate operations.

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Through this strategy, the Company believes it can maintain the strongest, most efficient print manufacturing platform to remain a high-quality, low-cost producer.

Integrated distribution with the USPS is an important component of the Company’s business.

Any material change in the current service levels provided by the USPS could impact the demand that clients have for print services.

Integrated distribution with the postal service is an important component of the Company’s business.

Any material change in the current service levels provided by the postal service could impact the demand that clients have for print services.

The USPS continues to experience financial problems.

Without increased revenues or action by Congress to reform the USPS’ cost structure, these losses will continue into the future.

Because of these financial difficulties, the USPS has come under increased pressure to adjust its postal rates and service levels.

Additional price increases may result in customers reducing mail volumes and exploring the use of alternative methods for delivering a larger portion of their products, such as continued diversion to the internet and other alternative media channels to ensure that they stay within their expected postage budgets.

Current federal law limits postal rate increases (outside of an “exigent circumstance”) to the increase in the CPI .

This cap works to ensure funding stability and predictability for mailers.

However, that same federal statute requires the PRC to conduct a review of the overall rate-making structure for the USPS.

The PRC proposed a new rate-making structure that would provide the USPS with additional pricing flexibility over the current CPI cap, and which may result in a substantially altered rate structure for mailers.

Any newly revised rates that would be effective because of new rules issued by the PRC may include a higher rate cap, or potentially the elimination of a rate cap altogether, which will result in no restrictions on the USPS’ ability to increase rates from year to year.

As a result of these financial difficulties, the USPS has come under increased pressure to adjust its postal rates and service levels.

Additional price increases may result in clients reducing mail volumes and exploring the use of alternative methods for delivering a larger portion of their products, such as continued diversion to the internet and other alternative media channels in order to ensure that they stay within their expected postage budgets.

There are also continued risks of delivery delays due to ongoing COVID-19 impacts on daily operational staffing at the USPS.

Federal statute requires the PRC to conduct reviews of the overall rate-making structure for the USPS to ensure funding stability.

As a result of those reviews, the PRC has authorized a new five year rate-making structure that would provide the USPS with additional pricing flexibility over the current Consumer Price Index cap, which may result in a substantially altered rate structure for mailers.

The newly revised rate authority that is effective as a result of new rules issued by the PRC includes a higher overall rate cap on the USPS’ ability to increase rates from year to year.

This may lead to price spikes for mailers and may also reduce the incentive for the USPS to continue to take out costs and instead continue to rely on postage to cover the costs of an outdated postal service that does not reflect the industry’s ability or willingness to pay.

The result may be reduced demand for printed products as customers may move more aggressively into other delivery methods, such as the many digital and mobile options now available to consumers.

The uncertainty as to the actual rate increases due to competing lawsuits from both industry and the USPS, as well as how much of the authority the USPS will use, also creates potential volume declines as rate predictability with respect to cost and timing is no longer known for mailers.

The result may be reduced demand for printed products as clients may move more aggressively into other delivery methods, such as the many digital and mobile options now available to consumers.

The Company has invested significantly in its mail preparation and distribution capabilities to mitigate the impact of increases in postage costs, and to help clients successfully navigate the ever-changing postal environment.

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however, the net impact of increasing postal costs may create a decrease in client demand for print and mail products.

In 2019, the Company continued to focus on building out its integrated marketing platform by acquiring Minneapolis-based creative agency, Periscope, on January 3, 2019, for a purchase price of $121 million, excluding acquired cash and non-cash equity awards granted.

Periscope’s comprehensive offering includes media buying and analytics, creative and account management, as well as packaging design and premedia services that complement Quad’s print-production capabilities.

With Periscope, the Company has a highly efficient global platform for creating marketing campaigns and programs, from strategy and creative through execution, across all media channels.

This integrated, end-to-end marketing platform creates more value for clients than the traditional agency approach that operates in silos by reducing complexity and improving process efficiencies and marketing spend effectiveness.

During 2020, the Company continued to focus on providing brands and marketers with a more efficient and effective way to go to market and reach consumers.

Through its integrated marketing platform, the Company creates greater value for clients by helping them reduce the complexities of working with multiple agency partners and vendors;

reduce process inefficiencies through workflow re-engineering, content production and process optimization;

and improve marketing spend effectiveness through demand-driving ideas and integrated solutions that help clients target audiences, plan and measure marketing, strategize, create and activate big ideas, produce content at scale, and connect with consumers through multiple channels.

Throughout 2020, the Company also continued to make strategic investments in its manufacturing platform as part of its ongoing commitment to maintaining the most efficient, automated and dependable manufacturing and distribution platform in the printing industry.

These investments, which included digital press technology to help clients gain a competitive edge with data-driven, personalized print marketing and quick-makeready wide-web offset press technology, automated guided vehicles (driverless fork trucks) and automated palletizers at the end of finishing lines that enhance productivity and offset labor shortages, help Quad sustain its position as a high-quality, low-cost producer.

During the third quarter of 2019, the Company made the decision to sell its Book business as a part of an ongoing process to review its business portfolio and divest assets not core to its transformation strategy.

Accordingly, the Company has classified the Book business as assets and liabilities held for sale and as a discontinued operation in accordance with ASC 205-20 — Discontinued Operations .

The Book business consists of three facilities:

Versailles, Kentucky;

Fairfield, Pennsylvania;

and Martinsburg, West Virginia.

The Company’s Book business has historically been included within the United States Print and Related Services segment and the Core Print and Related Services reporting unit.

During 2020, the Company also completed the sale of the Omaha packaging plant and the Book business as a part of an ongoing process to review its business portfolio and divest assets not core to its transformation strategy.

The Company’s results of operations have been and continue to be adversely impacted as a result of the COVID-19 pandemic.

Through the Company’s Crisis Management Team, including executive and operations leadership, the Company has been executing business continuity plans focused on protecting the health and well-being of our employees, while also continuing to service clients, and protect the long-term financial health of the Company as the COVID-19 pandemic continues.

As a part of the business continuity plans, the Company implemented cost reduction and cash conservation initiatives, including implementing a COVID-19 Temporary Furlough Program through which employees take an unpaid leave of absence, the length of which varies upon business needs;

temporary salary reductions for leaders through the end of July 2020, including a 50% salary reduction for the Chief Executive Officer and a 35% salary reduction for named executive officers;

a temporary 50% reduction in retainer fees for the Company’s non-employee directors;

temporarily suspending use of vacation and vacation payouts through the end of June 2020;

temporarily suspending production at several manufacturing facilities where declining client volume or other effects of the pandemic impacted the Company’s ability to operate, all of which resumed operations by the end of September 2020;

suspending quarterly dividend payments through the Covenant Relief Period;

and delaying capital spending projects.

The Company also announced the permanent closures of the facilities located in the following locations as a result of ongoing volume declines, particularly in retail, that have been exacerbated by the COVID-19 pandemic during the year ended December 31, 2020:

(1) Taunton, Massachusetts;

(2) Fernley, Nevada;

(3) Nashville, Tennessee;

(4) Oklahoma City, Oklahoma;

and (5) Charlotte, North Carolina.

In addition, the Company also amended its Senior Secured Credit Facility in the second quarter of 2020 to provide for certain financial covenant relief through a Covenant Relief Period.

The Company is continuing to evaluate its cost structure and expects to implement additional cost reduction measures as necessary.

As the pandemic continues to evolve, the extent of the impact on the Company’s business, financial condition, cash flows, results of operations and supply chain will depend on future developments, all of which are still highly uncertain and cannot be predicted.

Results of Operations for the Year Ended December 31, 2020, Compared to the Year Ended December 31, 2019

Summary Results

The Company’s operating income from continuing operations, operating margin, net earnings (loss) attributable to Quad common shareholders (computed using a 25% normalized tax rate for all items subject to tax) and diluted earnings (loss) per share attributable to Quad common shareholders for the year ended December 31, 2019 , changed from the year ended December 31, 2018 , as follows (dollars in millions, except per share data):

Operating Income from Continuing Operations

Operating Margin

Net Earnings (Loss) Attributable to Quad Common Shareholders

Diluted Earnings (Loss) Per Share Attributable to Quad Common Shareholders

The Company’s operating income (loss) from continuing operations, operating margin, net loss attributable to Quad common shareholders (computed using a 25% normalized tax rate for all items subject to tax) and diluted loss per share attributable to Quad common shareholders for the year ended December 31, 2020, changed from the year ended December 31, 2019, as follows (dollars in millions, except per share data):

Operating Income (Loss) from Continuing Operations Operating Margin Net Loss Attributable to Quad Common Shareholders Diluted Loss Per Share Attributable to Quad Common Shareholders

For the year ended December 31, 2019 $ 34.7 0.9 % $ (156.3) $ (3.12)

Restructuring, impairment and transaction-related charges (1)

(34.7) (1.9) % (26.1) (0.50)

Interest expense (2)

N/A N/A 15.9 0.33

Net pension income (3)

N/A N/A 3.4 0.07

2020 loss on debt extinguishment (4)

N/A N/A (1.4) (0.03)

2019 loss on debt extinguishment (4)

N/A N/A 22.9 0.46

Income taxes (5)

N/A N/A (31.3) (0.62)

Loss from discontinued operations, net of tax (6)

N/A N/A 78.7 1.58

Investments in unconsolidated entity and noncontrolling interests, net of tax (7)

Operating income from continuing operations (8)

N/A N/A 0.3 0.01

Operating loss from continuing operations (8)

(46.0) (0.6) % (34.4) (0.71)

For the year ended December 31, 2020 $ (46.0) (1.6) % $ (128.3) $ (2.53)

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Restructuring, impairment and transaction-related charges decreased $13.9 million ( $10.4 million , net of tax), to $89.4 million during the year ended December 31, 2019 , and included the following:

A $0.8 million decrease in employee termination charges from $23.0 million during the year ended December 31, 2018 , to $22.2 million during the year ended December 31, 2019 ;

An $18.3 million decrease in impairment charges from $26.2 million during the year ended December 31, 2018 , to $7.9 million during the year ended December 31, 2019 ;

A $43.4 million increase in transaction-related charges from $8.2 million during the year ended December 31, 2018 , to $51.6 million during the year ended December 31, 2019 ;

A $2.0 million increase in integration-related charges from $1.3 million during the year ended December 31, 2018 , to $3.3 million during the year ended December 31, 2019 ;

A $40.2 million decrease in various other restructuring charges from $44.6 million during the year ended December 31, 2018 , to $4.4 million during the year ended December 31, 2019 .

(1) Restructuring, impairment and transaction-related charges increased $34.7 million ($26.1 million, net of tax), to $124.1 million during the year ended December 31, 2020, and included the following:

A $12.5 million increase in employee termination charges from $22.2 million during the year ended December 31, 2019, to $34.7 million during the year ended December 31, 2020;

A $56.2 million increase in impairment charges from $7.9 million during the year ended December 31, 2019, to $64.1 million during the year ended December 31, 2020;

A $50.2 million decrease in transaction-related charges from $51.6 million during the year ended December 31, 2019, to $1.4 million during the year ended December 31, 2020;

A $1.4 million decrease in integration-related charges from $3.3 million during the year ended December 31, 2019, to $1.9 million during the year ended December 31, 2020;

A $17.6 million increase in various other restructuring charges from $4.4 million during the year ended December 31, 2019, to $22.0 million during the year ended December 31, 2020.

The Company expects to incur additional restructuring and integration costs in future reporting periods in connection with eliminating excess manufacturing capacity and properly aligning its cost structure in conjunction with the Company’s acquisitions and strategic investments, and other cost reduction programs.

Interest expense increased $16.8 million ( $12.6 million , net of tax) during the year ended December 31, 2019 , to $90.0 million .

This change was due to a higher weighted average interest rate on borrowings and higher average debt levels during the year ended December 31, 2019 , as compared to the year ended December 31, 2018 .

Net pension income decreased $6.4 million ( $4.8 million , net of tax) during the year ended December 31, 2019 , to $6.0 million .

This was due to a $4.9 million decrease from the change in the expected long-term return on pension plan assets assumption to 6.25% from 6.50%, and a $1.5 million increase from interest cost on pension plan liabilities.

A $30.5 million loss on debt extinguishment ( $22.9 million , net of tax) was recognized during the year ended December 31, 2019 and includes $15.9 million relating to the third amendment to the Company’s Senior Secured Credit Facility, completed on January 31, 2019;

(2) Interest expense decreased $21.2 million ($15.9 million, net of tax) during the year ended December 31, 2020, to $68.8 million.

This change was due to lower average debt levels and a lower weighted average interest rate on borrowings, partially offset by a $6.9 million increase in interest expense related to the interest rate swaps during the year ended December 31, 2020, as compared to the year ended December 31, 2019.

(3) Net pension income increased $4.5 million ($3.4 million, net of tax) during the year ended December 31, 2020, to $10.5 million.

This was due to a $3.9 million decrease from interest cost on pension plan liabilities and a $0.7 million increase from the change in the expected long-term return on pension plan assets.

(4) The $1.8 million loss on debt extinguishment ($1.4 million, net of tax) recognized during the year ended December 31, 2020, relates to a $2.4 million loss on debt extinguishment from the fourth amendment to the Company’s April 28, 2014 Senior Secured Credit Facility, completed on June 29, 2020, partially offset by a $0.6 million gain on debt extinguishment recorded during the first quarter of 2020, primarily related to the repurchase of the Company’s unsecured 7.0% senior notes due May 1, 2022.

A $30.5 million loss on debt extinguishment ($22.9 million, net of tax) was recognized during the year ended December 31, 2019, and includes $15.9 million relating to the third amendment to the Company’s April 28, 2014 Senior Secured Credit Facility, completed on January 31, 2019;

and $14.6 million relating to the retirement of the Term Loan B, completed on July 26, 2019.

The $4.6 million decrease in income tax benefit as calculated in the following table is primarily due to a $6.1 million decreased tax benefit from a decrease in the Company’s liability for unrecognized tax benefits in 2018 that did not repeat in 2019, partially offset by a $1.3 million tax benefit related to the deductibility of acquisition-related transaction costs:

(5) The $31.3 million decrease in income tax benefit as calculated in the following table is primarily due to the following:

(1) a $32.6 million decrease from increased valuation allowance reserves;

(2) a $5.8 million decrease from equity award activity;

and (3) a $3.3 million decrease in the Company’s liability for unrecognized tax benefits in 2019 that did not repeat in 2020.

These decreases were partially offset by a $14.3 million income tax benefit related to the Coronavirus Aid, Relief, and Economic Security Act net operating loss carry back provisions.

Year Ended December 31,

Earnings (loss) from continuing operations before income taxes and equity in (earnings) loss of unconsolidated entity

2020 2019 $ Change

Loss from continuing operations before income taxes and equity in loss of unconsolidated entity $ (106.1) $ (79.8) $ (26.3)

Normalized tax rate 25.0 % 25.0 %

Income tax expense (benefit) at normalized tax rate

Income tax benefit from the consolidated statements of operations

Income tax benefit at normalized tax rate (26.6) (20.0) (6.6)

Income tax expense (benefit) from the consolidated statements of operations 0.3 (24.4) 24.7

Impact of income taxes $ (26.9) $ 4.4 $ (31.3)

The increase in loss from discontinued operations, net of tax, of $78.6 million during the year ended December 31, 2019 , was primarily due to a $91.8 million increase in restructuring, impairment and transaction-related charges during the year ended December 31, 2019 , to reduce the carrying value of the Book business to its fair value, including an $86.5 million impairment of tangible property, plant and equipment and a $5.6 million impairment of contract assets.

The Company also recorded a $10.1 million goodwill impairment charge during the year ended December 31, 2019 , due to the carrying value of the Book business net assets exceeding the estimated fair value.

The increase in loss was partially offset by a $26.4 million increase in income tax benefit.

The decrease from investments in unconsolidated entity and noncontrolling interests, net of tax, of $1.9 million during the year ended December 31, 2019 , was primarily due to a $1.3 million decrease in earnings at the Company’s investment in Plural Industria Gráfica Ltda.

(“ Plural ”), the Company’s Brazilian joint venture, and a $0.6 million decrease in loss attributed to noncontrolling interests in the Company’s consolidated statements of operations related to the Company’s 57% ownership of Rise.

(6) The decrease in loss from discontinued operations, net of tax, of $78.7 million during the year ended December 31, 2020, primarily due to a $75.7 million decrease in restructuring, impairment and transaction-related charges.

(7) The decrease from investments in unconsolidated entity and noncontrolling interests, net of tax, of $0.3 million during the year ended December 31, 2020, was primarily due to a $0.2 million increase in loss attributed to noncontrolling interests in the Company’s consolidated statements of operations related to the Company’s majority ownership of Rise and a $0.1 million decrease in earnings at the Company’s investment in Plural Industria Gráfica Ltda.

(“Plural”), the Company’s Brazilian joint venture.

(8) Operating income from continuing operations, excluding restructuring, impairment and transaction-related charges, decreased $46.0 million ($34.4 million, net of tax) primarily due to the following:

(1) lower print volume, pricing and print service sales;

(2) an increase in employee-related costs, primarily due to a $28.6 million increase in production hourly wages in our most competitive labor markets;

(2) a $12.1 million decrease in paper byproduct recoveries;

(4) a $17.5 million net benefit in 2018 in gains from property insurance claims;

(5) a $8.7 million benefit in 2018 from changes in employee vacation policies;

and (6) a $5.6 million gain in 2018 from a sales tax litigation settlement in Peru.

and (3) a $10.8 million increase in production hourly wages in our most competitive labor markets.

These decreases were partially offset by the following:

(1) a $22.3 million non-cash expense related to a special employee retirement contribution in 2018 resulting from the benefit of tax reform that did not repeat in 2019;

(2) savings from cost reduction initiatives;

and (3) earnings from the Ivie and Periscope acquisitions and investment in Rise.

(1) a $62.5 million decrease in selling, general and administrative expenses, including a $3.9 million net benefit in 2020 in gains from property insurance claims and the receipt of a $2.2 million COVID-19 related government subsidy in Poland;

(2) a $14.7 million net reduction in the cost of worker’s compensation claims from improved production safety procedures;

(3) a $9.4 million net benefit from a change in the hourly production employee vacation policy;

and (4) savings from other cost reduction initiatives.

Operating Results From Continuing Operations

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(dollars in millions)

Amount % of Net

Sales Amount % of Net

Sales $ Change %

Products $ 2,228.7 76.1 % $ 3,098.3 79.0 % $ (869.6) (28.1) %

Services 700.9 23.9 % 825.1 21.0 % (124.2) (15.1) %

Total net sales 2,929.6 100.0 % 3,923.4 100.0 % (993.8) (25.3) %

Cost of sales:

Products 1,831.5 62.5 % 2,615.6 66.7 % (784.1) (30.0) %

Services 503.3 17.2 % 576.6 14.7 % (73.3) (12.7) %

Total cost of sales 2,334.8 79.7 % 3,192.2 81.4 % (857.4) (26.9) %

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Operating income (loss) from continuing operations $ (46.0) (1.6) % $ 34.7 0.9 % $ (80.7) (232.6) %

Product sales decreased $86.1 million , or 2.7% , for the year ended December 31, 2019 , compared to the year ended December 31, 2018 , primarily due to a $71.5 million decrease in product sales in the Company’s print product lines due to ongoing industry volume and pricing pressures and $22.8 million in unfavorable foreign exchange impacts, primarily in Argentina and Europe;

partially offset by a $8.2 million increase from pass-through paper sales.

Service sales, which primarily consist of logistics, distribution, marketing services, imaging and medical services, increased $23.7 million , or 3.0% , for the year ended December 31, 2019 , compared to the year ended December 31, 2018 , primarily due to a $78.3 million increase in net sales from the Ivie and Periscope acquisitions and investment in Rise, partially offset by the following:

(1) a $30.1 million decrease of sales of marketing services, primarily print management;

(2) an $18.9 million decrease in print imaging services;

(3) a $4.4 million decrease in sales of QuadMed external medical services;

and (4) a $1.2 million decrease in logistics sales.

Product sales decreased $869.6 million, or 28.1%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the following:

(1) a $402.4 million decrease from pass-through paper sales;

(2) a $388.8 million decrease in sales in the Company’s print product lines due to ongoing industry volume and pricing pressures, including the ongoing impacts from the COVID-19 pandemic;

(3) a $68.9 million decrease in sales due to the divestiture of the Company’s Omaha packaging plant;

and (4) $9.5 million in unfavorable foreign exchange impacts.

Service sales, which primarily consist of logistics, distribution, marketing services, imaging and medical services, decreased $124.2 million, or 15.1%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the following:

(1) a $72.0 million decrease in logistics sales;

(2) a $24.9 million decrease of sales of marketing services;

and (3) an $21.4 million decrease in print imaging services.

Cost of Sales

Cost of product sales decreased $784.1 million, or 30.0%, for the year ended December 31, 2020, compared with the year ended December 31, 2019, primarily due to the following:

(1) a decrease in pass-through paper costs;

(2) lower print volume;

(2) cost reduction initiatives;

and (3) a $14.0 million non-cash expense related to a special employee retirement contribution in 2018 that did not repeat in 2019.

These decreases were partially offset by the following:

(1) an increase in employee-related costs, primarily due to a $28.6 million increase in production hourly wages in our most competitive labor markets;

(2) a $26.7 million decrease in paper byproduct recoveries;

and (3) an $8.7 million net benefit in 2018 from changes in employee vacation policies.

Cost of product sales as a percentage of net sales increased to 66.7% for the year ended December 31, 2019 , from 65.8% for the year ended December 31, 2018 , primarily due to the reasons provided above.

Cost of service sales decreased $23.7 million , or 3.9% , for the year ended December 31, 2019 , compared with the year ended December 31, 2018 , primarily due to the following:

(1) lower print service sales;

(2) lower freight costs;

and (3) a $2.6 million non-cash expense related to a special employee retirement contribution in 2018 that did not repeat in 2019.

These decreases were partially offset by the Ivie and Periscope acquisitions and the investment in Rise.

Cost of service sales as a percentage of net sales decreased to 14.7% for the year ended December 31, 2019 , from 15.1% for the year ended December 31, 2018 , primarily due to the reasons provided above.

(3) the impact from the divestiture of the Omaha packaging plant;

(4) a $9.4 million net benefit from a change in the hourly production employee vacation policy;

(5) a $14.7 million net reduction in the cost of worker’s compensation claims from improved production safety procedures;

and (6) other cost reduction initiatives.

These decreases were partially offset by a $12.1 million decrease in paper byproduct recoveries and a $10.8 million increase in production hourly wages in our most competitive labor markets.

Cost of service sales decreased $73.3 million, or 12.7%, for the year ended December 31, 2020, compared with the year ended December 31, 2019, primarily due to lower logistics, marketing services and print imaging sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $38.7 million , or 10.8% , for the year ended December 31, 2019 , compared with the year ended December 31, 2018 , primarily due to the following:

Selling, general and administrative expenses decreased $62.5 million, or 15.7%, for the year ended December 31, 2020, compared with the year ended December 31, 2019, primarily due to the following:

(1) a $68.6 million decrease in employee-related costs;

(2) a $3.9 million net benefit in 2020 in gains from property insurance claims;

(2) a $9.6 million increase in employee-related costs;

(3) an $8.3 million increase in legal and environmental charges;

(4) a $5.6 million gain in 2018 from a sales tax litigation settlement in Peru that did not repeat in 2019.

These increases were partially offset by a $5.7 million non-cash expense related to a special employee retirement contribution in 2018 that did not repeat in 2019 and savings from cost reduction initiatives.

Selling, general and administrative expenses as a percentage of net sales increased from 9.0% for the year ended December 31, 2018 , to 10.1% for the year ended December 31, 2019 , primarily due to the reasons stated above.

(3) savings from other cost reduction initiatives;

and (4) the receipt of a $2.2 million COVID-19 related government subsidy in Poland.

These decreases were partially offset by a $9.4 million increase in legal expenses, a $3.5 million increase in credit loss expense (primarily due to specific client credit reviews) and a $3.2 million increase from foreign translation losses.

Selling, general and administrative expenses as a percentage of net sales increased from 10.1% for the year ended December 31, 2019, to 11.4% for the year ended December 31, 2020.

Depreciation and Amortization

Depreciation and amortization decreased $5.4 million , or 2.5% , for the year ended December 31, 2019 , compared with the year ended December 31, 2018 , due to a $15.8 million decrease in depreciation expense from property, plant and equipment becoming fully depreciated over the past year, partially offset by a $10.4 million increase in amortization expense, primarily related to amortization expense for intangible assets acquired in the Ivie acquisition and the investment in Rise.

Depreciation and amortization decreased $27.9 million, or 13.3%, for the year ended December 31, 2020, compared with the year ended December 31, 2019, due to a $22.2 million decrease in depreciation expense from property, plant and equipment becoming fully depreciated over the past year, and a $5.7 million decrease in amortization expense.

Restructuring, Impairment and Transaction-Related Charges

Restructuring, impairment and transaction-related charges decreased $13.9 million , or 13.5% , for the year ended December 31, 2019 , compared to the year ended December 31, 2018 , primarily due to the following:

Restructuring, impairment and transaction-related charges increased $34.7 million, or 38.8%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the following:

Year Ended December 31,

2020 2019 $ Change

Employee termination charges $ 34.7 $ 22.2 $ 12.5

Impairment charges (a)

64.1 7.9 56.2

Transaction-related charges (b)

1.4 51.6 (50.2)

Integration costs 1.9 3.3 (1.4)

3 unchanged sentences

Gains on the sale of facilities (c)

(1.6) (6.1) 4.5

Other restructuring activities (d)

11.0 0.6 10.4

Other restructuring charges 22.0 4.4 17.6

1 unchanged sentence

______________________________

Includes $7.6 million and $21.6 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction restructuring activities during the years ended December 31, 2019 and 2018 , respectively;

(a) Includes $22.1 million and $7.6 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction restructuring activities during the years ended December 31, 2020 and 2019, respectively;

and $42.0 million and $0.3 million of land and building impairment charges during the years ended December 31, 2020 and 2019, respectively.

Includes a $45.0 million reverse termination fee paid during the year ended December 31, 2019 , in connection with the termination of the definitive agreement pursuant to which Quad would have acquired LSC, and includes $6.4 million in transaction-related charges related to the then proposed acquisition of LSC during the year ended December 31, 2018 .

Includes a $2.5 million gain on the sale of the Franklin, Kentucky facility and a $3.5 million gain on the sale of the Hazleton, Pennsylvania facility during the year ended December 31, 2019 ;

and a $7.5 million gain on the sale of the Taunton, Massachusetts Book facility, a $7.0 million gain on the sale of the Dallas, Texas facility, and a $2.2 million gain on the sale of the San Ixhuatepec, Mexico facility during the year ended December 31, 2018 .

Includes $2.3 million in charges related to a value-added tax assessment for a closed facility, as well as other restructuring activities, net of an $8.4 million gain on the sale of a business during the year ended December 31, 2019 ;

and includes a $32.1 million increase to the Company’s MEPPs withdrawal liability, as well as $10.0 million in charges for certain legal matters and customer contract penalties related to the Company’s operations in Peru during the year ended December 31, 2018 .

$56.6 million of the impairment charges recorded during the year ended December 31, 2020 were related to property, plant and equipment for the Oklahoma City, Oklahoma facility.

(b) Includes a $45 million reverse termination fee paid during the year ended December 31, 2019, in connection with the termination of the definitive agreement pursuant to which Quad would have acquired LSC Communications, Inc.

(c) Includes an $0.8 million gain on the sale of the Shakopee, Minnesota facility and an $0.8 million gain on the sale of the Midland, Michigan facility during the year ended December 31, 2020;

and a $3.5 million gain on the sale of the Hazleton, Pennsylvania facility and a $2.5 million gain on the sale of the Franklin, Kentucky facility during the year ended December 31, 2019.

(d) Includes a $2.9 million loss on the sale of a business during the year ended December 31, 2020;

and includes $2.3 million in charges related to a value-added tax assessment for a closed facility, as well as other restructuring activities, net of an $8.4 million gain on the sale of a business during the year ended December 31, 2019.

EBITDA and EBITDA Margin—Consolidated

7 unchanged sentences

Year Ended December 31,

% of Net Sales

Amount % of Net Sales Amount % of Net Sales

(dollars in millions)

EBITDA and EBITDA margin (non-GAAP) $ 122.4 4.2 % $ 118.8 3.0 %

EBITDA decreased $175.4 million for the year ended December 31, 2019 , compared to the year ended December 31, 2018 , primarily due to the following:

(1) a $78.6 million increase in loss from discontinued operations, net of tax;

EBITDA increased $3.6 million for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the following:

(1) a $78.7 million decrease in loss from discontinued operations, net of tax;

(2) a $62.5 million decrease in selling, general and administrative expenses, including a $3.9 million net benefit in 2020 in gains from property insurance claims and the receipt of a $2.2 million COVID-19 related government subsidy in Poland;

(3) a $9.4 million net benefit from a change in the hourly production employee vacation policy;

(4) a $14.7 million net reduction in the cost of worker’s compensation claims from improved production safety procedures;

and (5) savings from other cost reduction initiatives.

These increases were partially offset by the following:

(1) lower print volume, pricing and print service sales;

(3) an increase in employee-related costs, primarily due to a $28.6 million increase in production hourly wages in our most competitive labor markets;

(2) $34.7 million of increased restructuring, impairment and transaction-related charges;

(3) a $12.1 million decrease in paper byproduct recoveries;

(5) a $17.5 million net benefit in 2018 in gains from property insurance claims;

(6) an $8.7 million benefit in 2018 from changes in employee vacation policies;

and (7) a $5.6 million gain in 2018 from a sales tax litigation settlement in Peru.

These decreases were partially offset by the following:

(1) a $22.3 million non-cash expense related to a special employee retirement contribution in 2018 resulting from the benefit of tax reform that did not repeat in 2019;

(2) $13.9 million of decreased restructuring, impairment and transaction-related charges;

(3) savings from cost reduction initiatives;

and (4) earnings from the Ivie and Periscope acquisitions and investment in Rise.

A reconciliation of EBITDA to net earnings (loss) attributable to Quad common shareholders for the years ended December 31, 2019 and 2018 , was as follows:

and (4) a $10.8 million increase in production hourly wages in our most competitive labor markets.

A reconciliation of EBITDA to net loss attributable to Quad common shareholders for the years ended December 31, 2020 and 2019, was as follows:

Year Ended December 31,

(dollars in millions)

Net earnings (loss) attributable to Quad common shareholders (1)

Net loss attributable to Quad common shareholders (1)

$ (128.3) $ (156.3)

Interest expense 68.8 90.0

Income tax benefit

Income tax expense (benefit) 0.3 (24.4)

Depreciation and amortization 181.6 209.5

1 unchanged sentence

______________________________

Net earnings (loss) attributable to Quad common shareholders included the following:

(1) Net loss attributable to Quad common shareholders included the following:

Restructuring, impairment and transaction-related charges of $124.1 million and $89.4 million for the years ended December 31, 2020 and 2019, respectively;

Employee stock ownership plan non-cash expense related to a special employee retirement contribution of $22.3 million for the year ended December 31, 2018;

Net pension income of $10.5 million and $6.0 million for the years ended December 31, 2020 and 2019, respectively;

Loss on debt extinguishment of $30.5 million for the year ended December 31, 2019;

Equity in loss of unconsolidated entity of $0.3 million and equity in earnings of unconsolidated entity of $1.0 million for the years ended December 31, 2019 and 2018 , respectively;

Loss on debt extinguishment of $1.8 million and $30.5 million for the years ended December 31, 2020 and 2019, respectively;

Equity in loss of unconsolidated entity of $0.2 million and $0.3 million for the years ended December 31, 2020 and 2019, respectively;

Loss from discontinued operations, net of tax, of $21.9 million and $100.6 million for the years ended December 31, 2020 and 2019, respectively;

4 unchanged sentences

(dollars in millions)

Amount Amount $ Change % Change

Products $ 1,944.0 $ 2,713.3 $ (769.3) (28.4) %

Services 683.6 807.7 (124.1) (15.4) %

Operating income from continuing operations (including restructuring, impairment and transaction-related charges) 1.7 130.1 (128.4) (98.7) %

Operating margin

Operating margin 0.1 % 3.7 % N/A N/A

Restructuring, impairment and transaction-related charges $ 110.1 $ 24.6 $ 85.5 347.6 %

Product sales for the United States Print and Related Services segment decreased $102.6 million , or 3.6% , for the year ended December 31, 2019 , compared to the year ended December 31, 2018 , primarily due to a $92.5 million decrease in product sales in the Company’s print product lines due to ongoing industry volume and pricing pressures and a $10.1 million decrease from pass-through paper sales.

Service sales for the United States Print and Related Services segment increased $24.9 million , or 3.2% , for the year ended December 31, 2019 , compared to the year ended December 31, 2018 , primarily due to a a $78.3 million increase in net sales from the Ivie and Periscope acquisitions and investment in Rise and a $0.4 million increase in logistics sales, partially offset by the following:

(1) a $30.5 million decrease of sales of marketing services, primarily print management;

(2) an $18.9 million decrease in print imaging services;

and (3) a $4.4 million decrease in sales of QuadMed external medical services.

Product sales for the United States Print and Related Services segment decreased $769.3 million, or 28.4%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the following (1) a $350.8 million decrease from pass-through paper sales;

(2) a $349.6 million decrease in sales in the Company’s print product lines due to ongoing industry volume and pricing pressures, including the ongoing impacts from the COVID-19 pandemic;

and (3) a $68.9 million decrease in sales due to the divestiture of the Company’s Omaha packaging plant.

Service sales for the United States Print and Related Services segment decreased $124.1 million, or 15.4%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the following:

(1) a $72.2 million decrease in logistics sales;

(2) a $24.6 million decrease of sales of marketing services;

and (3) an $21.4 million decrease in print imaging services.

Operating Income from Continuing Operations

Operating income from continuing operations for the United States Print and Related Services segment decreased $128.4 million, or 98.7%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the following:

(1) lower print volume and pricing due to ongoing industry pressures;

(2) an increase in employee-related costs, primarily due to a $28.6 million increase in production hourly wages in our most competitive labor markets;

(1) lower print volume and pricing due to ongoing industry pressures, including the ongoing impacts from the COVID-19 pandemic;

(2) an $85.5 million increase in restructuring, impairment and transaction-related charges;

(3) a $12.1 million decrease in paper byproduct recoveries;

(4) a $10.8 million increase in production hourly wages in our most competitive labor markets;

and (5) lower print service sales.

These decreases were partially offset by the following:

(1) a $14.7 million net reduction in the cost of worker’s compensation claims from improved production safety procedures;

(2) a $9.4 million net benefit from a change in the hourly production employee vacation policy;

(3) a $3.9 million net benefit in 2020 in gains from property insurance claims;

(5) lower print service sales;

and (6) a $8.7 million benefit in 2018 from the change in employee vacation policies.

These impacts were partially offset by the following:

(1) a $21.9 million non-cash expense related to a special employee retirement contribution in 2018;

(2) a $12.9 million decrease in restructuring, impairment and transaction-related charges;

(3) savings from cost reduction initiatives, including employee-related costs;

and (4) earnings from the Ivie and Periscope acquisitions and the investment in Rise.

and (4) savings from other cost reduction initiatives.

The operating margin for the United States Print and Related Services segment decreased to 0.1% for the year ended December 31, 2020, from 3.7% for the year ended December 31, 2019, primarily due to the reasons provided above.

Restructuring, Impairment and Transaction-Related Charges

Restructuring, impairment and transaction-related charges for the United States Print and Related Services segment decreased $12.9 million , or 34.4% , for the year ended December 31, 2019 , compared to the year ended December 31, 2018 , primarily due to the following:

Restructuring, impairment and transaction-related charges for the United States Print and Related Services segment increased $85.5 million, or 347.6%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the following:

Year Ended December 31,

2020 2019 $ Change

Employee termination charges $ 30.0 $ 20.9 $ 9.1

Impairment charges (a)

64.0 4.5 59.5

Transaction-related charges 0.1 — 0.1

Integration costs 1.9 3.3 (1.4)

Other restructuring charges (b)

Other restructuring charges (income)

Vacant facility carrying costs and lease exit charges 11.5 9.2 2.3

Equipment and infrastructure removal costs 1.1 0.4 0.7

Gains on the sale of facilities (b)

(1.6) (5.8) 4.2

Other restructuring activities (c)

3.1 (7.9) 11.0

Other restructuring charges 14.1 (4.1) 18.2

Total restructuring, impairment and transaction-related charges $ 110.1 $ 24.6 $ 85.5

______________________________

Includes $4.5 million and $15.8 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction restructuring activities during the years ended December 31, 2019 and 2018 , respectively;and $2.2 million of land and building impairment charges during the year ended December 31, 2018 .

Includes a $2.5 million gain on the sale of the Franklin, Kentucky facility, a $3.5 million gain on the sale of the Hazleton, Pennsylvania facility and an $8.4 million gain on the sale of a business during the year ended December 31, 2019 ;

and a $7.5 million gain on the sale of the Taunton, Massachusetts Book facility and a $7.0 million gain on the sale of the Dallas, Texas facility during the year ended December 31, 2018 .

(a) Includes $22.0 million and $4.5 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction restructuring activities during the years ended December 31, 2020 and 2019, respectively;

and $42.0 million of land and building impairment charges during the year ended December 31, 2020.

$56.6 million of the impairment charges recorded during the year ended December 31, 2020 were related to property, plant and equipment for the Oklahoma City, Oklahoma facility.

(b) Includes an $0.8 million gain on the sale of the Shakopee, Minnesota facility and an $0.8 million gain on the sale of the Midland, Michigan facility during the year ended December 31, 2020;

and a $3.5 million gain on the sale of the Hazleton, Pennsylvania facility and a $2.5 million gain on the sale of the Franklin, Kentucky facility during the year ended December 31, 2019.

and a $8.4 million gain on the sale of a business during the year ended December 31, 2019.

International

2 unchanged sentences

(dollars in millions)

Amount Amount $ Change % Change

Products $ 284.7 $ 385.0 $ (100.3) (26.1) %

Services 17.3 17.4 (0.1) (0.6) %

Operating income (including restructuring, impairment and transaction-related charges) (0.8) 8.6 (9.4) (109.3) %

Operating margin

Operating margin (0.3) % 2.1 % N/A N/A

Restructuring, impairment and transaction-related charges $ 12.2 $ 10.0 $ 2.2 22.0 %

Equity in (earnings) loss of unconsolidated entity

Product sales for the International segment increased $16.5 million , or 4.5% , for the year ended December 31, 2019 , compared to the year ended December 31, 2018 , primarily due to a $21.0 million increase in volume, primarily in Europe, Peru and Mexico and an $18.3 million increase in pass-through paper sales, partially offset by $22.8 million in unfavorable foreign exchange impacts, primarily in Argentina and Europe.

Service sales for the International segment decreased $1.2 million , or 6.5% , for the year ended December 31, 2019 , compared to the year ended December 31, 2018 , primarily due to a $1.6 million decrease in logistics revenue in Europe, partially offset by a $0.4 million increase in marketing service sales.

Equity in loss of unconsolidated entity 0.2 0.3 (0.1) (33.3) %

Product sales for the International segment decreased $100.3 million, or 26.1%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the following (1) a $51.6 million decrease in pass-through paper sales;

(2) a $39.2 million decrease in volume, primarily in Europe, Peru and Colombia, including the ongoing impacts from the COVID-19 pandemic;

and (3) $9.5 million in unfavorable foreign exchange impacts, primarily in Argentina, Europe and Mexico.

Service sales for the International segment decreased $0.1 million, or 0.6%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to a decrease in marketing services sales in Europe.

Operating Income from Continuing Operations

Operating income from continuing operations for the International segment increased $7.1 million for the year ended December 31, 2019 , compared to the year ended December 31, 2018 , primarily due to a $12.2 million decrease in restructuring and impairment expenses, partially offset by a $5.6 million gain in 2018 from a sales tax litigation settlement in Peru.

Operating income from continuing operations for the International segment decreased $9.4 million for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to lower print volume and pricing due to ongoing industry pressures, including the ongoing impacts from the COVID-19 pandemic, a $2.2 million increase in restructuring, impairment and transaction-related charges, partially offset by the receipt of a $2.2 million COVID-19 related government subsidy in Poland.

Restructuring, Impairment and Transaction-Related Charges

Restructuring, impairment and transaction-related charges for the International segment decreased $12.2 million , or 55.0% , for the year ended December 31, 2019 , compared to the year ended December 31, 2018 , primarily due to the following:

Restructuring, impairment and transaction-related charges for the International segment increased $2.2 million, or 22.0%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the following:

Year Ended December 31,

2020 2019 $ Change

Employee termination charges $ 4.5 $ 1.3 $ 3.2

Impairment charges (a)

0.1 0.4 (0.3)

Other restructuring charges (b)

7.6 8.3 (0.7)

Total restructuring, impairment and transaction-related charges $ 12.2 $ 10.0 $ 2.2

______________________________

Includes $5.8 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction restructuring activities, including $5.0 million of impairment charges for machinery and equipment in Peru during the year ended December 31, 2018 ;

and $0.3 million and $2.4 million of land and building impairment charges during the years ended December 31, 2019 and December 31, 2018 , respectively.

Includes $2.3 million in charges related to a value-added tax assessment for a closed facility during the year ended December 31, 2019 , and $10.0 million in charges for certain legal matters and customer contract penalties related to the Company’s operations in Peru, net of a $2.2 million gain on the sale of the San Ixhuatepec, Mexico facility during the year ended December 31, 2018 .

Equity in (Earnings) Loss of Unconsolidated Entities

(a) Includes $0.1 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction restructuring activities during the years ended December 31, 2020 and 2019;

and $0.3 million of land and building impairment charges during the year ended December 31, 2019.

(b) Includes $5.9 million and $2.8 million in charges from foreign currency losses as result of the economy in Argentina being classified as highly inflationary during the years ended December 31, 2020 and 2019, respectively;

and includes $2.3 million in charges related to a value-added tax assessment for a closed facility during the year ended December 31, 2019.

Equity in Loss of Unconsolidated Entities

Investments in entities where Quad has the ability to exert significant influence, but not control, are accounted for using the equity method of accounting.

The Company holds a 49% ownership interest in Plural, a commercial printer based in São Paulo, Brazil.

The equity in earnings of unconsolidated entity in the International segment decreased $1.3 million for the year ended December 31, 2019 , compared to the year ended December 31, 2018 , due to an decrease in earnings at the Company’s investment in Plural.

The equity in loss of unconsolidated entity in the International segment decreased $0.1 million for the year ended December 31, 2020, compared to the year ended December 31, 2019, due to a decrease in earnings at the Company’s investment in Plural.

Unrestricted Subsidiaries

3 unchanged sentences

(dollars in millions)

Amount Amount $ Change % Change

Operating expenses (including restructuring, impairment and transaction-related charges) $ 46.9 $ 104.0 $ (57.1) (54.9) %

1 unchanged sentence

Operating Expenses

Corporate operating expenses increased $6.5 million , or 6.7% , for the year ended December 31, 2019 , compared with the year ended December 31, 2018 , primarily due to a $11.2 million increase in restructuring, impairment and transaction-related charges, partially offset by lower employee-related costs, including $1.3 million in lower incentive compensation expense and a $0.4 million non-cash expense related to a special employee retirement contribution in 2018 that did not repeat in 2019.

Corporate operating expenses decreased $57.1 million, or 54.9%, for the year ended December 31, 2020, compared with the year ended December 31, 2019, primarily due to the following:

(1) a $53.0 million decrease in restructuring, impairment and transaction-related charges, (2) a $2.5 million decrease in employee-related costs, and (3) other cost reduction initiatives.

Restructuring, Impairment and Transaction-Related Charges

Corporate restructuring, impairment and transaction-related charges increased $11.2 million , or 25.7% , for the year ended December 31, 2019 , compared to the year ended December 31, 2018 , primarily due to the following:

Corporate restructuring, impairment and transaction-related charges decreased $53.0 million, or 96.7%, for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the following:

Year Ended December 31,

2020 2019 $ Change

Employee termination charges $ 0.2 $ — $ 0.2

1 unchanged sentence

Transaction-related charges (b)

Other restructuring charges (c)

Total restructuring, impairment and transaction-related charges

1.3 51.6 (50.3)

Includes $3.0 million of impairment charges for equipment during the year ended December 31, 2019 .

Includes a $45.0 million reverse termination fee paid during the year ended December 31, 2019, in connection with the termination of the definitive agreement pursuant to which Quad would have acquired LSC, and includes $6.4 million in transaction-related charges related to the then proposed acquisition of LSC during the year ended December 31, 2018 .

Includes a $32.1 million increase to the Company’s MEPPs withdrawal liability during the year ended December 31, 2018 .

Results of Operations for the Year Ended December 31, 2018 , Compared to the Year Ended December 31, 2017

Summary Results

The Company’s operating income from continuing operations, operating margin, net earnings attributable to Quad common shareholders and diluted earnings per share attributable to Quad common shareholders for the year ended December 31, 2018 , changed from the year ended December 31, 2017 , as follows (dollars in millions, except per share data).

The information contained in this section has been updated to reflect the impacts of the discontinued operations of the Company’s Book business.

The effects of the changes on net earnings attributable to Quad common shareholders were computed using a 25% normalized tax rate as adjusted for the Tax Act that was enacted in 2017 for all items subject to tax for the year ended December 31, 2018 , and were computed using a 40% normalized tax rate for all items subject to tax for the year ended December 31, 2017 , which was the normalized rate used by the Company prior to the enactment of the Tax Act:

Operating Income from Continuing Operations

Operating Margin

Net Earnings Attributable to Quad Common Shareholders

Diluted Earnings Per Share Attributable to Quad Common Shareholders

For the year ended December 31, 2017

2018 restructuring, impairment and transaction-related charges (1)

2017 restructuring, impairment and transaction-related charges (2)

Interest expense (3)

Net pension income (4)

2017 loss on debt extinguishment (5)

Income taxes (6)

Loss from discontinued operations, net of tax (7)

Investments in unconsolidated entity and noncontrolling interests, net of tax (8)

Operating income from continuing operations (9)

For the year ended December 31, 2018

______________________________

Restructuring, impairment and transaction-related charges of $103.3 million ( $77.5 million , net of tax) incurred during the year ended December 31, 2018 , included the following:

$23.0 million of employee termination charges related to workforce reductions through facility consolidations and voluntary and involuntary separation programs;

$26.2 million of impairment charges, including $16.6 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, including Waseca, Minnesota;

Hazleton, Pennsylvania;

and Franklin, Kentucky;

as well as other capacity and strategic reduction restructuring initiatives, including $5.0 million of impairment charges for machinery and equipment in Peru;

and $4.6 million of land and building impairment charges, primarily related to the Franklin, Kentucky plant closure;

$8.2 million of transaction-related charges, consisting of professional service fees for business acquisition and divestiture activities, including $6.4 million related to the proposed acquisition of LSC;

$1.3 million of integration costs primarily for the integration of acquired companies;

$44.6 million of various other restructuring charges, consisting of a $32.1 million increase to the Company’s MEPPs withdrawal liability, $10.0 million in charges for certain legal matters and customer contract penalties related to the Company’s operations in Peru, and costs to maintain and exit closed facilities.

These charges are presented net of

$17.3 million in gains on the sale of facilities, including a $7.5 million gain from the sale of the Taunton, Massachusetts Book plant, a $7.0 million gain from the sale of the Dallas, Texas plant and a $2.2 million gain from the sale of the San Ixhuatepec, Mexico plant.

Restructuring, impairment and transaction-related charges of $59.9 million ( $35.9 million , net of tax) incurred during the year ended December 31, 2017 , included the following:

$26.4 million of employee termination charges related to workforce reductions through facility consolidations and separation programs;

$12.0 million of impairment charges, including $6.7 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, including Waseca, Minnesota;

Columbus, Ohio;

and Taunton, Massachusetts, as well as other capacity and strategic reduction restructuring activities;

and $5.3 million of impairment charges for land and building related to the Waseca, Minnesota and Taunton, Massachusetts plant closures;

$3.1 million of transaction-related charges, consisting of professional service fees for business acquisition and divestiture activities;

$18.4 million of various other restructuring charges, including costs to maintain and exit closed facilities, as well as lease exit charges, net of $7.1 million in gains from the sale of the Atglen, Pennsylvania;

Dickson, Tennessee;

East Greenville, Pennsylvania;

Lenexa, Kansas;

and Marengo, Iowa plants, and a $1.2 million gain from the Company’s Argentina Subsidiaries’ settlements with vendors through bankruptcy proceedings.

Other restructuring charges also included a $6.7 million loss on the sale of a business.

Interest expense increased $2.3 million ( $12.3 million , net of tax impact due to the change in the normalized tax rate) during the year ended December 31, 2018, to $73.2 million .

This change was due to a higher weighted average interest rate on borrowings and higher average debt levels during the year ended December 31, 2018 , as compared to the year ended December 31, 2017 .

Net pension income increased $2.8 million ( $3.5 million , net of tax impact due to the change in the normalized tax rate) during the year ended December 31, 2018 , to $12.4 million .

This change was due to a $1.3 million decrease from interest cost on pension plan liabilities, a $0.8 million decrease in settlement charges and a $0.7 million increase from the expected return on pension plan assets.

A $2.6 million loss on debt extinguishment ($1.6 million, net of tax) was recognized during the year ended December 31, 2017, from the refinancing of the Senior Secured Credit Facility, completed on February 10, 2017.

The $43.8 million decrease in income tax benefit from continuing operations as calculated in the following table is primarily due to a $28.8 million tax benefit related to the reduced federal rate applied to net domestic deferred tax liabilities in accordance with the Tax Act and a $13.1 million decreased net tax benefit from the release of valuation allowances related to foreign operations.

See Note 14 , “ Income Taxes ,” to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on income taxes.

Year Ended December 31,

Earnings (loss) from continuing operations before income taxes and equity in loss of unconsolidated entity

Normalized tax rate in 2017

Income tax expense at normalized tax rate in 2017

Impact of change in normalized tax rate to 25% in 2018

Income tax expense at normalized tax rate of 25% in 2018 and 40% in 2017

Income tax benefit from the consolidated statements of operations

Impact of income taxes

The increase in loss from discontinued operations, net of tax, of $11.1 million during the year ended December 31, 2018, was primarily due to lower print pricing from ongoing industry pressures.

The increase from investments in unconsolidated entity and noncontrolling interests, net of tax, of $1.6 million during the year ended December 31, 2018, was primarily due to a $1.0 million increase in earnings at the Company’s investment in Plural, and the $0.6 million decrease in earnings attributed to noncontrolling interests in the Company’s consolidated statements of operations related to the Company’s 57% ownership of Rise.

Operating income from continuing operations, excluding restructuring, impairment and transaction-related charges, decreased $42.1 million ( $3.4 million , net of tax impact due to the change in the normalized tax rate) primarily due to the following:

(1) lower print volume and pricing due to ongoing industry pressures;

(2) a $22.3 million non-cash expense related to a special employee retirement contribution in 2018 resulting from the benefit of tax reform;

and (3) a $10.7 million net benefit in 2017 from changes in employee vacation policies.

These decreases were partially offset by the following:

(1) a $13.3 million net benefit in 2018 in gain from property insurance claims;

(2) earnings from the Ivie acquisition and the investment in Rise;

(3) a $5.6 million gain from a sales tax litigation settlement in Peru;

and (4) savings from cost reduction initiatives.

Operating Results From Continuing Operations

The following table sets forth certain information from the Company’s consolidated statements of operations on an absolute dollar basis and as a relative percentage of total net sales for each noted period, together with the relative percentage change in such information between the periods set forth below:

Year Ended December 31,

(dollars in millions)

Total net sales

Cost of sales:

Total cost of sales

Selling, general & administrative expenses

Depreciation and amortization

Restructuring, impairment and transaction-related charges

Total operating expenses

Operating income from continuing operations

Product sales decreased $164.4 million , or 4.9% , for the year ended December 31, 2018 , compared to the year ended December 31, 2017 , primarily due to a $202.2 million decrease in product sales in the Company’s print product lines due to ongoing industry volume and pricing pressures and $14.7 million in unfavorable foreign exchange impacts, primarily in Argentina;

partially offset by a $52.5 million increase from pass-through paper sales.

Service sales, which primarily consist of logistics, distribution, marketing services, imaging and medical services, increased $199.0 million , or 33.0% , for the year ended December 31, 2018 , compared to the year ended December 31, 2017 , primarily due to a $176.2 million increase in net sales from the Ivie acquisition and investment in Rise and a $29.5 million increase in logistics sales, partially offset by a $5.7 million decrease in sales of imaging services.

Cost of Sales

Cost of product sales decreased $38.1 million , or 1.4% , for the year ended December 31, 2018 , compared with the year ended December 31, 2017 , primarily due to lower print volume and cost reduction initiatives.

These decreases were partially offset by an increase in paper costs and a $14.0 million non-cash expense related to a special employee retirement contribution in 2018.

Cost of product sales as a percentage of net sales decreased to 65.8% for the year ended December 31, 2018 , from 67.3% for the year ended December 31, 2017 , primarily due to the reasons provided above.

Cost of service sales increased $168.2 million , or 38.9% , for the year ended December 31, 2018 , compared with the year ended December 31, 2017 , primarily due to the Ivie acquisition and investment in Rise, increased logistics freight costs and a $2.6 million non-cash expense related to a special employee retirement contribution in 2018.

Cost of service sales as a percentage of net sales increased to 15.1% for the year ended December 31, 2018 , from 10.9% for the year ended December 31, 2017 , primarily due to the reasons provided above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $49.8 million , or 12.2% , for the year ended December 31, 2018 , compared with the year ended December 31, 2017 , primarily due to the following:

(1) savings from cost reduction initiatives, including employee-related costs;

(2) a $13.3 million net benefit in 2018 in gain from property insurance claims;

and (3) a $5.6 million gain from a sales tax litigation settlement in Peru, partially offset by a $10.3 million benefit in 2017 from a change in the salaried employee vacation policy that did not repeat in 2018 and a $5.7 million non-cash expense related to a special employee retirement contribution in 2018.

Selling, general and administrative expenses as a percentage of net sales decreased from 10.4% for the year ended December 31, 2017 , to 9.0% for the year ended December 31, 2018 , primarily due to the reasons stated above.

Depreciation and Amortization

Depreciation and amortization decreased $3.6 million , or 1.6% , for the year ended December 31, 2018 , compared with the year ended December 31, 2017 , due to a $19.7 million decrease in depreciation expense from property, plant and equipment becoming fully depreciated over the past year, partially offset by a $16.1 million increase in amortization expense, primarily related to amortization expense for intangible assets acquired in the Ivie acquisition and the investment in Rise.

Restructuring, Impairment and Transaction-Related Charges

Restructuring, impairment and transaction-related charges increased $43.4 million , or 72.5% , for the year ended December 31, 2018 , compared to the year ended December 31, 2017 , primarily due to the following:

(1) a $14.2 million increase in impairment charges;

(2) a $5.1 million increase in transaction-related charges;

(3) a $1.3 million increase in acquisition-related integration costs;

and (4) a $26.2 million increase in other restructuring charges.

These decreases were partially offset by a $3.4 million decrease in employee termination charges.

Restructuring, impairment and transaction-related charges of $103.3 million incurred in the year ended December 31, 2018, included the following:

(1) $23.0 million of employee termination charges related to workforce reductions through facility consolidations and separation programs;

(2) $26.2 million of impairment charges, including $16.6 million of impairment charges for machinery and equipment no longer being utilized in production as a result of

facility consolidations, including Waseca, Minnesota;

Hazleton, Pennsylvania;

and Franklin, Kentucky;

as well as other capacity and strategic reduction restructuring initiatives, including $5.0 million of impairment charges for machinery and equipment in Peru;

and $4.6 million of land and building impairment charges, primarily related to the Franklin, Kentucky plant closure;

(3) $8.2 million of transaction-related charges consisting of professional service fees related to business acquisition and divestiture activities, including $6.4 million related to the proposed acquisition of LSC;

(4) $1.3 million of integration costs primarily for the integration of acquired companies;

and (5) $44.6 million of various other restructuring charges, consisting of a $32.1 million increase to the Company’s MEPPs withdrawal liability, $10.0 million in charges for certain legal matters and customer contract penalties related to the Company’s operations in Peru, and costs to maintain and exit closed facilities.

These charges are presented net of $17.3 million in gains on the sale of facilities, including a $7.5 million gain from the sale of the Taunton, Massachusetts Book plant, a $7.0 million gain from the sale of the Dallas, Texas plant and a $2.2 million gain from the sale of the San Ixhuatepec, Mexico plant.

Restructuring, impairment and transaction-related charges of $59.9 million incurred in the year ended December 31, 2017, included the following:

(1) $26.4 million of employee termination charges related to workforce reductions through facility consolidations and separation programs;

(2) $12.0 million of impairment charges, including $6.7 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, including Waseca, Minnesota;

Columbus, Ohio;

and Taunton, Massachusetts, as well as other capacity and strategic reduction restructuring activities;

and $5.3 million of impairment charges for land and building related to the Waseca, Minnesota and Taunton, Massachusetts plant closures;

(3) $3.1 million of transaction-related charges consisting of professional service fees related to business acquisition and divestiture activities;

and (4) $18.4 million of various other restructuring charges, including costs to maintain and exit closed facilities, as well as lease exit charges, net of $7.1 million in gains from the sale of the Atglen, Pennsylvania;

Dickson, Tennessee;

East Greenville, Pennsylvania;

Lenexa, Kansas;

and Marengo, Iowa plants, and a $1.2 million gain from the Company’s Argentina Subsidiaries’ settlements with vendors through bankruptcy proceedings.

Other restructuring charges also included a $6.7 million loss on the sale of a business.

EBITDA and EBITDA Margin—Consolidated

EBITDA is defined as net earnings (loss) attributable to Quad common shareholders, excluding (1) interest expense, (2) income tax expense (benefit) and (3) depreciation and amortization.

EBITDA margin represents EBITDA as a percentage of net sales.

EBITDA and EBITDA margin are presented to provide additional information regarding Quad’s performance.

Both are important measures by which Quad gauges the profitability and assesses the performance of its business.

EBITDA and EBITDA margin are non-GAAP financial measures and should not be considered alternatives to net earnings (loss) as a measure of operating performance, or to cash flows provided by operating activities as a measure of liquidity.

Quad’s calculation of EBITDA and EBITDA margin may be different from the calculations used by other companies, and therefore, comparability may be limited.

EBITDA and EBITDA margin for the year ended December 31, 2018 , compared to the year ended December 31, 2017 , were as follows:

Year Ended December 31,

% of Net Sales

(dollars in millions)

EBITDA and EBITDA margin (non-GAAP)

EBITDA decreased $93.2 million for the year ended December 31, 2018 , compared to the year ended December 31, 2017 , primarily due to the following:

(1) lower print volume and pricing due to ongoing industry pressures;

(2) $43.4 million of increased restructuring, impairment and transaction-related charges;

(3) a $22.3 million non-cash expense related to a special employee retirement contribution in 2018;

(4) an $11.1 million increase in loss from discontinued operations, net of tax;

and (5) a $10.7 million net benefit in 2017 from changes in employee vacation policies.

These impacts were partially offset by the following:

(1) a $13.3 million net benefit in 2018 in gain from property insurance claims;

(2) earnings from the Ivie acquisition and investment in Rise;

(3) a $5.6 million gain from a sales tax litigation settlement in Peru;

and (4) savings from cost reduction initiatives, including employee-related costs.

A reconciliation of EBITDA to net earnings attributable to Quad common shareholders for the years ended December 31, 2018 and 2017 , was as follows:

Year Ended December 31,

(dollars in millions)

Net earnings attributable to Quad common shareholders (1)

Interest expense

Income tax benefit

Depreciation and amortization

EBITDA (non-GAAP)

Other restructuring charges 0.3 0.2 0.1

Total restructuring, impairment and transaction-related charges $ 1.8 $ 54.8 $ (53.0)

______________________________

Net earnings attributable to Quad common shareholders included the following:

Restructuring, impairment and transaction-related charges of $103.3 million and $59.9 million for the years ended December 31, 2018 and 2017 , respectively;

Employee stock ownership plan non-cash expense related to a special employee retirement contribution of $22.3 million for the year ended December 31, 2018;

Net pension income of $12.4 million and $9.6 million for the years ended December 31, 2018 and 2017 , respectively;

Loss on debt extinguishment of $2.6 million for the year ended December 31, 2017;

Equity in earnings of unconsolidated entity of $1.0 million for the year ended December 31, 2018 ;

Loss from discontinued operations, net of tax, of $22.0 million and $10.9 million for the years ended December 31, 2018 and 2017 , respectively;

Net loss attributable to noncontrolling interests of $0.6 million for the year ended December 31, 2018 .

United States Print and Related Services

The following table summarizes net sales, operating income from continuing operations, operating margin and certain items impacting comparability within the United States Print and Related Services segment:

Year Ended December 31,

(dollars in millions)

Operating income from continuing operations (including restructuring, impairment and transaction-related charges)

Operating margin

Restructuring, impairment and transaction-related charges

Product sales for the United States Print and Related Services segment decreased $160.8 million , or 5.4% , for the year ended December 31, 2018 , compared to the year ended December 31, 2017 , primarily due to a $205.7 million decrease in product sales in the Company’s print product lines (predominantly due to ongoing volume and pricing pressures from excess capacity in the printing industry), partially offset by a $44.9 million increase in pass-through paper sales.

Service sales for the United States Print and Related Services segment increased $199.6 million , or 34.2% , for the year ended December 31, 2018 , compared to the year ended December 31, 2017 , primarily due to a $176.2 million increase in net sales from the Ivie acquisition and investment in Rise and a $30.1 million increase in logistics sales, partially offset by a $5.7 million decrease in sales of imaging services.

Operating Income from Continuing Operations

Operating income from continuing operations for the United States Print and Related Services segment decreased $28.5 million for the year ended December 31, 2018 , compared to the year ended December 31, 2017 , primarily due to the following:

(1) lower print volume and pricing due to ongoing industry pressures;

(2) a $21.9 million non-cash expense related to a special employee retirement contribution in 2018;

(3) a $10.7 million net benefit in 2017 from changes in employee vacation policies.

These impacts were partially offset by the following:

(1) a $15.6 million decrease in restructuring, impairment and transaction-related charges;

(2) a $13.3 million net benefit in 2018 in gain from property insurance claims;

(3) earnings from the Ivie acquisition and the investment in Rise;

and (4) savings from cost reduction initiatives, including employee-related costs.

The operating margin for the United States Print and Related Services segment decreased to 5.1% for the year ended December 31, 2018 , from 5.9% for the year ended December 31, 2017 , primarily due to the reasons provided above.

Restructuring, Impairment and Transaction-Related Charges

Restructuring, impairment and transaction-related charges for the United States Print and Related Services segment for the year ended December 31, 2018 , were $37.5 million , consisting of the following:

(1) $16.1 million of employee termination charges related to workforce reductions through facility consolidations and separation programs;

(2) $18.0 million of impairment charges, including $15.8 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, including Waseca, Minnesota;

Hazleton, Pennsylvania;

and Franklin, Kentucky;

as well as other capacity and strategic reduction restructuring initiatives;

and $2.2 million of impairment charges for land and building related to the Franklin, Kentucky plant closure;

and (3) $2.0 million of various other restructuring charges, including costs to maintain and exit closed facilities, as well as lease exit charges.

These charges are presented net of gains on the sale of facilities, including a $7.5 million gain from the sale of the Taunton, Massachusetts Book plant and a $7.0 million gain from the sale of the Dallas, Texas plant.

Restructuring, impairment and transaction-related charges for the United States Print and Related Services segment for the year ended December 31, 2017 , were $53.1 million , consisting of the following:

(1) $21.2 million of employee termination charges related to workforce reductions through facility consolidations and separation programs;

(2) $11.5 million of impairment charges, including $6.2 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, including Waseca, Minnesota;

Columbus, Ohio;

and Taunton, Massachusetts, as well as other capacity and strategic reduction restructuring activities;

and $5.3 million of impairment charges for land and building related to the Waseca, Minnesota and Taunton, Massachusetts plant closures;

and (3) $19.4 million of various other restructuring charges, including costs to maintain and exit closed facilities, as well as lease exit charges, net of $7.1 million in gains from the sale of the Atglen, Pennsylvania;

Dickson, Tennessee;

East Greenville, Pennsylvania;

Lenexa, Kansas;

and Marengo, Iowa plants.

Other restructuring charges also included a $6.7 million loss on the sale of a business.

International

The following table summarizes net sales, operating income from continuing operations, operating margin, certain items impacting comparability and equity in earnings of unconsolidated entity within the International segment:

Year Ended December 31,

(dollars in millions)

Operating income from continuing operations (including restructuring, impairment and transaction-related charges)

Operating margin

Restructuring, impairment and transaction-related charges

Equity in earnings of unconsolidated entity

Product sales for the International segment decreased $3.6 million , or 1.0% , for the year ended December 31, 2018 , compared to the year ended December 31, 2017 , primarily due to $14.7 million in unfavorable foreign exchange impacts, partially offset by a $7.6 million increase in pass-through paper sales and a $3.5 million increase in volume and pricing, primarily in Mexico.

Service sales for the International segment decreased $0.6 million , or 3.1% , for the year ended December 31, 2018 , compared to the year ended December 31, 2017 , primarily due to a decrease in logistics revenue in Europe.

Operating Income from Continuing Operations

Operating income from continuing operations for the International segment decreased $18.1 million , or 92.3% , for the year ended December 31, 2018 , compared to the year ended December 31, 2017 , primarily due to a $18.9 million increase in restructuring and impairment expenses, partially offset by a $5.6 million gain from a sales tax litigation settlement in Peru and a $4.8 million increase in operating income, primarily in Mexico.

Restructuring, Impairment and Transaction-Related Charges

Restructuring, impairment and transaction-related charges for the International segment for the year ended December 31, 2018 , were $22.2 million , consisting of the following:

(1) $3.7 million of employee termination charges related to workforce reductions through facility consolidations and separation programs;

(2) $8.2 million of impairment charges, including $5.8 million for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity and strategic reduction restructuring initiatives, including $5.0 million of impairment charges for machinery and equipment in Peru;

and $2.4 million of impairment charges for land and building;

(3) $10.3 million of various other restructuring charges, including $10.0 million in charges for certain legal matters and customer contract penalties related to the Company’s operations in Peru.

Restructuring, impairment and transaction-related charges for the International segment for the year ended December 31, 2017 , were $3.3 million, consisting of the following:

(1) $4.7 million of employee termination charges related to workforce reductions through facility consolidations and separation programs;

(2) $0.5 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations;

and (3) $1.9 million of various other restructuring income primarily related to the Company’s Argentina Subsidiaries’ gain from settlements with vendors through bankruptcy proceedings, partially offset by charges to maintain and exit closed facilities.

Equity in Earnings of Unconsolidated Entities

Investments in entities where Quad has the ability to exert significant influence, but not control, are accounted for using the equity method of accounting.

The Company holds a 49% ownership interest in Plural, a commercial printer based in São Paulo, Brazil.

The equity in earnings of unconsolidated entity in the International segment increased $1.0 million for the year ended December 31, 2018, compared to the year ended December 31, 2017, due to an increase in earnings at the Company’s investment in Plural.

Unrestricted Subsidiaries

Unrestricted subsidiaries as defined in the Senior Unsecured Notes indenture represented less than 2.0% of total consolidated net sales for the year ended December 31, 2018 .

The following table summarizes unallocated operating expenses presented as Corporate:

Year Ended December 31,

(dollars in millions)

Operating expenses (including restructuring, impairment and transaction-related charges)

Restructuring, impairment and transaction-related charges

Operating Expenses

Corporate operating expenses increased $38.9 million , or 66.4% , for the year ended December 31, 2018 , compared with the year ended December 31, 2017 , primarily due to a $40.1 million increase in restructuring, impairment and transaction-related charges and a $0.4 million non-cash expense related to a special employee retirement contribution in 2018.

Restructuring, Impairment and Transaction-Related Charges

Corporate restructuring, impairment and transaction-related charges for the year ended December 31, 2018 , were $43.6 million , consisting of the following:

(1) $3.2 million of employee termination charges related to workforce reductions through facility consolidations and separation programs;

(2) $8.1 million of transaction-related charges, which primarily included professional service fees;

and (3) $32.3 million of other restructuring charges, including a $32.1 million increase to its MEPPs withdrawal liability.

Corporate restructuring, impairment and transaction-related charges for the year ended December 31, 2017, were $3.5 million, consisting of the following:

(1) $0.5 million of employee termination charges related to workforce reductions through facility consolidations and separation programs;

(2) $2.1 million of transaction-related charges which primarily included professional service fees;

and (3) $0.9 million of other restructuring charges.

(a) Includes $3.0 million of impairment charges for equipment during the year ended December 31, 2019.

(b) Includes a $45.0 million reverse termination fee paid during the year ended December 31, 2019, in connection with the termination of the definitive agreement pursuant to which Quad would have acquired LSC.

Liquidity and Capital Resources

The Company utilizes cash flows from operating activities and borrowings under its credit facilities to satisfy its liquidity and capital requirements.

At December 31, 2019 , the Company had cash and cash equivalents of $78.7 million .

In addition to cash and cash equivalents, the Company had $764.2 million of unused capacity under its revolving credit arrangement at December 31, 2019 , which was net of $35.8 million of issued letters of credit.

The Company believes its expected future cash flows from operating activities, $764.2 million of unused capacity under the revolving credit arrangement and available cash on hand provide sufficient resources to fund ongoing operating requirements and the integration and restructuring requirements related to acquired operations, as well as future capital expenditures, debt and pension service requirements, investments in future growth to create value for its shareholders, shareholder dividends and share repurchases.

The Company had total liquidity of $516.6 million as of December 31, 2020, which consisted of up to $461.4 million of unused capacity under its revolving credit arrangement, which was net of $38.6 million of issued letters of credit, and cash and cash equivalents of $55.2 million.

Total liquidity is reduced to $382.9 million under the Company’s most restrictive debt covenants, and consists of $55.2 million in cash and cash equivalents and $327.7 million available under its revolving credit arrangement.

There were no borrowings under the $500.0 million revolving credit facility as of December 31, 2020, and peak borrowings were $150.0 million during the year ended December 31, 2020.

The Company implemented cost reduction and cash conservation initiatives as previously described herein in response to the impact of the COVID-19 pandemic on its business.

These actions include, among many others, delaying capital spending projects and temporarily suspending the Company’s quarterly dividend.

The Company believes its expected future cash flows from operating activities, cost reduction and cash preservation initiatives, and its current liquidity and capital resources, are sufficient to fund ongoing operating requirements and service debt and pension requirements.

Net Cash Provided by Operating Activities

Year Ended December 31, 2020, Compared to Year Ended December 31, 2019

Net cash provided by operating activities was $155.5 million for the year ended December 31, 2019 , compared to $260.6 million for the year ended December 31, 2018 , resulting in an $105.1 million decrease in cash provided by operating activities.

The decrease was primarily due to a $102.9 million decrease in cash from earnings and a $2.2 million decrease in cash flows from changes in operating assets and liabilities.

Year Ended December 31, 2018 , Compared to Year Ended December 31, 2017

Net cash provided by operating activities was $260.6 million for the year ended December 31, 2018 , compared to $344.0 million for the year ended December 31, 2017 , resulting in an $83.4 million decrease in cash provided by operating activities.

The decrease was primarily due to a $93.4 million decrease in cash from earnings, partially offset by a $10.0 million increase in cash flows from changes in operating assets and liabilities.

Net Cash Used in Investing Activities

Year Ended December 31, 2019 , Compared to Year Ended December 31, 2018

Net cash used in investing activities was $208.1 million for the year ended December 31, 2019 , compared to $120.5 million for the year ended December 31, 2018 , resulting in a $87.6 million increase in cash used in investing activities.

The increase was primarily due to the following:

(1) a $49.6 million increase from the acquisition of businesses;

(2) a $15.2 million decrease in proceeds from the sale of property, plant and equipment;

(3) a $14.7 million increase in purchases of property, plant and equipment;

(4) a $14.2 million decrease in the proceeds from property insurance claims;

and (5) a $5.0 million loan to an unconsolidated entity.

These increases were partially offset by an $11.1 million increase in proceeds from the sale of a business.

Net cash provided by operating activities was $190.2 million for the year ended December 31, 2020, compared to $155.5 million for the year ended December 31, 2019, resulting in a $34.7 million increase in cash provided by operating activities.

The increase was primarily due to a $37.4 million increase in cash from earnings, partially offset by a $2.7 million decrease in cash flows from changes in operating assets and liabilities.

Net Cash Provided by (Used in) Investing Activities

Year Ended December 31, 2020, Compared to Year Ended December 31, 2019

Net cash used in investing activities was $120.5 million for the year ended December 31, 2018 , compared to $47.2 million for the year ended December 31, 2017 , resulting in a $73.3 million increase in cash used in investing activities.

Net cash provided by investing activities was $9.7 million for the year ended December 31, 2020, compared to $208.1 million used in investing activities for the year ended December 31, 2019, resulting in a $217.8 million increase in cash provided by investing activities.

The increase was primarily due to the following:

(1) a $71.4 million increase from the acquisition of businesses;

(2) a $14.1 million decrease in proceeds from the sale of a business;

and (3) a $10.4 million increase in purchases of property, plant and equipment.

These increases were partially offset by the following:

(1) an $8.8 million increase in proceeds from the sale of property, plant and equipment;

(2) a $7.3 million loan to an unconsolidated entity in 2017 that did not repeat in 2018;

and (3) a $6.5 million increase in proceeds from property insurance claims.

(1) a $118.8 million decrease from the acquisition of businesses;

(2) a $50.2 million increase in the proceeds from the sale of businesses;

(3) a $50.0 million decrease in purchases of property, plant and equipment;

(4) a $5.0 million decrease in loan to an unconsolidated entity;

and (5) a $4.5 million increase in the proceeds from property insurance claims.

These increases were partially offset by (1) a $10.1 million decrease in proceeds from the sale of property, plant and equipment;

(2) a $0.5 million investment in an unconsolidated entity;

and (3) a $0.1 million decrease in other investing activities.

Net Cash Provided by (Used in) Financing Activities

Year Ended December 31, 2020, Compared to Year Ended December 31, 2019

Net cash provided by financing activities was $61.8 million for the year ended December 31, 2019 , compared to $133.5 million used for the year ended December 31, 2018 , resulting in a $195.3 million increase in cash provided by financing activities.

The increase was primarily due to the following:

(1) a $180.1 million increase in net borrowings;

(2) a $36.7 million decrease in purchases of treasury stock;

(3) $5.8 million decrease in payments of cash dividends;

and (4) a $2.4 million decrease in equity awards redeemed to pay employees’ tax obligations.

This was partially offset by the following:

(1) a $20.2 million increase in payments of debt issuance costs and financing fees;

(2) a $5.3 million increase in contingent cash paid for business acquired;

and (3) a $4.2 million decrease in the proceeds from stock options exercised.

Year Ended December 31, 2018 , Compared to Year Ended December 31, 2017

Net cash used in financing activities was $133.5 million for the year ended December 31, 2018 , compared to $251.7 million for the year ended December 31, 2017 , resulting in a $118.2 million decrease in cash used in financing activities.

The decrease was primarily due to the following:

(1) a $143.9 million decrease in net repayments of debt and lease obligations in 2018 as compared to 2017;

and (2) a $4.7 million decrease in payments of debt issuance costs and financing fees.

These decreases were partially offset by the following:

(1) a $32.9 million increase in purchases of treasury stock;

and (2) a $3.0 million increase in equity awards redeemed to pay employees’ tax obligations.

Net cash used in financing activities was $223.6 million for the year ended December 31, 2020, compared to $61.8 million provided by financing activities for the year ended December 31, 2019, resulting in a $285.4 million increase in cash used in financing activities.

The increase was primarily due to a $336.4 million decrease in net borrowings of debt and lease obligations in 2020 compared to 2019, and a $22.4 million increase in cash used in changes in ownership of noncontrolling interests.

These increases were partially offset by (1) a $47.6 million decrease in payment of cash dividends;

(2) a $17.5 million decrease in payments of debt issuance costs and financing fees;

(3) a $5.6 million decrease in equity awards redeemed to pay employees’ tax obligations;

and (4) a $2.7 million decrease in other financing activities.

Free Cash Flow

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(1) LSC-related payments include transaction-related costs associated with the proposed, but now terminated, acquisition of LSC, including the $45.0 million reverse termination fee and incremental interest payments associated with the 2019 amended debt refinancing.

Free Cash Flow decreased $58.5 million for the year ended December 31, 2019 , compared to the year ended December 31, 2018 , primarily due to a $43.8 million decrease in net cash provided by operating activities, when excluding $61.3 million in LSC-related payments, primarily due to a decrease in cash from earnings, and a $14.7 million increase in capital expenditures.

Free Cash Flow decreased $93.8 million for the year ended December 31, 2018, compared to the year ended December 31, 2017, primarily due to an $83.4 million decrease in net cash provided by operating activities primarily due to a decrease in cash from earnings and a $10.4 million increase in capital expenditures.

Free Cash Flow increased $23.4 million for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to a $50.0 million decrease in capital expenditures, partially offset by a $26.6 million decrease in net cash provided by operating activities, when excluding $61.3 million in LSC-related payments.

See the “Net Cash Provided by Operating Activities” section above for further explanations of the change in operating cash flows and the “Net Cash Used in Investing Activities” section above for further explanations of the changes in purchases of property, plant and equipment.

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Debt Leverage Ratio

The Debt Leverage Ratio is defined as total debt and finance lease obligations divided by the trailing twelve months Adjusted EBITDA, comprised of the sum of the following:

The Debt Leverage Ratio is defined as total debt and finance lease obligations less cash and cash equivalents (Net Debt) divided by the trailing twelve months Adjusted EBITDA, comprised of the sum of the following:

(1) the last twelve months of EBITDA (see the definition of EBITDA and the reconciliation of net earnings (loss) attributable to Quad common shareholders to EBITDA in the “Results of Operations” section above);

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The Debt Leverage Ratio calculated below differs from the Total Leverage Ratio, the Total Net Leverage Ratio and Senior Secured Leverage Ratio included in the Company’s debt covenant calculations (see Note 12, “Debt,” to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K for further information on debt covenants).

The Total Leverage Ratio included in the Company’s debt covenants includes letters of credit and surety bonds as debt, excludes non-cash stock-based compensation expense from EBITDA and includes net income (loss) attributable to noncontrolling interests in EBITDA.

The Total Leverage Ratio included in the Company’s debt covenants includes interest rate swap liabilities, letters of credit and surety bonds as debt, excludes non-cash stock-based compensation expense from EBITDA and includes net income (loss) attributable to noncontrolling interests in EBITDA.

The Total Net Leverage Ratio includes and excludes the same adjustments as the Total Leverage Ratio, in addition to netting domestic unrestricted cash with debt.

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The Debt Leverage Ratio as of December 31, 2020 and 2019, was as follows:

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

(dollars in millions)

Total debt and finance lease obligations on the consolidated balance sheets $ 928.2 $ 1,112.2

Adjusted EBITDA for Quad for the year ended (non-GAAP)

Pro forma Adjusted EBITDA for acquired companies (non-GAAP) (1)

Cash and cash equivalents 55.2 78.7

Net Debt (non-GAAP) $ 873.0 $ 1,033.5

Adjusted EBITDA for the year ended (non-GAAP) $ 260.4 $ 334.9

Debt Leverage Ratio (non-GAAP)

Debt Leverage Ratio—net of excess cash (non-GAAP) (2)

______________________________

As permitted by the Company’s senior secured credit facility, certain pro forma financial information related to the acquisition of Ivie was included in calculating the Debt Leverage Ratio as of December 31, 2018.

As the acquisition of Ivie was completed on February 21, 2018, the $2.9 million pro forma Adjusted EBITDA represents the period from January 1, 2018, to February 20, 2018.

Adjusted EBITDA for Ivie was calculated in a consistent manner with the calculation above for Quad.

Ivie’s financial information has been consolidated within Quad’s financial results since the date of acquisition.

If the two months of pro forma Adjusted EBITDA for Ivie was not included in the calculation, the Company’s Debt Leverage Ratio would have been 2.20x as of December 31, 2018.

The Company had $79 million and $70 million in cash and cash equivalents at December 31, 2019 and 2018 , respectively.

Based on the Company’s typical year-end cash balance of approximately $10 million, Quad had $69 million and $60 million of excess cash at December 31, 2019 and 2018 , respectively.

If the excess cash in each year was used to further pay down debt, the Debt Leverage Ratio would have been 3.12x and 2.05x as of December 31, 2019 and 2018 , respectively.

Debt Leverage Ratio (non-GAAP) 3.35 x 3.09 x

The calculation of Adjusted EBITDA for the years ended December 31, 2020 and 2019, was as follows:

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(dollars in millions)

Net earnings (loss) attributable to Quad common shareholders

Net loss attributable to Quad common shareholders $ (128.3) $ (156.3)

Interest expense 68.8 90.0

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Net pension income (10.5) (6.0)

Employee stock ownership plan contribution

Loss on debt extinguishment 1.8 30.5

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______________________________

Other is comprised of equity in (earnings) loss of unconsolidated entity, Adjusted EBITDA for unconsolidated equity method investments and net earnings (loss) attributable to noncontrolling interests.

The Debt Leverage Ratio, net of excess cash, increased 1.07x at December 31, 2019 , compared to December 31, 2018 , primarily due to a $171.4 million increase in debt and finance lease obligations, primarily related to the cash paid for the Periscope acquisition;

the $45.0 million reverse termination fee paid for the termination of the LSC acquisition;

and a $14.7 million increase in purchases of property, plant and equipment.

The Debt Leverage Ratio at December 31, 2019 , of 3.32x is above management’s desired target Debt Leverage Ratio range of 2.0x to 2.5x ;

however, the Company operates at times above the Debt Leverage Ratio target range depending on the timing of compelling strategic investment opportunities like the Periscope acquisition, as well as seasonal working capital needs.

(1) Other is comprised of equity in loss of unconsolidated entity, Adjusted EBITDA for unconsolidated equity method investments and net loss attributable to noncontrolling interests.

The Debt Leverage Ratio, at December 31, 2020, increased 0.26x to 3.35x compared to December 31, 2019, primarily due to a $74.5 million decrease in Adjusted EBITDA, partially offset by a $160.5 million decrease in debt and finance lease obligations.

The Debt Leverage Ratio, at December 31, 2020, is above management’s desired target Debt Leverage Ratio range of 2.0x to 2.5x;

however, the Company expects to operate above the Debt Leverage Ratio target range due to the ongoing impacts from the COVID-19 pandemic.

The Company will also operate at times above the Debt Leverage Ratio target range depending on the timing of compelling strategic investment opportunities, as well as seasonal working capital needs.

Description of Significant Outstanding Debt Obligations as of December 31, 2020

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On July 26, 2019, following the termination of the proposed acquisition of LSC, Quad fully funded the $825.0 million delayed draw Term Loan A to retire the entire amount outstanding on the $500.0 million Term Loan B and reduced the borrowings under the revolving credit facility.

The third amendment also amended certain of the quarterly financial covenants to which the Company is subject (all financial terms, numbers and ratios are as defined in the Senior Secured Credit Facility, as amended by the third amendment).

The Company completed the fourth amendment to the Senior Secured Credit Facility on June 29, 2020.

The Senior Secured Credit Facility was amended to (a) provide for certain financial covenant relief through the fiscal quarter ending September 30, 2021 (the Covenant Relief Period);

(b) reduce the aggregate amount of the existing revolving credit facility from $800.0 million to $500.0 million;

and (d) prohibit repurchases of capital stock and payments of cash dividends during the Covenant

Relief Period.

Certain amendments were also made to the quarterly financial covenants to which the Company is subject, which are further described below.

At December 31, 2020, the Company had no outstanding borrowings on the revolving credit facility, and had $38.6 million of issued letters of credit, leaving $461.4 million available for future borrowings.

Borrowings under the revolving credit facility and delayed draw Term Loan A made under the Senior Secured Credit Facility at December 31, 2019 , bear interest at 2.50% in excess of reserve adjusted LIBOR , or 1.50% in excess of an alternate base rate.

Borrowings under the revolving credit facility and delayed draw Term Loan A made under the Senior Secured Credit Facility at December 31, 2020, bear interest at 2.50% in excess of reserve adjusted LIBOR, with a LIBOR floor of 0.75%, or 1.50% in excess of an alternate base rate.

The Senior Secured Credit Facility is secured by substantially all of the unencumbered assets of the Company.

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Senior Unsecured Notes

The Company issued $300.0 million aggregate principal amount of its Senior Unsecured Notes due May 1, 2022 , on April 28, 2014 .

The Company issued $300.0 million aggregate principal amount of its Senior Unsecured Notes due May 1, 2022, on April 28, 2014, of which $238.7 million is outstanding as of December 31, 2020.

The Senior Unsecured Notes bear interest at 7.0%, and interest is payable semi-annually.

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The proceeds from the Senior Unsecured Notes were used for the same purposes detailed above for the Senior Secured Credit Facility.

The Company repurchased $4.7 million of its outstanding Senior Unsecured Notes in the open market, resulting in a net gain on debt extinguishment of $0.8 million during the year ended December 31, 2020.

All repurchased Senior Unsecured Notes were canceled.

The Company used cash flows from operating activities and borrowings under its revolving credit facility to fund the repurchases.

These repurchases were primarily completed to reallocate debt to the lower interest rate revolving credit facility and thereby reduce interest expense based on current LIBOR rates.

Each of the Company’s existing and future domestic subsidiaries that is a borrower or guarantees indebtedness under the Company’s Senior Secured Credit Facility or that guarantees certain of the Company’s other indebtedness or indebtedness of the Company’s restricted subsidiaries (other than intercompany indebtedness) fully and unconditionally guarantee or, in the case of future subsidiaries, will guarantee, on a joint and several basis, the Senior Unsecured Notes (the “Guarantor Subsidiaries”).

All of the current Guarantor Subsidiaries are 100% owned by the Company.

Guarantor Subsidiaries will be automatically released from these guarantees upon the occurrence of certain events, including the following:

(1) the designation of any of the Guarantor Subsidiaries as an unrestricted subsidiary;

(2) 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 (3) the sale or disposition, including the sale of substantially all the assets, of any of the Guarantor Subsidiaries.

All of the Guarantor Subsidiaries are 100% owned by the Company.

Guarantor Subsidiaries will be automatically released from these guarantees upon the occurrence of certain events.

Master Note and Security Agreement

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Principal payments commenced September 1997 and extend through April 2026 in various tranches.

The notes are collateralized by certain United States land, buildings and press and finishing equipment under the terms of the Master Note and Security Agreement .

The notes are collateralized by certain United States press equipment under the terms of the Master Note and Security Agreement.

The Company redeemed $37.6 million of its senior notes under the Master Note and Security Agreement, at par (the outstanding principal balance as of the date of payment), during the year ended December 31, 2020.

There was no direct gain or loss recognized as a result of the tender as all notes were redeemed at par;

however, $0.2 million of unamortized debt issuance costs related to the tendered notes were recognized as a loss on debt extinguishment during the year ended December 31, 2020.

All tendered senior notes under the Master Note and Security Agreement were canceled.

The Company used cash flows from operating activities and borrowings under its revolving credit facility to fund the tender.

The tender was primarily completed to reallocate debt to the lower interest rate revolving credit facility and thereby reduce interest expense based on current LIBOR rates.

Covenants and Compliance

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Among these covenants, the Company was required to maintain the following as of December 31, 2020:

Total Leverage Ratio.

On a rolling twelve-month basis, the Total Leverage Ratio, defined as consolidated total indebtedness to consolidated EBITDA, shall not exceed 3.75 to 1.00 (for the twelve months ended December 31, 2019 , the Company’s Total Leverage Ratio was 3.22 to 1.00).

• Maximum Total Net Leverage Ratio.

On a rolling twelve-month basis, the Maximum Total Net Leverage Ratio, defined as consolidated total indebtedness, net of no more than $75.0 million of unrestricted cash, to consolidated EBITDA, shall not exceed (i) 4.50 to 1.00 for the quarters ending December 31, 2020 and March 31, 2021, (ii) 4.25 to 1.00 for the quarter ending June 30, 2021, and (iii) 4.125 to 1.00 for the quarter ending September 30, 2021 (for the twelve months ended December 31, 2020, the Company’s Maximum Total Net Leverage Ratio was 3.29 to 1.00).

After the Covenant Relief Period, the Company will be required to comply with the Total Leverage Ratio covenant, defined as consolidated total indebtedness to consolidated EBITDA which shall not exceed 3.75 to 1.00.

• If there is any amount outstanding on the Revolving Credit Facility or Term Loan A, or if any lender has any revolving credit exposure or Term Loan A credit exposure, the Company is required to maintain the following:

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• If the Company’s Total Net Leverage Ratio is greater than 2.75 to 1.00, the Company is prohibited from making greater than $60.0 million of annual dividend payments, capital stock repurchases and certain other payments.

If the Total Net Leverage Ratio is less than 2.75 to 1.00, there are no such restrictions.

As the Company’s Total Net Leverage Ratio as of December 31, 2019 , was 3.01 to 1.00, the limitations described above are currently applicable.

If the Total Net Leverage Ratio is less than 2.75 to 1.00, there are no such restrictions, provided, however, that no such restricted payments shall be made during the Covenant Relief Period.

As the Company’s Total Net Leverage Ratio as of December 31, 2020, was 3.30 to 1.00, and we are in the Covenant Relief Period, the limitations described above are currently applicable.

• If the Company’s Senior Secured Leverage Ratio is greater than 3.00 to 1.00 or the Company’s Total Net Leverage Ratio is greater than 3.50 to 1.00, 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).

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The net underfunded pension and MEPPs obligations decreased by $30.7 million during the year ended December 31, 2020, from $123.0 million at December 31, 2019, to $92.3 million at December 31, 2020.

This decrease in overall pension obligations was primarily due to payments totaling $10.4 million made to the MEPPs during the year ended December 31, 2019 , and an actual return on pension plan assets of 21.3% during the year ended December 31, 2019 , which was above the expected return on plan assets assumption of 6.25% .

The decrease was partially offset by a 102 basis point decrease in the pension discount rate from 4.22% at December 31, 2018 , to 3.20% at December 31, 2019 .

This decrease in overall pension obligations was primarily due to an actual return on pension plan assets of 17.0% during the year ended December 31, 2020, which was above the expected return on plan assets assumption of 5.75%, payments totaling $11.4 million made to the MEPPs and $7.8 million in employer pension contributions during the year ended December 31, 2020.

The decrease was partially offset by an 83 basis point decrease in the pension discount rate from 3.20% at December 31, 2019, to 2.37% at December 31, 2020.

The Company continues to focus on reducing pension obligations through cash contributions to the plans, lump-sum settlements and plan design changes.

Share Repurchase Program

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 stock.

On July 30, 2018 , the Company’s Board of Directors discontinued the remainder of the September 6, 2011 share repurchase program and authorized a new share repurchase program of up to $100.0 million of the Company’s outstanding class A common stock.

On July 30, 2018, 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.

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The program may be suspended or discontinued at any time.

There were no shares of the Company’s class A stock repurchased during the year ended December 31, 2019 .

During the year ended December 31, 2018 , the Company repurchased 1,871,631 shares of its class A common stock at a weighted average price of $19.59 per share for a total purchase price of $36.7 million .

During the year ended December 31, 2017 , the Company repurchased 200,605 shares of its class A common stock at a weighted average price of $18.89 per share for a total purchase price of $3.8 million .

As of December 31, 2019 , there was $100.0 million of authorized repurchases remaining under the program.

The Company is currently prohibited from repurchasing capital stock through the Covenant Relief Period, in accordance with the fourth amendment to the April 28, 2014 Senior Secured Credit Facility, completed on June 29, 2020.

There were no shares of the Company’s class A stock repurchased during the years December 31, 2020 and 2019.

As of December 31, 2020, there were $100.0 million of authorized repurchases remaining under the program.

Risk Management

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Payments Due by Period

Total 2021 2022 2023 2024 2025 Thereafter

Debt obligations (1)

$ 1,036.6 $ 67.8 $ 317.7 $ 109.7 $ 539.8 $ 1.1 $ 0.5

Operating lease obligations (2)

93.7 31.1 23.1 16.6 9.6 6.8 6.5

MEPPs withdrawal obligations (3)

51.2 6.2 6.2 6.2 4.0 3.8 24.8

Pension benefit obligations (4)

12.2 4.0 0.7 0.7 0.6 6.2 —

Finance lease obligations (5)

5.1 2.9 1.6 0.4 0.1 0.1 —

Purchase obligations (6)

11.1 10.4 0.3 0.3 0.1 — —

Business acquisitions (7)

7.7 7.7 — — — — —

$ 1,217.6 $ 130.1 $ 349.6 $ 133.9 $ 554.2 $ 18.0 $ 31.8

______________________________

(1) Debt obligations include $106.3 million for anticipated future interest payments, including $14.7 million of estimated interest payments from the interest rate swaps, and excludes $6.9 million for future amortization of debt issuance costs.

During 2020, the Company paid in advance the full amount of required amortization payments on its Term Loan A, totaling $67.1 million for the year ended December 31, 2021.

The Company also paid in advance $43.6 million of required amortization payments on its Term Loan A for the year ended December 31, 2022.

Amounts included in “Thereafter” include principal payments and estimated interest expense through April 2026.

(2) Operating lease obligations include $10.8 million for anticipated future interest payments.

(3) MEPPs withdrawal obligations include $15.5 million for anticipated future interest payments.

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(7) Business acquisitions represents an estimated $7.7 million of future cash payments associated with the acquisition of Ivie.

See Note 3 , “ Acquisitions and Strategic Investments ,” to the consolidated financial statements in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K for further discussion.

(8) The contractual obligations table above does not include reserves for uncertain tax positions recorded in accordance with the accounting guidance on uncertainties in income taxes.

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Certain revenues earned by the Company require judgment to determine if revenue should be recorded gross as principal or net of related costs as an agent.

Billings for third-party shipping and handling costs, primarily in the Company’s logistics operations, and out-of-pocket expenses are recorded gross in net sales and cost of sales in the consolidated statements of operations in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.

on Form 10-K.

Many of the Company’s operations process materials, primarily paper, that may be supplied directly by customers or may be purchased by the Company and sold to customers.

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For all contract costs with contracts over one year, the Company amortizes the costs to obtain contracts on a straight-line basis over the estimated life of the contract and reviews quarterly for impairment.

The accounting policies and estimates related to revenue recognition were updated effective January 1, 2018 with the adoption of the revised guidance on recognizing revenue from contracts with customers (see Note 1 , “ Basis of Presentation and Summary of Significant Accounting Policies ,” and Note 2 , “ Revenue Recognition ,” to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K for more information).

Impairment of Goodwill

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In accordance with accounting guidance, the Company performs an annual impairment test for goodwill as of October 31 or more frequently if events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is below its carrying value.

During the third quarter of 2019, the Company initiated an evaluation of strategic alternatives in relation to Quad’s Book business within the United States Print and Related Services reporting unit that resulted in the decision to divest the business.

Accordingly, the Company performed an interim assessment of the United States Print and Related Services reporting unit’s goodwill for impairment.

The fair value of the reporting unit was estimated using both an income valuation model (discounted cash flow) and a market approach based on the estimated selling price of the Book business in the then-current market environment.

As a result of the then-anticipated divestiture, the Company recognized a non-cash goodwill impairment charge of $10.1 million , representing the entire balance of goodwill associated with the Book business within the United States Print and Related Services reporting unit, as of July 31, 2019.

Within the United States Print and Related Services Segment, the Company has identified three reporting units:

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Additionally, there is no goodwill in the International segment on the consolidated balance sheets.

Due to the decline in the Company’s stock price and the uncertainty and impacts of the COVID-19 pandemic on the Company and the global economy, an interim goodwill impairment test was completed on the goodwill in the Core Print and Related Services reporting unit during the first quarter of 2020.

As a result, the Company determined the fair value of the Core Print and Related Services reporting unit exceeded the carrying value, and therefore no impairment was recorded.

The Company completed its annual impairment test as of October 31, 2020, and identified no indicators of impairment in any of the Company's reporting units during the year ended December 31, 2020.

In determining the fair value of the Core Print and Related Services reporting unit as of October 31, 2020, the Company used an equal weighting of both the income and market approaches.

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Significant assumptions used under the market approach included:

a control premium based on similar transactions, selection of the guideline public

companies and selected market multiples.

a control premium based on similar transactions, selection of the guideline public companies and selected market multiples.

This fair value determination was categorized as Level 3 in the fair value hierarchy (see Note 15, “Financial Instruments and Fair Value Measurements,” to the consolidated financial statements in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K for the definition of Level 3 inputs).

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Losses resulting from this measurement are recognized in the period in which the held for sale criteria are met while gains are not recognized until the date of sale.

Once designated as held for sale, the Company stops recording depreciation expense on the property, plant and equipment.

Once designated as held for sale, the Company stops recording

depreciation expense on the property, plant and equipment.

The fair value less cost to sell of long-lived assets held for sale is assessed at each reporting period until it no longer meets this classification.

Upon the decision to sell the Book business in the third quarter of 2019, the net assets of the Book business were reclassified as held for sale in accordance with the authoritative guidance.

The fair value was determined by the Company based on internal discounted cash flows estimates, quoted market prices where available and independent appraisals, as appropriate.

Accordingly, during the periods leading up to the pending disposition of the Book business , the Company continues to assess the carrying value of the net assets compared to the value implied by the bids received in connection with the sale process.

As a result of this assessment, during the year ended December 31, 2019 , the Company recorded non-cash impairment charges of $92.1 million to reduce the carrying value to its estimated fair value, less costs to sell.

See Note 4 , “ Discontinued Operations ,” to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K for more information about the Company’s intent to sell its Book business.

Based on the assessments completed during the years ended December 31, 2019 , 2018 and 2017 , the Company recognized property, plant and equipment impairment charges from continuing operations of $7.9 million , $26.2 million and $12.0 million , respectively, primarily related to facility consolidations, as well as other capacity and strategic reduction restructuring initiatives.

Based on the assessments completed during the years ended December 31, 2020, and 2019, the Company recognized property, plant and equipment impairment charges from continuing operations of $64.1 million and $7.9 million, respectively, primarily related to facility consolidations, as well as other capacity and strategic reduction restructuring initiatives.

There were no finite-lived intangible asset impairment charges recorded during the years ended December 31, 2020 and 2019.

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The weighted average discount rate used to determine benefit obligations for the pension plans at December 31, 2020, was 2.37%, a 83 basis point decrease from the discount rate of 3.20% at December 31, 2019.

A one-percentage point change in the discount rate would have the following impact on the projected benefit obligation as of December 31, 2019 :

A one-percentage point change in the discount rate would have the following impact on the projected benefit obligation and the net periodic benefit cost as of December 31, 2020:

Increase 1.0%

(in millions)

Projected benefit obligation $ (47.9) $ 55.9

Net pension income $ (3.4) $ 2.6

The Company employs a total return on investment approach for its pension plans whereby a diversified mix of equity securities and debt securities are used to maximize the long-term pension plan assets.

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Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition.

Equity securities are diversified across geography and market capitalization through investments in United States large-capitalization stocks, United States small-capitalization

stocks and international securities.

Equity securities are diversified across geography and market capitalization through investments in United States large-capitalization stocks, United States small-capitalization stocks and international securities.

Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews.

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A 25 basis point change in the expected return on plan assets would have the following impact on net pension income for the year ended December 31, 2020:

Increase 0.25%

(in millions)

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In 2016, the Company and the GCC reached a settlement agreement for all claims, with scheduled payments until February 2024.

The Company recorded a $32.1 million increase to the MEPPs withdrawal liability during the year ended December 31, 2018, which was a result of unfavorable rulings following litigation with the GCIU trustees, and was recorded in restructuring, impairment and transaction-related charges in the consolidated statements of operations.

In 2019, the Company and the GCIU reached a settlement agreement for all claims, with scheduled payments until April 2032.

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See Note 23, “New Accounting Pronouncements,” to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.

Summarized Financial Information of Subsidiary Guarantors Indebtedness

On April 28, 2014, Quad completed an offering of the Senior Unsecured Notes (see Note 12, “Debt,” for further details on the Senior Unsecured Notes).

Each of the Company’s Guarantor Subsidiaries fully and unconditionally guarantee or, in the case of future subsidiaries, will guarantee, on a joint and several basis, the Senior Unsecured Notes.

All of the current Guarantor Subsidiaries are 100% owned by the Company.

Guarantor Subsidiaries will be automatically released from these guarantees upon the occurrence of certain events, including the following:

• 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;

• the sale or disposition, including the sale of substantially all the assets, of any of the Guarantor Subsidiaries.

The following tables present summarized financial information for Quad and the Guarantor Subsidiaries on a combined basis after intercompany transactions have been eliminated, including adjustments to remove the equity in earnings from the Non-Guarantor Subsidiaries.

During the year ended December 31, 2020, six Non-Guarantor subsidiaries of the Company became Guarantor subsidiaries.

Accordingly, the material supplemental financial information for all periods presented below has been recast to reflect subsidiaries per the Senior Unsecured Notes agreement that were Guarantor Subsidiaries as of December 31, 2020.

Statement of Operations Financial Information December 31, 2020 December 31, 2019

Net sales $ 2,660.6 $ 3,580.2

Cost of sales 2,114.4 2,906.8

Gross Profit 546.2 673.4

Net earnings (loss) from continuing operations (106.5) (62.0)

Loss from discontinued operations, net of tax (21.9) (100.6)

Net earnings (loss) (128.4) (162.6)

net earnings (loss) attributable to noncontrolling interests (0.2) —

Net earnings (loss) attributable to Quad common shareholders $ (128.2) $ (162.6)

Balance Sheet Financial Information December 31, 2020 December 31, 2019

Total current assets $ 580.0 $ 794.9

Total long-term assets 1,555.5 1,911.2

Total current liabilities 598.1 729.8

Total long-term liabilities 1,143.3 1,335.7

Noncontrolling interests 0.7 17.7

Included in long-term assets in the table above are $11.6 million and $12.5 million of current intercompany loan receivables due to Quad from the Non-Guarantor Subsidiaries as of December 31, 2020 and 2019, respectively.

Also included in long-term assets are $428.8 million and $427.9 million of intercompany investments by Quad and the Guarantor Subsidiaries in the Non-Guarantor Subsidiaries.

Included in current liabilities are $2.9 million and $16.3 million of current intercompany payables due to the Non-Guarantor Subsidiaries from Quad and the Guarantor Subsidiaries as of December 31, 2020 and 2019, respectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis