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Item 8. Financial Statements and Supplementary Data

2021-02-24 compared with 2020-02-19 · 551 added, 985 removed, 1154 unchanged (57% of the section changed)

Financial Statements and Supplementary Data

Quarterly Financial Data (Unaudited)

The following table sets forth selected financial information for each of the eight quarters in the two-year period ended December 31, 2019 .

This unaudited information has been prepared by the Company on the same basis as the consolidated financial statements and includes all normal recurring adjustments necessary to present this information fairly when read in conjunction with the Company’s audited consolidated financial statements and the notes thereto.

UNAUDITED INTERIM FINANCIAL INFORMATION

(In millions, except per share data)

Year Ended December 31,

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Restructuring, impairment and transaction-related charges

Operating income (loss) from continuing operations (1)

Net earnings (loss) from continuing operations (1)

Earnings (loss) from discontinued operations, net of tax (2)

Net earnings (loss)

Net earnings (loss) attributable to Quad common shareholders

Earnings (loss) per diluted share attributable to Quad common shareholders

Continuing operations

Discontinued operations

Earnings (loss) per diluted share attributable to Quad common shareholders

Restructuring, impairment and transaction-related charges

Operating income from continuing operations

Net earnings (loss) from continuing operations (1)

Loss from discontinued operations, net of tax (2)

Net earnings (loss)

Net earnings (loss) attributable to Quad common shareholders

Earnings (loss) per diluted share attributable to Quad common shareholders

Continuing operations

Discontinued operations

Earnings (loss) per diluted share attributable to Quad common shareholders

______________________________

Operating income from continuing operations increased $4.1 million during the three months ended March 31, 2019 , as compared to the three months ended March 31, 2018 , primarily due to the following:

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

(2) $17.3 million of decreased restructuring, impairment and transaction related charges;

(3) savings from cost reduction initiatives;

including employee-related costs;

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

These impacts were partially offset by the following:

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

(2) a $16.4 million net benefit in 2018 in gains from property insurance claims;

and (3) a $5.0 million benefit in 2018 from changes in employee vacation policies.

Operating income from continuing operations decreased $7.2 million during the three months ended June 30, 2019 , as compared to the three months ended June 30, 2018 , primarily due to the following:

(1) lower print volume and pricing due to ongoing industry pressures from excess capacity in the printing industry;

(2) an increase in employee-related costs, primarily due to an $8.0 million increase in production hourly wages in our most competitive labor markets;

and (3) a $7.0 million decrease in paper byproduct recoveries, partially offset by the following:

(1) savings from cost reduction initiatives;

(2) earnings from the Periscope acquisition;

and (3) $1.0 million of decreased restructuring, impairment and transaction-related charges.

Operating income from continuing operations decreased $76.4 million during the three months ended September 30, 2019 , as compared to the three months ended September 30, 2018 , primarily due to the following:

(1) $51.4 million of increased restructuring, impairment and transaction-related charges;

(2) lower print volume and pricing due to ongoing industry pressures from excess capacity in the printing industry;

(3) an increase in employee related costs, primarily due to a $7.5 million increase in production hourly wages in our most competitive labor markers;

and (4) an $8.4 million decrease in paper byproduct recoveries, partially offset by the following:

(1) savings from cost reduction initiatives;

(2) earnings from the Periscope acquisition;

and (3) a $2.8 million decrease in depreciation and amortization expense;

Operating income from continuing operations increased $26.9 million for the three months ended December 31, 2019 , as compared to the three months ended December 31, 2018 , primarily due to the following:

(1) $47.0 million of decreased restructuring, impairment and transaction-related charges;

(2) savings from cost reduction initiatives;

and (3) earnings from the Periscope acquisition, partially offset by the following:

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

(2) a $12.7 million decrease in paper byproduct recoveries;

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

and (4) an increase in employee related costs, primarily due to a $4.7 million increase in production hourly wages in our most competitive labor markets.

The results of operations of the Company’s United States Book business are included in the earnings (loss) from discontinued operations (see Note 4 , “ Discontinued Operations ,” to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K).

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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We have audited the accompanying consolidated balance sheets of Quad/Graphics, Inc.

and subsidiaries (the “Company”) as of December 31, 2019 and 2018 , the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019 , and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018 , and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 , in conformity with accounting principles generally accepted in the United States of America.

and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

Change in Accounting Principles

As discussed in Note 13 to the financial statements, the Company has changed its method of accounting for leases, effective January 1, 2019, due to the adoption of Accounting Standards Update (ASU) No.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Discontinued Operations - Refer to Notes 1 and 4 to the consolidated financial statements.

Critical Audit Matter Description

As described in Note 4 to the consolidated financial statements, in 2019 the Company made a decision to sell its United States Book business (the “Book business”).

Management has reflected the results of this business as a discontinued operation in the consolidated statements of earnings for all periods presented.

Management presents discontinued operations when there is a disposal or anticipated disposal of a component group or a group of components that, in management’s judgment, represents a strategic shift that will have a major effect on operations and financial results.

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

Accordingly, the Company is required to assess and measure the net assets at their fair value.

In conjunction with this assessment, the fair value of long-lived assets, contract assets and goodwill was determined to be below the carrying value of the related assets.

The Company recorded impairment charges of $86.5 million , $5.6 million and $10.1 million , respectively, to reduce the carrying values to the estimated fair values.

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.

The principal considerations for our determination that performing procedures relating to the planned divestiture and determination of fair value of the Book business is a critical audit matter is that there was a high degree of auditor effort, judgment and subjectivity involved in designing and performing procedures to evaluate the planned divestiture transaction, due to the estimates and assumptions made by management when assessing whether the Book business met the criteria to be classified as held for sale, including the probability of the sale being complete within one year, to estimate the fair value of the assets given the sensitivity of operations to changes in demand, historical results and the strategic plan of the Company.

This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the determination of the fair value of the Book business and the audit effort required to review the accuracy of the Company’s restatement of the prior period financial statements.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the classification of the Book business as a discontinued operation and impairment of assets within the Book business included the following, among others:

We tested the effectiveness of controls related to management’s assertion that the Book business met the criteria to be presented as a discontinued operation and the effectiveness of controls over management’s goodwill and long-lived asset impairment evaluation.

We inquired of management to understand progression of potential divestiture transactions.

We inquired of management and reviewed management’s plan to sell the business.

We evaluated the evidence used by the Company in the evaluation of whether the planned divestiture met the criteria for discontinued operations, including the probability of the sale being completed within one year.

We evaluated the allocation of goodwill to the Book business based on the weighting of the relative fair value of the Book business compared to the remainder of the Core Print reporting unit.

We evaluated the reasonableness of management’s forecasts of future net sales and EBITDA margins by comparing the forecasts to (1) historical growth of net sales and historical EBITDA margins, (2) management’s long-range strategic plan which was communicated to the Board of Directors, and (3) forecasted information included in Company press releases, as well as, in analyst and industry reports for the Company and companies in its peer group.

We evaluated the reasonableness of the (1) valuation methodology and (2) weighted average cost of capital by comparing the fair value calculated under the market approach and income approach, evaluating the weighting of each valuation methodology, testing the source information underlying the determination of the weighted average cost of capital and the mathematical accuracy of the calculation as well as developing a range of independent estimates and comparing those to the weighted average cost of capital selected by management.

We evaluated the reasonableness of the assessment performed by management’s specialist in the determination of the fair value of the real estate of the long-lived assets by comparing the determined fair value to our independent estimate through comparison to external sources.

We reviewed the accuracy of the Company’s restatement of the prior period financial statements.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenues - Refer to Notes 1 and 2 to the consolidated financial statements

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 24, 2021, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of a new accounting standard.

As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Periscope, Inc.

(“Periscope”), which was acquired on January 3, 2019.

The operations that were excluded from the assessment constitute approximately 3% of consolidated total current assets, approximately 1% of consolidated net sales and approximately 1% of consolidated cost of sales as of and for the year ended December 31, 2019 .

Accordingly, our audit did not include the internal control over financial reporting at Periscope.

Basis for Opinion

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Year Ended December 31,

Products $ 2,228.7 $ 3,098.3

Services 700.9 825.1

Total net sales 2,929.6 3,923.4

Cost of sales

Products 1,831.5 2,615.6

Services 503.3 576.6

Total cost of sales 2,334.8 3,192.2

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Total operating expenses 2,975.6 3,888.7

Operating income from continuing operations

Operating income (loss) from continuing operations ( 46.0 ) 34.7

Interest expense 68.8 90.0

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Loss on debt extinguishment 1.8 30.5

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

Income tax benefit

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

Equity in (earnings) loss of unconsolidated entity

Net earnings (loss) from continuing operations

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

Income tax expense (benefit) 0.3 ( 24.4 )

Loss from continuing operations before equity in loss of unconsolidated entity ( 106.4 ) ( 55.4 )

Equity in loss of unconsolidated entity 0.2 0.3

Net loss from continuing operations ( 106.6 ) ( 55.7 )

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

Net earnings (loss)

Net loss ( 128.5 ) ( 156.3 )

net loss attributable to noncontrolling interests ( 0.2 ) —

Net earnings (loss) attributable to Quad common shareholders

Earnings (loss) per share attributable to Quad common shareholders

Continuing operations

Discontinued operations

Basic earnings (loss) per share attributable to Quad common shareholders

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

Loss per share attributable to Quad common shareholders

Basic and diluted:

Continuing operations $ ( 2.10 ) $ ( 1.11 )

Discontinued operations ( 0.43 ) ( 2.01 )

Diluted earnings (loss) per share attributable to Quad common shareholders

Basic and diluted loss per share attributable to Quad common shareholders $ ( 2.53 ) $ ( 3.12 )

Weighted average number of common shares outstanding

Basic and diluted 50.6 50.0

See accompanying Notes to Consolidated Financial Statements.

QUAD/GRAPHICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in millions)

Year Ended December 31,

Net earnings (loss)

Other comprehensive income (loss)

Net loss $ ( 128.5 ) $ ( 156.3 )

Other comprehensive loss

Translation adjustments

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Translation of long-term loans to foreign subsidiaries ( 0.7 ) 0.3

Revaluation loss on the sale of a business

Total translation adjustments 0.2 ( 1.0 )

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Net gain (loss) arising during period 3.2 ( 8.1 )

Settlement charge on pension benefit plans included in net earnings (loss)

Settlement charge on pension benefit plans included in net loss 0.1 —

Total pension benefit plan adjustments 3.3 ( 8.1 )

Other comprehensive income (loss), before tax

Income tax impact related to items of other comprehensive income (loss)

Other comprehensive income (loss), net of tax

Total comprehensive income (loss)

Other comprehensive loss, before tax ( 4.0 ) ( 19.8 )

Income tax impact related to items of other comprehensive loss ( 0.1 ) 4.8

Other comprehensive loss, net of tax ( 4.1 ) ( 15.0 )

Total comprehensive loss ( 132.6 ) ( 171.3 )

comprehensive loss attributable to noncontrolling interests ( 0.2 ) —

Comprehensive income (loss) attributable to Quad common shareholders

Comprehensive loss attributable to Quad common shareholders $ ( 132.4 ) $ ( 171.3 )

See accompanying Notes to Consolidated Financial Statements.

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(in millions, except per share data)

2020 December 31,

Cash and cash equivalents $ 55.2 $ 78.7

Receivables, less allowances for doubtful accounts of $25.0 million at December 31, 2019, and $27.4 million at December 31, 2018

Receivables, less allowances for credit losses of $ 33.8 million at December 31, 2020, and $ 25.0 million at December 31, 2019

Inventories 170.2 210.5

Prepaid expenses and other current assets 54.7 109.0

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Operating lease right-of-use assets—net 81.0 97.9

Goodwill 103.0 103.0

Other intangible assets—net 104.3 137.2

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Long-term assets of discontinued operations — 0.5

Total assets $ 1,927.7 $ 2,417.1

LIABILITIES AND SHAREHOLDERS’ EQUITY

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80.0 million shares;

13.5 million shares at December 31, 2019, and 13.5 million shares at December 31, 2018

13.5 million shares at December 31, 2020 and 2019

Common stock, Class C, $ 0.025 par value;

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Treasury stock, at cost, 0.7 million shares at December 31, 2020, and 1.6 million shares at December 31, 2019

( 13.1 ) ( 31.5 )

Accumulated deficit ( 566.0 ) ( 423.5 )

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OPERATING ACTIVITIES

Net earnings (loss)

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:

Net loss $ ( 128.5 ) $ ( 156.3 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization 181.6 223.1

Employee stock ownership plan contribution

Impairment charges 75.6 100.0

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Gain on the sale or disposal of property, plant and equipment ( 1.8 ) ( 6.6 )

Loss (gain) on the sale of a business

Loss (gain) on the sale of businesses 3.5 ( 8.4 )

Gain from property insurance claims ( 4.7 ) ( 0.8 )

Settlement loss on pension benefit plans

Deferred income taxes 48.5 ( 57.1 )

Equity in (earnings) loss of unconsolidated entity

Equity in loss of unconsolidated entity 0.2 0.3

Changes in operating assets and liabilities—net of acquisitions:

Receivables 72.8 57.1

Inventories 45.8 61.3

Prepaid expenses and other current assets 0.2 ( 8.5 )

Accounts payable and other current liabilities ( 90.5 ) ( 87.6 )

Other ( 27.5 ) ( 18.8 )

Net cash provided by operating activities 190.2 155.5

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Purchases of property, plant and equipment ( 61.0 ) ( 111.0 )

Cost investment in unconsolidated entities ( 0.5 ) —

Proceeds from the sale of property, plant and equipment 7.4 17.5

Proceeds from the sale of a business

Proceeds from the sale of businesses 61.3 11.1

Proceeds from property insurance claims 4.8 0.3

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Acquisition of businesses—net of cash acquired (Note 3) ( 2.2 ) ( 121.0 )

Net cash used in investing activities

Other investing activities ( 0.1 ) —

Net cash provided by (used in) investing activities 9.7 ( 208.1 )

FINANCING ACTIVITIES

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Payments of debt issuance costs and financing fees ( 2.7 ) ( 20.2 )

Purchases of treasury stock

Proceeds from stock options exercised

Change in ownership of noncontrolling interests ( 22.4 ) —

Equity awards redeemed to pay employees’ tax obligations ( 1.0 ) ( 6.6 )

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(in millions)

Treasury Stock

Common Stock Additional

Capital Treasury Stock Accumulated

Deficit Accumulated

Comprehensive

Quad’s Shareholders’

Noncontrolling

Loss Quad’s Shareholders’

Equity Noncontrolling

Shares Amount Shares Amount

Balance at January 1, 2019 54.3 $ 1.4 $ 861.3 ( 2.7 ) $ ( 56.6 ) $ ( 211.4 ) $ ( 152.2 ) $ 442.5 $ 17.7

Net loss — — — — — ( 156.3 ) — ( 156.3 ) —

Foreign currency translation adjustments — — — — — — ( 1.0 ) ( 1.0 ) —

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Cash dividends declared ($ 1.05 per share)

— — — — — ( 55.8 ) — ( 55.8 ) —

Stock-based compensation — — 14.7 — — — — 14.7 —

Purchases of treasury stock

Stock options exercised

Issuance of share-based awards, net of other activity — — ( 28.6 ) 1.6 31.7 — — 3.1 —

Cancellation of class B treasury shares (Note 19)

Equity awards redeemed to pay employees’ tax obligations — — — ( 0.5 ) ( 6.6 ) — — ( 6.6 ) —

Balance at December 31, 2019 54.3 1.4 847.4 ( 1.6 ) ( 31.5 ) ( 423.5 ) ( 167.2 ) 226.6 17.7

Accumulated deficit transition adjustment for adoption of Topic 606 (Note 2)

Accumulated deficit transition adjustment for adoption of ASU 2018-02

Accumulated deficit transition adjustment for adoption of ASU 2016-13, net of tax (Note 7) — — — — — ( 6.3 ) — ( 6.3 ) —

Balance at January 1, 2020 54.3 1.4 847.4 ( 1.6 ) ( 31.5 ) ( 429.8 ) ( 167.2 ) 220.3 17.7

Net earnings (loss)

Consolidation of Rise

Foreign currency translation adjustments

Pension benefit plan liability adjustments, net of tax

Interest rate swap adjustments, net of tax

Cash dividends declared ($1.20 per share)

Stock-based compensation

Employee stock ownership plan contribution

Purchases of treasury stock

Stock options exercised

Issuance of share-based awards, net of other activity

Equity awards redeemed to pay employees’ tax obligations

Balance at December 31, 2018

Net loss — — — — — ( 128.3 ) — ( 128.3 ) ( 0.2 )

Change in ownership of noncontrolling interests — — ( 5.4 ) — — — — ( 5.4 ) ( 16.8 )

Foreign currency translation adjustments — — — — — — 0.2 0.2 —

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Cash dividends declared ($ 0.15 per share)

— — — — — ( 7.9 ) — ( 7.9 ) —

Stock-based compensation — — 10.7 — — — — 10.7 —

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Basis of Presentation and Summary of Significant Accounting Policies

Nature of Operations —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.

Quad provides its clients with unmatched scale for on-site services and expanded subject expertise in marketing strategy, creative solutions, media deployment (which includes a strong foundation in print) and marketing management services.

With a client-centric approach, that drives its expanded offering, combined with leading-edge technology and single-source simplicity, the Company believes it has the resources and knowledge to help a wide variety of clients in multiple vertical industries, including retail, financial/insurance, healthcare, consumer packaged goods, publishing and direct-to-consumer.

Nature of Operations —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.

Quad provides its clients with unmatched scale for on-site services and expanded subject expertise in marketing strategy, creative solutions, media deployment and marketing management services.

With a client-centric approach that drives the Company to continuously evolve its offering, combined with leading-edge technology and single-source simplicity, the Company has the resources and knowledge to help a wide variety of clients in multiple vertical industries, including retail, publishing, consumer technology, consumer packaged goods, financial services, insurance, healthcare and direct-to-consumer.

The Company operates primarily in the commercial print portion of the printing industry as a printer of retail inserts, publications, catalogs, special interest publications, journals, direct mail, directories, in-store marketing and promotion, packaging, newspapers, custom print products, other commercial and specialty printed products and global paper procurement.

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Intercompany transactions and balances have been eliminated in consolidation.

Discontinued Operations —The results of operations of the Company’s Book business have been reported as discontinued operations for all periods presented, in accordance with ASC 205-20 — Discontinued Operations .

The corresponding current and long-term assets and liabilities of the Book business have been classified as held for sale in the consolidated balance sheets in accordance with ASC 205-20 as of December 31, 2019 and 2018 .

The sale of the Book business was completed during 2020.

The financial information pertaining to discontinued operations has been excluded from all relevant notes to the consolidated financial statements, unless otherwise noted.

See all required disclosures and further information in Note 4 , “ Discontinued Operations ” for information about the Company’s intent to sell its Book business.

See all required disclosures and further information in Note 4, “Discontinued Operations” for information about the Company’s sale of its Book business.

Foreign Operations —Assets and liabilities denominated in foreign currencies are translated into United States dollars at the exchange rate existing at the respective balance sheet dates.

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Translation adjustments resulting from fluctuations in exchange rates are recorded as a separate component of accumulated other comprehensive income (loss) on the consolidated statements of shareholders’ equity, while transaction gains and losses are recorded in selling, general and administrative expenses on the consolidated statements of operations.

Foreign exchange transactions resulted in losses of $ 1.2 million during the year ended December 31, 2019 , gains of $ 1.6 million during the year ended December 31, 2018 , and losses of $ 1.5 million during the year ended December 31, 2017 .

Foreign exchange transactions resulted in losses of $ 2.0 million during the year ended December 31, 2020 and gains of $ 1.2 million during the year ended December 31, 2019.

QUAD/GRAPHICS, INC.

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Revenues for Company-supplied paper are recognized on a gross basis.

On January 1, 2018, the Company adopted Accounting Standards Update 2014-09, “Revenue from Contracts with Customers” (“ ASU 2014-09 ”), which provides revised guidance on recognizing revenue from contracts with customers.

The Company adopted ASU 2014-09 using the modified retrospective approach and applied the guidance applied the new guidance under ASC 606 — Revenue from Contracts with Customers (“ ASC 606 ”) to those contracts which were not completed as of January 1, 2018.

This means that ASC 606 has been applied to the 2018 financial statements and disclosures going forward, but that prior period financial statements and disclosures reflect the revenue recognition standard of ASC 605 — Revenue Recognition .

See Note 2 , “ Revenue Recognition ,” for additional accounting policy and transition disclosures.

Byproduct Recoveries —The Company presents byproduct recoveries as a reduction of cost of sales–products in the consolidated statements of operations.

Classification of byproduct recoveries as a reduction of cost of sales aligns the proceeds from byproduct recoveries with the corresponding manufacturing costs.

Financial Instruments —The Company uses derivative financial instruments for the purpose of hedging interest rate, commodity and foreign exchange exposures that exist as part of ongoing business operations, including interest rate swap agreements, natural gas forward purchase contracts and foreign exchange contracts.

As a policy, the Company does not engage in speculative or leveraged transactions, nor does the Company hold or issue financial instruments for trading purposes.

QUAD/GRAPHICS, INC.

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(In millions, except share and per share data and unless otherwise indicated)

As a policy, the Company does not engage in speculative or leveraged transactions, nor does the Company hold or issue financial instruments for trading purposes.

Derivative instruments are recorded on the consolidated balance sheets as either assets or liabilities measured at their fair value.

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See Note 15, “Financial Instruments and Fair Value Measurements,” for further discussion.

Research and Development —Research and development costs related to the development of new products or the adaptation of existing products are expensed as incurred, included in cost of sales and totaled $ 3.6 million , $ 3.6 million and $ 9.0 million during the years ended December 31, 2019 , 2018 and 2017 , respectively.

Research and Development —Research and development costs related to the development of new products or the adaptation of existing products are expensed as incurred, included in cost of sales and totaled $ 3.0 million and $ 3.6 million during the years ended December 31, 2020 and 2019, respectively.

Cash and Cash Equivalents and Restricted Cash —The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Receivables —Receivables are stated net of allowances for doubtful accounts.

Receivables —Receivables are stated net of allowances for credit losses.

No single customer comprised more than 5 % of the Company’s consolidated net sales in 2020 or 2019, or 5 % of the Company’s consolidated receivables as of December 31, 2020 or 2019.

Specific customer provisions are made when a review of significant outstanding amounts, utilizing information about customer creditworthiness and current economic trends, indicates that collection is doubtful.

In addition, provisions are made at differing rates, based upon the age of the receivable and the Company’s historical collection experience.

Accounts that are deemed uncollectible are written off when all reasonable collection efforts have been exhausted.

On January 1, 2020, the Company adopted Accounting Standards Update 2016-13 “Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments.

This new impairment model, also known as the current expected credit loss (“CECL”) model, is based on expected losses rather than incurred losses.

Under ASC 326— Financial Instruments — Credit Losses (“ASC 326”), the Company is required to measure expected credit losses for financial instruments, including trade receivables, based on historical experience, current conditions and reasonable forecasts.

The Company has adopted ASU 2016-13 using a modified retrospective transition approach and has recorded a cumulative-effect transition adjustment to accumulated deficit to increase the allowance for credit losses balance as of January 1, 2020.

See Note 7, “Receivables,” for further discussion on the transactions affecting the allowances for doubtful accounts.

Inventories —Inventories include material, labor, and plant overhead and are stated at the lower of cost or net realizable value.

At December 31, 2019 and 2018 , all inventories were valued using the first-in, first-out (“ FIFO ”) method.

At December 31, 2020 and 2019, all inventories were valued using the first-in, first-out method.

See Note 8, “Inventories,” for the components of the Company’s inventories.

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(In millions, except share and per share data and unless otherwise indicated)

On January 1, 2019, the Company adopted Accounting Standards Update 2016-02, “Leases (Topic 842)” (“ ASU 2016-02 ”), which establishes a right-of-use model requiring a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months.

Leases —On January 1, 2019, the Company adopted Accounting Standards Update 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which establishes a right-of-use model requiring a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months.

Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition.

The Company adopted ASU 2016-02 using the modified retrospective approach and applied the new guidance under Accounting Standards Codification 842 — Leases (“ ASC 842 ”) to those contracts existing at, or entered into after, January 1, 2019.

The Company adopted ASU 2016-02 using the modified retrospective approach and applied the new guidance under ASC 842 — Leases (“ASC 842”) to those contracts existing at, or entered into after, January 1, 2019.

See Note 13, “Leases,” for additional accounting policy and transition disclosures.

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When an asset is retired or disposed, the associated costs and accumulated depreciation are eliminated, and the resulting gain or loss is recognized in the Company’s consolidated statements of operations.

Asset Category

Range of Useful Lives

10 to 40 Years

Machinery and equipment

3 to 15 Years

3 to 10 Years

Asset Category Range of Useful Lives

Buildings 10 to 40 Years

Machinery and equipment 3 to 15 Years

Other 3 to 10 Years

Other Intangible Assets —Identifiable intangible assets are recognized apart from goodwill and are amortized over their estimated useful lives.

9 unchanged sentences

See Note 6, “Goodwill and Other Intangible Assets,” for further discussion.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Income Taxes —The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of items reported in the financial statements.

1 unchanged sentence

The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the effective date of enactment.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized.

22 unchanged sentences

For the purposes of calculating the expected return on plan assets, those assets are valued at fair value.

When an event gives rise to both a curtailment and a settlement, the curtailment is accounted for

When an event gives rise to both a curtailment and a settlement, the curtailment is accounted for prior to the settlement.

The Company’s measurement date to measure the defined benefit plan assets and the projected benefit obligation is December 31.

The Company has previously participated in MEPPs as a result of the acquisition of World Color Press.

Due to the significant underfunded status of the MEPPs, the Company has withdrawn from all significant MEPPs and replaced these union sponsored “promise to pay in the future” defined benefit plans with a Company sponsored “pay as you go” defined contribution plan, which is the form of retirement benefit provided to Quad’s employees.

As a result of the decision to withdraw, the Company recorded an estimated withdrawal liability for the MEPPs as part of the World Color

QUAD/GRAPHICS, INC.

1 unchanged sentence

(In millions, except share and per share data and unless otherwise indicated)

prior to the settlement.

The Company’s measurement date to measure the defined benefit plan assets and the projected benefit obligation is December 31 .

The Company has previously participated in MEPPs as a result of the acquisition of World Color Press.

Due to the significant underfunded status of the MEPPs , the Company has withdrawn from all significant MEPPs and replaced these union sponsored “promise to pay in the future” defined benefit plans with a Company sponsored “pay as you go” defined contribution plan, which is historically the form of retirement benefit provided to Quad’s employees.

As a result of the decision to withdraw, the Company recorded an estimated withdrawal liability for the MEPPs as part of the World Color Press purchase price allocation process based on information received from the MEPPs ’ trustees.

Press purchase price allocation process based on information received from the MEPPs’ trustees.

See Note 16, “Employee Retirement Plans,” for further discussion.

Stock-Based Compensation —The Company recognizes stock-based compensation expense over the vesting period for all stock-based awards made to employees and directors based on the fair value of the instrument at the time of grant.

Equity awards accounted for as liabilities are recorded at fair value on the initial issuance date and are remeasured to fair value at each reporting period, with the change in fair value being recorded in selling, general and administrative expense in the condensed consolidated statements of operations.

See Note 18, “Equity Incentive Programs,” for further discussion.

1 unchanged sentence

See Note 20, “Accumulated Other Comprehensive Loss,” for further discussion.

The COVID-19 Pandemic Impacts and Response —The COVID-19 pandemic has had, and will continue to have, a negative impact on the Company’s business, financial condition, cash flows, results of operations and supply chain, although the full extent is still uncertain.

The Company implemented cost reduction and cash conservation initiatives in response to the impact of the COVID-19 pandemic on its business, 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 until further notice;

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 amended its Senior Secured Credit Facility during the second quarter of 2020 to provide for certain financial covenant relief through the fiscal quarter ending September 30, 2021.

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

As the pandemic continues, 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.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Supplemental Cash Flow Information — The following table summarizes certain supplemental cash flow information for the years ended December 31, 2020 and 2019:

7 unchanged sentences

Liabilities assumed ( 2.8 ) ( 31.5 )

Noncontrolling interests

Goodwill — 58.5

Equity incentive awards — ( 3.2 )

4 unchanged sentences

Revenue Recognition

The Company recognizes its products and services revenue based on when the transfer of control passes to the customer or when the service is completed and accepted by the customer.

The adoption of ASC 606 in the year ended December 31, 2018, did not have a material effect on the consolidated financial statements.

In adopting ASC 606 , the timing of recognition changed for certain variable consideration paid to customers and costs to obtain contracts with customers.

Revenue Disaggregation

1 unchanged sentence

United States Print

and Related Services

International

Year ended December 31, 2019

Catalog, publications, retail inserts and directories

Direct mail and other printed products

Total Products

Logistics services

Imaging, marketing services and other services

Total Services

Total Net Sales

and Related Services International Total

Year ended December 31, 2020

1 unchanged sentence

Direct mail and other printed products 538.3 53.3 591.6

Other 3.7 1.4 5.1

Total Products 1,944.0 284.7 2,228.7

6 unchanged sentences

Direct mail and other printed products 681.6 83.7 765.3

Other 17.0 0.3 17.3

Total Products 2,713.3 385.0 3,098.3

3 unchanged sentences

Total Net Sales $ 3,521.0 $ 402.4 $ 3,923.4

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Nature of Products and Services

The Company recognizes its products and services revenue based on when the transfer of control passes to the client or when the service is completed and accepted by the client.

The products offering is predominantly comprised of the Company’s print operations which includes retail inserts, publications, catalogs, special interest publications, journals, direct mail, directories, in-store marketing and promotion, packaging, newspapers, custom print products, other commercial and specialty printed products and global paper procurement.

1 unchanged sentence

The services offering also includes revenues related to the Company’s imaging operations, which include digital content management, photography, color services, page production, marketing services, media planning and placement, facilities management and medical services.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Performance Obligations

18 unchanged sentences

In these cases, the Company is acting as an agent and billings are recorded on a net basis in net sales.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Significant Payment Terms

8 unchanged sentences

These variable amounts generally are credited to the customer, based on achieving certain levels of sales activity, when contracts are signed, or making payments within specific terms.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Product returns are not significant because the products are customized;

2 unchanged sentences

Costs to Obtain Contracts

In accordance with ASC 606 , the Company capitalizes certain sales incentives of the sales compensation packages for costs that are directly attributed to being awarded a customer contract or renewal and would not have been incurred had the contract not been obtained.

In accordance with ASC 606 — Revenue from Contracts with Customers (“ASC 606”), the Company capitalizes certain sales incentives of the sales compensation packages for costs that are directly attributed to being awarded a customer contract or renewal and would not have been incurred had the contract not been obtained.

The Company also defers certain contract acquisition costs paid to the customer at contract inception.

13 unchanged sentences

or (3) contracts with variable consideration related to unsatisfied performance obligations.

The Company had approximately $ 21.7 million in volume commitments in contracts that extend beyond one year as of December 31, 2019 .

The Company expects to recognize approximately 55 % of these volume commitments in contracts as revenue by the end of 2020 , and the remaining 45 % by the end of 2021.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The Company had zero volume commitments in contracts that extend beyond one year as of December 31, 2020.

• The Company expenses costs to obtain contracts as incurred when the contract duration is less than one year.

2 unchanged sentences

• The Company excludes from its transaction price any amounts collected from customers for sales taxes.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Acquisitions and Strategic Investments

2020 Change of Ownership in Rise Interactive

On June 15, 2020, the Company purchased units of equity in Rise from a previous holder in the form of a $ 15.9 million note payable paid in full on October 1, 2020, and $ 1.0 million cash paid on June 15, 2020.

In addition, on June 15, 2020, Rise purchased and retired units of equity from previous holders of Rise for $ 5.4 million in cash.

These transactions resulted in the Company’s ownership interest changing from 57 % to 99 %.

The Company began consolidating the results of Rise in the Company’s consolidated financial statements when its equity ownership increased to 57 % on March 14, 2018.

The portion of Rise’s operating results not owned by the Company of 43 % through June 15, 2020 and of 1 % after June 15, 2020 is recorded as net earnings (loss) attributable to noncontrolling interests on the consolidated statement of operations.

The portion of net assets not owned by the Company is recorded as noncontrolling interests as of the respective dates shown on the consolidated balance sheets.

2019 Acquisition of Periscope

7 unchanged sentences

Periscope’s operations are included in the United States Print and Related Services segment.

2018 Acquisition of Ivie

The Company completed the acquisition of Ivie on February 21, 2018, for $ 90.0 million cash paid, which is subject to a potential earn-out of up to an additional $ 16.0 million , to the extent that certain financial metrics are achieved post-integration.

Ivie is headquartered in Flower Mound, Texas and provides a full array of marketing services, including creative and production services, studio services, sourcing, procurement, staff enhancement, media services, public relations, digital services, technology solutions and project management for many leading brands throughout the world.

The purchase price of $ 105.4 million includes $ 13.6 million of acquired cash and an estimated $ 15.4 million of future cash payments related to the acquisition.

In April 2019, the first year earn-out payment of $ 5.3 million was made.

Included in the purchase price allocation are $ 79.6 million of identifiable other intangible assets, which are amortized over their estimated useful lives, ranging from three to eight years , and $ 28.3 million of goodwill, of which $ 26.4 million is deductible for tax purposes.

The final allocation of the purchase price was based on valuations performed to determine the fair value of the net assets as of the acquisition date.

The net assets acquired, excluding acquired cash, were classified as Level 3 in the valuation hierarchy (see Note 15 , “ Financial Instruments and Fair Value Measurements ,” for the definition of Level 3 inputs).

Ivie’s operations are included in the United States Print and Related Services segment.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

2018 Investment in Rise

On March 14, 2018 , the Company increased its equity position in Rise from 19 % to 57 % for the conversion of $ 9.3 million of loans to equity ownership and $ 8.7 million cash paid.

The Company had historically accounted for Rise as a cost method investment.

Rise is a digital marketing agency headquartered in Chicago, Illinois, that specializes in digital media, analytics and customer experience, and helps enterprise marketers see, shape, and act on opportunities in digital media.

The Company has consolidated the results of Rise as of the date the Company obtained controlling financial interest in Rise and accounts for the 43 % portion of Rise ’s results not owned by the Company as noncontrolling interest in the consolidated financial statements.

The fair value of the assets and liabilities of, and noncontrolling interest in, Rise is estimated to be $ 48.5 million , including $ 13.7 million of acquired cash.

Also included in the fair value allocation are $ 23.1 million of identifiable other intangible assets, which are amortized over their estimated useful lives, ranging from five to six years , and $ 26.3 million of goodwill, which is not deductible for tax purposes.

The final allocation of the purchase price was based on valuations performed to determine the fair value of the net assets as of the acquisition date.

Rise ’s operations are included in the United States Print and Related Services segment.

Discontinued Operations

6 unchanged sentences

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.

On July 1, 2020, the Company completed the sale of its Versailles, Kentucky book manufacturing plant to CJK Group, Inc., which serves book, magazine, catalog and journal publishers, for $ 7.0 million in cash and the assumption of approximately $ 3.0 million in finance lease obligation, resulting in a $ 10.1 million impairment charge related to property, plant and equipment and a $ 3.0 million gain on the sale of the business during the year ended December 31, 2020.

Working capital was finalized during the third quarter of 2020.

The Company used the proceeds from the sale to reduce debt.

On October 31, 2020, the Company completed the sale of its Fairfield, Pennsylvania and Martinsburg, West Virginia book manufacturing plants to Berryville Graphics, a division of Bertelsmann Printing Group USA, a media, services and education company, for $ 14.2 million in cash, resulting in a loss on the sale of the business of $ 3.5 million and a $ 1.4 million impairment charge related to property plant and equipment during the year ended December 31, 2020.

Working capital was finalized during the fourth quarter of 2020.

The Company used the proceeds from the sale to

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

This sale was the final step in the previously announced strategic decision to divest the Company’s Book business to optimize its product portfolio.

The following table summarizes the results of operations of the Company’s Book business, which are included in the loss from discontinued operations in the consolidated statements of operations for the years ended December 31, 2020 and 2019.

11 unchanged sentences

______________________________

The Company recognized impairment charges during the year ended December 31, 2019 , to reduce the carrying value of the Book business to its fair va lue, including $ 86.5 million of impairment charges for tangible property, plant and equipment and $ 5.6 million of impairment charges for contract assets.

(1) The Company recognized $ 11.5 million of impairment charges for tangible property, plant and equipment during the year ended December 31, 2020, to reduce the carrying value of the Book business to its fair value, and recognized $ 2.2 million in employee termination charges and $ 2.7 million in other restructuring charges during the year ended December 31, 2020.

Impairment charges recognized to reduce the carrying value of the Book business to its fair value during during the year ended December 31, 2019 included:

$ 86.5 million of impairment charges for tangible property, plant and equipment and $ 5.6 million of impairment charges for contract assets.

(2) The Book business was included in the Core Print and Related Services reporting unit.

The amount of goodwill allocated to the Book business was determined based on the relative fair value of the Book business and the portion of the reporting unit that will

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The amount of goodwill allocated to the Book business was determined based on the relative fair value of the Book business and the portion of the reporting unit that will be retained.

Due to the decision to sell the Book business, the Company must determine whether any of the assets of the Book business were impaired.

2 unchanged sentences

The consolidated statements of cash flows for all periods have not been adjusted to separately disclose cash flows related to discontinued operations.

Cash flows used in operating activities related to the Book business were $ 8.0 million , $ 10.9 million and $ 5.7 million during the years ended December 31, 2019 , 2018 and 2017 , respectively;

and cash flows used in investing activities related to the Book business were $ 17.2 million , $ 14.5 million and $ 11.5 million during the years ended December 31, 2019 , 2018 and 2017 , respectively.

Cash flows related to the Book business during the years ended December 31, 2020 and 2019 were as follows:

For The Year Ended December 31,

Cash flows used in operating activities $ ( 3.9 ) $ ( 8.0 )

Cash flows provided by (used in) investing activities 19.6 ( 17.2 )

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The following table summarizes the current and long-term assets and liabilities of the discontinued Book business that were classified as held for sale in the consolidated balance sheets at December 31, 2020, and 2019:

2020 December 31,

Receivables—net $ — $ 19.6

Inventories — 14.0

Prepaid expenses and other current assets (1)

14 unchanged sentences

(1) Includes land and building assets that were reclassified to other current assets as of December 31, 2019 .

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Restructuring, Impairment and Transaction-Related Charges

5 unchanged sentences

Other restructuring charges 22.0 4.4

Total $ 124.1 $ 89.4

The costs related to these activities have been recorded on the consolidated statements of operations as restructuring, impairment and transaction-related charges.

See Note 21, “Segment Information,” for restructuring, impairment and transaction-related charges by segment.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Restructuring Charges

1 unchanged sentence

The Company has announced a total of 50 plant closures since 2010.

The Company announced the closures of the facilities located in Midland, Michigan and Shakopee, Minnesota during the year ended December 31, 2019 .

The Company announced the closures of the facilities located in Charlotte, North Carolina;

Taunton, Massachusetts (retail facility);

Fernley, Nevada;

Nashville, Tennessee;

and Oklahoma City, Oklahoma during the year ended December 31, 2020.

The Company classifies the following charges as restructuring:

1 unchanged sentence

• Integration costs are incurred primarily for the integration of acquired companies (see Note 3, “Acquisitions and Strategic Investments,” for descriptions of the Company’s recent acquisitions).

Other restructuring charges are comprised of the following components and are presented net of the gains on the sale of facilities and businesses.

• Other restructuring charges are comprised of the following components and are presented net of any gains on the sale of facilities and businesses.

During the year ended December 31, 2020, the Company recognized gains from the sale of the facilities located in Midland, Michigan and Shakopee, Minnesota.

During the year ended December 31, 2019, the Company recognized an $ 8.4 million gain on the sale of a business, as well as gains from the sale of the facilities located in Franklin, Kentucky and Hazleton, Pennsylvania.

During the year ended December 31, 2018 , the Company recognized a $ 32.1 million increase to the Company’s MEPPs withdrawal liability and $ 10.0 million in charges for certain legal matters and customer contract penalties related to the Company’s operations in Peru, as well as gains from the sale of the facilities located in Taunton, Massachusetts (Book);

Dallas, Texas;

and San Ixhuatepec, Mexico.

During the year ended December 31, 2017 , the Company recognized a $ 6.7 million loss on the sale of a business and a $ 1.2 million gain from settlements with vendors through bankruptcy proceedings for the Company's Argentina Subsidiaries, as well as gains from the sale of the facilities located in Atglen, Pennsylvania;

Dickson, Tennessee;

Lenexa, Kansas;

East Greenville, Pennsylvania;

and Marengo, Iowa.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Year Ended December 31,

8 unchanged sentences

Impairment Charges

The Company recognized impairment charges of $ 7.9 million during the year ended December 31, 2019 , consisting of the following:

(1) $ 7.6 million of impairment charges primarily 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;

The Company recognized impairment charges of $ 64.1 million during the year ended December 31, 2020, which consisted of $ 22.1 million, for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction restructuring activities;

and $ 42.0 million of land and building impairment charges.

The Company recognized impairment charges of $ 7.9 million during the year ended December 31, 2019, which consisted of $ 7.6 million of impairment charges primarily for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction restructuring activities;

and $ 0.3 million of land and building impairment charges.

Additional impairment charges were recorded related to the Book business during the year ended December 31, 2019, which are disclosed in Note 4, “Discontinued Operations”.

The Company recognized impairment charges of $ 26.2 million during the year ended December 31, 2018 , consisting of the following:

(1) $ 16.6 million of impairment charges primarily 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 (2) $ 4.6 million of land and building impairment charges, primarily related to the Franklin, Kentucky plant closure.

The Company recognized impairment charges of $ 12.0 million during the year ended December 31, 2017 , consisting of the following:

(1) $ 6.7 million of impairment charges primarily 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 initiatives.;

and (2) $ 5.3 million of land and building impairment charges related to the Waseca, Minnesota and Taunton, Massachusetts (Book) plant closures.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The fair values of the impaired assets were determined by the Company to be Level 3 under the fair value hierarchy (see Note 15, “Financial Instruments and Fair Value Measurements,” for the definition of Level 3 inputs) and were estimated based on broker quotes, internal expertise related to current marketplace conditions and estimated future discounted cash flows.

3 unchanged sentences

The Company incurs transaction-related charges primarily consisting of professional service fees related to business acquisition and divestiture activities.

The Company recognized transaction-related charges of $ 51.6 million , $ 8.2 million and $ 3.1 million during the years ended December 31, 2019 , 2018 and 2017 , respectively.

Transaction-related charges included a $ 45.0 million reverse termination fee paid during the year ended December 31, 2019 , in

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

connection with the termination of the definitive agreement pursuant to which Quad would have acquired LSC ;

$ 6.4 million related to the then proposed acquisition of LSC during the year ended December 31, 2018 ;

and $ 1.0 million related to the sale of a business during the year ended December 31, 2017 .

The Company recognized transaction-related charges of $ 1.4 million and $ 51.6 million during the years ended December 31, 2020 and 2019, respectively.

Transaction-related charges included 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.

The transaction-related charges were expensed as incurred in accordance with the applicable accounting guidance on business combinations.

1 unchanged sentence

Activity impacting the Company’s restructuring reserves for the years ended December 31, 2020 and 2019, was as follows:

Transaction-Related

Charges (Income)

Charges Impairment

Charges Transaction-Related

Charges (Income) Integration

Restructuring

Charges Total

Balance at January 1, 2019 $ 9.3 $ — $ 1.2 $ 0.2 $ 17.1 $ 27.8

Expense, net 22.2 7.9 51.6 3.3 4.4 89.4

Cash payments, net ( 20.0 ) — ( 52.6 ) ( 3.2 ) ( 1.8 ) ( 77.6 )

1 unchanged sentence

Balance at December 31, 2019 $ 9.9 $ — $ 0.8 $ 0.2 $ 13.6 $ 24.5

Expense, net 34.7 64.1 1.4 1.9 22.0 124.1

Cash payments, net ( 29.7 ) — ( 1.7 ) ( 2.1 ) ( 10.5 ) ( 44.0 )

4 unchanged sentences

The long-term portion of $ 7.2 million was included in other long-term liabilities (see Note 10, “Other Current and Long-Term Liabilities”) in the consolidated balance sheets.

Included in the above table is a $ 2.0 million non-cash reclassification to transition lease liabilities previously accounted for under ASC 420 — Exit or Disposal Cost Obligations, to operating lease obligations, in accordance with the new guidance under ASC 842 .

See Note 13 , “ Leases ,” for additional accounting policy and transition disclosures.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination.

Goodwill is assigned to specific reporting units and is tested annually for impairment 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.

Due to the Company’s decision to sell its Book business , an interim goodwill impairment test was required to be completed on the remaining goodwill in the Core Print and Related Services reporting unit during the third quarter of 2019.

QUAD/GRAPHICS, INC.

1 unchanged sentence

(In millions, except share and per share data and unless otherwise indicated)

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination.

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.

Due to the Company’s decision to sell its Book business, an interim goodwill impairment test was completed on the remaining goodwill in the Core Print and Related Services reporting unit during the third quarter of 2019.

Due to the carrying value of the Book business net assets exceeding the estimated fair value, the Company recorded a $ 10.1 million goodwill impairment charge related to the Book business during the third quarter of 2019 (see Note 4, “Discontinued Operations”).

In addition, the remaining goodwill that is not allocated to a business to be sold must be tested for impairment.

No goodwill impairment was recorded on the remaining $ 103.0 million related to the retained portion of the Core Print and Related Services reporting unit during the year ended December 31, 2019.

Fair value was determined using an equal weighting of both the income and market approaches.

2 unchanged sentences

This fair value determination was categorized as Level 3 in the fair value hierarchy (see Note 15, “Financial Instruments and Fair Value Measurements,” for the definition of Level 3 inputs).

In addition, the remaining goodwill that is not allocated to a business to be sold must be tested for impairment.

No goodwill impairment was recorded on the remaining $ 103.0 million related to the retained portion of the Core Print and Related Services reporting unit during the year ended December 31, 2019 .

No goodwill impairment charges were recorded related to the Company’s continuing operations during the years ended December 31, 2020 or 2019.

The accumulated goodwill impairment losses and the carrying value of goodwill from continuing operations at December 31, 2020 and 2019, were as follows:

December 31, 2019

December 31, 2018

United States Print and Related Services

International

United States Print and Related Services

International

United States Print and Related Services International Total

Goodwill $ 881.3 $ 30.0 $ 911.3

Accumulated goodwill impairment loss ( 778.3 ) ( 30.0 ) ( 808.3 )

Goodwill, net of accumulated goodwill impairment loss $ 103.0 $ — $ 103.0

Activity impacting goodwill for the years ended December 31, 2019 and 2018 , was as follows:

There was no activity impacting goodwill for the year ended December 31, 2020.

Activity impacting goodwill for the year ended December 31, 2019, was as follows:

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

United States Print and Related

International

Services International Total

Balance at January 1, 2019 $ 44.5 $ — $ 44.5

Acquisition of Ivie (see Note 3)

Investment in Rise (see Note 3)

Reclassification of Book business goodwill to discontinued operations (see Note 4)

Balance at December 31, 2018

Acquisition of Periscope (see Note 3) 58.5 — 58.5

Balance at December 31, 2019 $ 103.0 $ — $ 103.0

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Other Intangible Assets

The components of other intangible assets at December 31, 2020 and 2019, were as follows:

December 31, 2019

December 31, 2018

Period (Years)

Accumulated Amortization

Period (Years)

December 31, 2020 December 31, 2019

Period (Years) Gross

Amount Accumulated Amortization Net Book

Amount Accumulated

Amortization Net Book

Finite-lived intangible assets:

1 unchanged sentence

Capitalized software 5 17.3 ( 11.7 ) 5.6 16.1 ( 8.5 ) 7.6

Acquired technology 5 3.0 ( 0.5 ) 2.5 2.0 ( 2.0 ) —

Customer relationships 6 561.9 ( 491.0 ) 70.9 562.1 ( 467.5 ) 94.6

Total finite-lived intangible assets $ 651.8 $ ( 547.5 ) $ 104.3 $ 648.8 $ ( 511.6 ) $ 137.2

During the year ended December 31, 2019 , the gross carrying amount of other intangible assets increased primarily due to $ 69.8 million of acquired identifiable finite-lived intangible assets as discussed in Note 3 , “ Acquisitions and Strategic Investments .” Other intangible assets are evaluated for potential impairment whenever events or circumstances indicate that the carrying value may not be recoverable.

Other intangible assets are evaluated for potential impairment whenever events or circumstances indicate that the carrying value may not be recoverable.

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

Amortization expense for other intangible assets was $ 44.8 million , $ 34.4 million and $ 18.3 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

Amortization expense for other intangible assets was $ 39.1 million and $ 44.8 million for the years ended December 31, 2020 and 2019, respectively.

The following table outlines the estimated future amortization expense related to other intangible assets as of December 31, 2020:

Amortization Expense

2025 and thereafter

Total $ 104.3

The Company adopted ASU 2016-13 as of January 1, 2020, using a modified retrospective transition approach and has recorded a cumulative-effect transition adjustment to accumulated deficit as of January 1, 2020.

The transition adjustment of $ 6.3 million to accumulated deficit included an $ 8.4 million increase in the allowance for credit losses, partially offset by a $ 2.1 million increase in deferred tax benefit.

The transition had no impact to the consolidated statement of operations.

QUAD/GRAPHICS, INC.

1 unchanged sentence

(In millions, except share and per share data and unless otherwise indicated)

Activity impacting the allowances for doubtful accounts for the years ended December 31, 2019 , 2018 and 2017 , was as follows:

Prior to granting credit, the Company evaluates each client in an underwriting process, taking into consideration the prospective client’s financial condition, past payment experience, credit bureau information and other financial and qualitative factors that may affect the client’s ability to pay.

Specific credit reviews and standard industry credit scoring models are used in performing this evaluation.

Clients’ financial condition is continuously monitored as part of the normal course of business.

Some of the Company’s clients are highly leveraged or otherwise subject to their own operating and regulatory risks.

Specific client provisions are made when a review of significant outstanding amounts, utilizing information about client creditworthiness, as well as current and future economic trends based on reasonable forecasts, indicates that collection is doubtful.

The Company also records a general provision based on the overall risk profile of the receivables and through the assessment of reasonable economic forecasts.

The risk profile is assessed on a quarterly basis using various methods, including external resources and credit scoring models.

Accounts that are deemed uncollectible are written off when all reasonable collection efforts have been exhausted.

The Company has recorded a credit loss expense of $ 9.1 million and $ 5.6 million during the years ended December 31, 2020 and 2019, respectively, which is included in selling, general and administrative expenses in the consolidated statements of operations.

Receivables are stated net of allowances for credit losses in the consolidated balance sheets.

Based on the clients’ account reviews and the continued uncertainty of the global economy, the Company has established an allowance for credit losses of $ 33.8 million as of December 31, 2020, and $ 25.0 million as of December 31, 2019.

Balance at beginning of year $ 25.0 $ 27.4

Transition adjustment for adoption of ASU 2016-13 8.4 —

Balance at beginning of year, including transition adjustment 33.4 27.4

Provisions 9.1 5.6

Write-offs ( 8.8 ) ( 7.8 )

1 unchanged sentence

Balance at end of year $ 33.8 $ 25.0

______________________________

Write-offs primarily consisted of fully reserved receivables for the years ended December 31, 2019 , 2018 and 2017 .

The components of inventories at December 31, 2020 and 2019, were as follows:

2 unchanged sentences

Finished goods 45.9 57.1

Total $ 170.2 $ 210.5

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Property, Plant and Equipment

The components of property, plant and equipment at December 31, 2020 and 2019, were as follows:

Land $ 97.6 $ 102.5

Buildings 780.3 846.1

Machinery and equipment 3,094.1 3,337.1

5 unchanged sentences

(1) Other consists of computer equipment, vehicles, furniture and fixtures, leasehold improvements and communication related equipment.

The Company recorded impairment charges of $ 7.9 million , $ 26.2 million and $ 12.0 million during the years ended December 31, 2019 , 2018 and 2017 , respectively, to reduce the carrying amounts of certain property, plant and equipment no longer utilized in production, or due to other capacity and strategic reduction restructuring initiatives, to fair value (see Note 5 , “ Restructuring, Impairment and Transaction-Related Charges ,” for further discussion on impairment charges).

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The Company recognized depreciation expense for continuing operations of $ 164.7 million , $ 180.5 million and $ 200.2 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

The Company recorded impairment charges of $ 64.1 million and $ 7.9 million during the years ended December 31, 2020 and 2019, respectively, to reduce the carrying amounts of certain property, plant and equipment no longer utilized in production, or due to other capacity and strategic reduction restructuring initiatives, to fair value (see Note 5, “Restructuring, Impairment and Transaction-Related Charges,” for further discussion on impairment charges).

The Company recognized depreciation expense for continuing operations of $ 142.5 million and $ 164.7 million for the years ended December 31, 2020 and 2019, respectively.

Assets Held for Sale from Continuing Operations

The Company considered certain closed facilities and the Omaha packaging plant for held for sale classification in the consolidated balance sheets.

The Company considered certain closed facilities for held for sale classification in the consolidated balance sheets.

Assets held for sale are carried at the lesser of original cost or fair value, less the estimated costs to sell.

Assets held for sale from continuing operations were $ 59.3 million as of December 31, 2019 , and there were no assets held for sale from continuing operations as of December 31, 2018 .

These assets were carried at the lesser of original cost or fair value, less the estimated costs to sell.

Assets held for sale from continuing operations were $ 4.9 million as of December 31, 2020, and $ 59.3 million as of December 31, 2019, including the Omaha, Nebraska packaging plant that was sold on January 31, 2020.

The fair values were determined by the Company to be Level 3 under the fair value hierarchy (see Note 15, “Financial Instruments and Fair Value Measurements,” for the definition of Level 3 inputs) and were estimated based on quoted market prices where available and independent appraisals, as appropriate.

Assets held for sale were included in prepaid expenses and other current assets in the consolidated balance sheets.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Other Current and Long-Term Liabilities

The components of other current and long-term liabilities at December 31, 2020 and 2019, were as follows:

December 31, 2019

December 31, 2018

Other Current Liabilities

Long-Term Liabilities

Other Current Liabilities

Long-Term Liabilities

December 31, 2020 December 31, 2019

Other Current Liabilities Other

Long-Term Liabilities Total Other Current Liabilities Other

Long-Term Liabilities Total

Employee-related liabilities (1)

$ 130.2 $ 67.4 $ 197.6 $ 129.4 $ 61.9 $ 191.3

Single employer pension plan obligations 1.7 54.9 56.6 1.8 77.1 78.9

3 unchanged sentences

Interest and rent liabilities 3.6 — 3.6 4.9 0.2 5.1

Interest rate swap liabilities — 14.4 14.4 — 6.4 6.4

Liabilities held for sale from continuing operations (2)

— — — 17.9 — 17.9

Other 113.4 15.4 128.8 100.2 21.7 121.9

Total $ 310.8 $ 196.8 $ 507.6 $ 303.0 $ 221.1 $ 524.1

______________________________

(1) Employee-related liabilities consist primarily of payroll, bonus, vacation, health and workers’ compensation.

The Omaha packaging plant was considered held for sale in the consolidated balance sheets.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

(2) The Omaha, Nebraska packaging plant was considered held for sale in the consolidated balance sheets as of December 31, 2019.

The Company completed the sale on January 31, 2020.

Commitments and Contingencies

2 unchanged sentences

The liabilities, if any, which ultimately result from such lawsuits are not expected by management to have a material impact on the consolidated financial statements of the Company.

Beginning in April 2016, the Company self-reported to the SEC and to the United States Department of Justice (“ DOJ ”) certain Foreign Corrupt Practices Act (“ FCPA ”) issues arising from its operations managed from Peru, and from Quad/Tech China.

Also, during the course of its internal investigation of these matters, the Company identified and informed the Office of Foreign Assets Control (“ OFAC ”), the DOJ and the SEC of certain transactions involving Cuba arising from the Company’s operations managed from Peru.

During the third quarter of 2019, the Company and the SEC entered into a resolution of these matters and the Company paid $ 9.9 million to the SEC in October 2019.

The DOJ declined to bring any action against the Company, citing the Company’s voluntary and prompt self-reporting, cooperation and full remediation.

During the third and fourth quarters of 2019, the Company and the Peruvian antitrust authority, INDECOPI, negotiated agreements regarding INDECOPI’s investigation into certain competition law issues with regard to private and public sector clients, and the Company agreed to pay a total of $ 6.9 million during the next four years , beginning in January 2020.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Environmental Reserves

5 unchanged sentences

Furthermore, the Company does not anticipate that maintaining compliance with such environmental statutes will have a material impact upon the Company’s consolidated financial position.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The components of long-term debt at December 31, 2020 and 2019, were as follows:

1 unchanged sentence

Master note and security agreement 7.78 % $ 15.6 $ 70.7

Term loan A 3.44 % 657.6 768.3

Revolving credit facility 3.24 % — —

2 unchanged sentences

International revolving credit facilities 1.37 % 4.9 5.7

Other 13.42 % 2.8 3.1

Debt issuance costs ( 6.9 ) ( 9.3 )

Total debt $ 923.4 $ 1,098.5

short-term debt and current portion of long-term debt ( 20.7 ) ( 40.0 )

6 unchanged sentences

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

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

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.

Senior Secured Credit Facility

6 unchanged sentences

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

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

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.

6 unchanged sentences

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

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

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”).

1 unchanged sentence

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

See Note 23 , “ Separate Financial Information of Subsidiary Guarantors of Indebtedness ,” for further details on the Guarantor Subsidiaries .

International Debt Obligations

4 unchanged sentences

As of December 31, 2020, $ 8.5 million remained outstanding on the second international term loan.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The Company has two multicurrency international revolving credit facilities that are used for financing working capital and general business needs.

7 unchanged sentences

As of December 31, 2020, approximately $ 1.6 billion of the Company’s assets were pledged as security under various loans and other agreements.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Debt Issuance Costs and Original Issue Discount

The debt issuance costs and original issue discount are amortized on a straight-line basis over the four , seven and eight year lives of the related debt instruments.

Activity impacting the Company’s capitalized debt issuance costs and original issue discount for the years ended December 31, 2020 and 2019, was as follows:

Capitalized Debt

Issuance Costs

Original Issue Discount

Issuance Costs Original Issue Discount

Balance at January 1, 2019 $ 7.2 $ 1.0

Amortization expense

Balance at December 31, 2018

Impacts from January 31, 2019 debt financing arrangement 6.0 15.0

3 unchanged sentences

Balance at December 31, 2019 9.3 —

Amortization expense for debt issuance costs was $ 2.7 million , $ 3.1 million and $ 3.1 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

Amortization expense for original issue discount was $ 0.9 million , $ 0.4 million and $ 0.4 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

The debt issuance costs and original issue discount are amortized on a straight-line basis over the four , seven and eight year lives of the related debt instruments.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Debt issuance costs from June 29, 2020 debt financing arrangement 2.6 —

Loss on debt extinguishment from January 31, 2019 debt financing arrangement ( 2.3 ) —

Loss on debt extinguishment from Master Note and Security Tender ( 0.2 ) —

Amortization expense ( 2.5 ) —

Balance at December 31, 2020 $ 6.9 $ —

Loss on Debt Extinguishment

2020 Loss on Debt Extinguishment

The loss on debt extinguishment recorded during the year ended December 31, 2020, was comprised of the following:

2020 Loss on Debt Extinguishment

Debt issuance costs from January 31, 2019 debt financing arrangement $ 2.3

Debt issuance costs from June 29, 2020 debt financing arrangement 0.1

Loss on debt extinguishment from Master Note and Security Tender 0.2

Gain on debt extinguishment from Senior Unsecured Note Repurchases ( 0.8 )

2019 Loss on Debt Extinguishment

In conjunction with the third amendment to the Company’s Senior Secured Credit Facility completed on January 31, 2019, the Company incurred $ 20.2 million in debt issuance costs.

In accordance with the accounting guidance for the treatment of debt issuance costs in a debt extinguishment, of the $ 20.2 million in new debt issuance costs, $ 6.0 million was classified as a reduction of long-term debt in the consolidated balance sheets and $ 14.2 million was expensed and was classified as loss on debt extinguishment in the consolidated statements of operations at the time of the refinancing.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The loss on debt extinguishment recorded during the year ended December 31, 2019, was comprised of the following:

7 unchanged sentences

Original issue discount from July 26, 2019 delayed draw Term Loan A funding and retirement of Term Loan B 14.1

2017 Loss on Debt Extinguishment

The Company incurred $ 4.7 million in debt issuance costs in conjunction with the second amendment to the Company’s Senior Secured Credit Facility.

In accordance with the accounting guidance for the treatment of debt issuance costs in a debt extinguishment, of the $ 4.7 million in new debt issuance costs, $ 3.2 million is classified as a reduction of long-term debt in the consolidated balance sheets and $ 1.5 million was expensed and is classified as loss on debt extinguishment in the consolidated statements of operations.

The loss on debt extinguishment recorded in the consolidated statements of operations for the year ended December 31, 2017, was comprised of the following:

Loss on Debt Extinguishment

Debt issuance costs from April 28, 2014 debt financing arrangement

Debt issuance costs from February 10, 2017 debt financing arrangement

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Covenants and Compliance

1 unchanged sentence

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:

3 unchanged sentences

On a rolling twelve-month basis, the Interest Coverage Ratio, defined as consolidated EBITDA to cash consolidated interest expense, shall not be less than 3.00 to 1.00 (for the twelve months ended December 31, 2020, the Company’s Interest Coverage Ratio was 4.64 to 1.00).

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The indenture underlying the Senior Unsecured Notes contains various covenants, including, but not limited to, covenants that, subject to certain exceptions, limit the Company’s and its restricted subsidiaries’ ability to incur and/or guarantee additional debt;

10 unchanged sentences

• 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.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

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).

4 unchanged sentences

Principal Payments

Total $ 930.3

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The Company determines if an arrangement is or contains a lease at contract inception.

7 unchanged sentences

• The lease term for all of the Company’s leases includes the non-cancelable period of the lease, plus or minus any additional periods covered by an option to extend or terminate the lease that the Company is reasonably certain to exercise.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

• Lease payments included in the lease liability are comprised of fixed payments as well as any exercise price of a Company option to purchase the underlying asset if the Company is reasonably certain to exercise.

10 unchanged sentences

Finance leases are included in property and equipment—net, current portion of finance lease obligations, and finance lease obligations in the consolidated balance sheets.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have an original lease term of twelve months or less.

Therefore, the Company recognizes the lease payments associated with these short-term leases as an expense over the lease term in the consolidated statement of operations.

Adoption of ASU 2016-02 — Transition Approach

The Company adopted ASU 2016-02 as of January 1, 2019 using the additional optional transition method pursuant to Accounting Standards Update 2018-11 “Leases (Topic 842):

Targeted Improvements”, meaning that restatement of prior period consolidated financial statements or presentation of comparative disclosures is not necessary.

During adoption, the Company elected the following practical expedients allowed:

Practical Expedients

The Company has elected to apply the following practical expedients allowed under ASU 842:

• The Company elected the practical expedient package and therefore did not reassess for any existing leases:

5 unchanged sentences

• The Company elected to combine lease and non-lease components into one lease component for select underlying lease asset categories.

Real estate leases are accounted for separately while all other leases,

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

primarily equipment leases, with separate lease and non-lease components are accounted for as a single lease component.

Adoption of the new standard resulted in the recording of operating lease right-of-use assets and operating lease obligations of $ 130.8 million and $ 132.4 million respectively, as of January 1, 2019.

The transition adjustment included right-of-use assets and operating lease obligations attributable to the Book business of $ 0.6 million and $ 0.6 million , respectively.

The transition had no impact to the consolidated statement of operations.

Real estate leases are accounted for separately while all other leases, primarily equipment leases, with separate lease and non-lease components are accounted for as a single lease component.

Leases Financial Information

2 unchanged sentences

In general, the Company has determined these options were not reasonably certain to be exercised, and therefore are not included in the determination of the lease term.

The following summarizes certain lease information for the year ended December 31, 2019 :

December 31, 2019

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The following summarizes certain lease information for the years ended December 31, 2020 and 2019:

Year Ended Year Ended

December 31, 2020 December 31, 2019

Finance lease cost:

12 unchanged sentences

Right-of-use assets obtained in exchange for new operating lease liabilities 15.0 18.7

Weighted-average remaining lease term — finance leases

Weighted-average remaining lease term — operating leases

Weighted-average remaining lease term — finance leases 2.0 years 2.0 years

Weighted-average remaining lease term — operating leases 4.0 years 5.1 years

Weighted-average discount rate — finance leases 5.0 % 6.5 %

Weighted-average discount rate — operating leases 6.3 % 6.7 %

Rent expense under the Company’s operating lease agreements prior to the adoption of ASU 2016-02 totaled $ 37.8 million and $ 36.8 million during the years ended December 31, 2018 and 2017 , respectively.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The components of finance lease assets at December 31, 2020 and 2019, were as follows:

2 unchanged sentences

Leased equipment—net $ 5.6 $ 12.4

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Future maturities of lease liabilities at December 31, 2020, were as follows:

Future Maturities of Operating Leases

Future Maturities of Finance Leases

Future Maturities of Operating Leases Future Maturities of Finance Leases

2021 $ 31.1 $ 2.9

2022 23.1 1.6

2023 16.6 0.4

2026 and thereafter 6.5 —

6 unchanged sentences

United States $ ( 108.8 ) $ ( 94.1 )

Foreign 2.7 14.3

Total $ ( 106.1 ) $ ( 79.8 )

The components of income tax expense (benefit) from continuing operations for the years ended December 31, 2020, and 2019, were as follows:

Current $ ( 47.3 ) $ ( 2.2 )

Deferred 32.3 ( 21.0 )

Current ( 1.5 ) 0.9

Deferred 17.0 ( 4.9 )

Current 0.6 0.1

Deferred ( 0.8 ) 2.7

Total income tax expense (benefit) $ 0.3 $ ( 24.4 )

QUAD/GRAPHICS, INC.

1 unchanged sentence

(In millions, except share and per share data and unless otherwise indicated)

The components of income tax benefit from continuing operations for the years ended December 31, 2019 , 2018 and 2017 , were as follows:

Total income tax benefit

The following table outlines the reconciliation of differences between the Federal statutory tax rate and the Company’s income tax benefit from continuing operations for the years ended December 31, 2019 , 2018 and 2017 :

The following table outlines the reconciliation of differences between the Federal statutory tax rate and the Company’s income tax expense (benefit) from continuing operations for the years ended December 31, 2020 and 2019:

Federal statutory rate $ ( 22.3 ) $ ( 16.8 )

State taxes, net of federal benefit 15.4 ( 4.1 )

Adjustment of uncertain tax positions

Adjustment of deferred tax liabilities

Adjustment to valuation allowances 13.1 ( 0.2 )

Benefit of Net Operating Loss Carryback ( 14.3 ) —

Impact from foreign branches 2.1 2.6

Adjustment of deferred tax liabilities 2.0 ( 1.6 )

Foreign rate differential ( 1.3 ) —

Federal rate change

Domestic production activity deduction

Income tax benefit

The $ 6.9 million adjustment to valuation allowance in 2018 primarily relates to net operating losses and deferred tax assets related to property, plant and equipment expected to be realized in the future by one of the Company’s Mexican subsidiaries based on current and projected future profitability.

The $ 20.0 million adjustment to valuation allowance in 2017 primarily relates to an income tax credit utilized by the Company’s Polish subsidiaries due to sustainable profitability.

The Company determined the utilization of the credit is sufficient to record a reduction in the valuation allowance in order to reflect the current net realizable value of related deferred tax assets based on estimated credit utilization through 2026, the year the credit expires.

Adjustment of uncertain tax positions 0.8 ( 2.5 )

Other 4.8 ( 1.8 )

Income tax expense (benefit) $ 0.3 $ ( 24.4 )

The $ 15.4 million effective rate reconciling item for State taxes, net of federal benefit, in 2020 includes a $ 19.1 million adjustment to valuation allowance primarily related to net operating losses and credits that are not expected to be realized in the future for state income tax purposes.

The $ 13.1 million adjustment to valuation allowance in 2020 primarily relates to net operating losses, credits and the deferred tax asset for interest limitation that are not expected to be realized in the future for federal income tax purposes.

On March 27, 2020, the United States government passed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES act”).

This legislation includes significant tax provisions and other measures to assist individuals and businesses impacted by the economic effects of the COVID-19 pandemic.

The $ 14.3 million rate reconciling item for Benefit of Net Operating Loss Carryback in 2020, primarily relates to the provision from the CARES act allowing a net operating loss (“NOL”) generated in 2019 and 2020 to be carried back five years to years when the federal statutory tax rate was 35%.

The amount of NOL available to be carried back was increased by other provisions in the CARES act that temporarily increases the amount of interest expense businesses are allowed to deduct in 2019 and 2020.

QUAD/GRAPHICS, INC.

5 unchanged sentences

Net operating loss and other tax carryforwards $ 145.9 $ 125.1

Interest limitation

Pension and workers compensation benefits 33.2 43.1

Accrued compensation

Accrued liabilities 20.5 11.1

Goodwill and intangible assets 19.0 17.4

Interest limitation 18.2 73.7

Accrued compensation 10.1 16.1

Allowance for doubtful accounts 7.2 5.5

Other 9.8 8.0

Total deferred tax assets 263.9 300.0

3 unchanged sentences

Property, plant and equipment $ ( 103.8 ) $ ( 130.6 )

Other ( 4.2 ) ( 3.9 )

Total deferred tax liabilities ( 108.0 ) ( 134.5 )

8 unchanged sentences

• Capital loss carryforwards of $ 17.1 million and $ 8.7 million for federal and state, respectively.

Of the federal capital loss carryforwards, $ 1.1 million expires in 2021 and $ 17.2 million expires in 2022 ;

and of the state capital loss carryforwards, $ 0.5 million expires in 2021 and $ 8.5 million expires in 2022 .

The federal and state capital loss carryforwards expire in 2022.

• Various credit carryforwards of $ 8.9 million, $ 28.9 million and $ 44.0 million for federal, foreign and state, respectively.

The federal carryforward expires in 2040, the foreign credit carryforward expires in 2026, and the state credit carryforwards include $ 32.1 million that is available without expiration, while the remainder expires through 2040.

QUAD/GRAPHICS, INC.

1 unchanged sentence

(In millions, except share and per share data and unless otherwise indicated)

Various credit carryforwards of $ 2.1 million , $ 28.4 million and $ 43.9 million for federal, foreign and state, respectively.

The federal carryforward expires in 2039 , the foreign credit carryforward expires in 2026 , and the state credit carryforwards include $ 32.1 million that is available without expiration, while the remainder expires through 2034 .

As of December 31, 2020, the Company has recorded a valuation allowance of $ 143.9 million on its consolidated balance sheet primarily related to the tax-affected amounts of the above carryforwards.

17 unchanged sentences

The following table summarizes the Company’s liabilities for accrued interest and penalties related to income tax uncertainties at December 31, 2020 and 2019:

December 31, 2019

December 31, 2018

Accrued interest

Accrued penalties

Accrued interest

Accrued penalties

December 31, 2020 December 31, 2019

Accrued interest Accrued penalties Accrued interest Accrued penalties

Other current liabilities $ 0.5 $ 0.1 $ 0.5 $ 0.1

1 unchanged sentence

Total liabilities $ 0.6 $ 0.1 $ 1.0 $ 0.1

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The Company has tax years from 2013 through 2020 that remain open and subject to examination by the Internal Revenue Service.

Tax years from 2016 through 2020 remain open and subject to examination in the Company’s various major state jurisdictions within the United States.

On December 22, 2017, the U.S.

government enacted comprehensive tax legislation commonly referred to as the Tax Act .

The Tax Act makes broad and complex changes to the U.S.

tax code, including, but not limited to, (1) reducing the U.S.

federal corporate tax rate from 35 percent to 21 percent;

(2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries;

(3) generally eliminating U.S.

federal income taxes on dividends from foreign subsidiaries;

(4) requiring a current inclusion in U.S.

federal taxable income of certain earnings of controlled foreign corporations;

(5) creating a new limitation on deductible interest expense;

(6) creating the base erosion anti-abuse tax, a new minimum tax;

(7) the repeal of the domestic production activity deduction;

and (8) bonus depreciation that will allow for full expensing of qualified property.

The SEC staff issued Staff Accounting Bulletin No.

118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act.

SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740.

In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.

If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Company applied the guidance in SAB 118 when accounting for the enactment-date effects of the Tax Act in 2017 and throughout 2018.

As of December 31, 2017, the Company had not completed the accounting for all of the enactment-date income tax effects of the Tax Act for the following aspects:

(1) remeasurement of deferred tax assets and liabilities due to the reduced U.S.

federal corporate rate;

(2) deemed repatriation transition tax;

and (3) global intangible low-tax income (“GILTI”).

As of December 31, 2018, the Company had completed the accounting for all the enactment-date income tax effects of the Tax Act.

As discussed further below, during the year ended December 31, 2018, the Company recognized adjustments of $ 0.8 million to the preliminary provisional amount recorded at December 31, 2017, and included these adjustments as a component of income tax expense.

Reduction of U.S.

federal corporate rate :

The Tax Act reduced the corporate tax rate to 21 percent, effective January 1, 2018.

The Company had recorded a provisional decrease of $ 23.7 million to its net deferred tax liabilities, with a corresponding net adjustment to deferred income tax expense.

Upon refinement of the calculation during the year ended December 31, 2018, the Company increased the provisional adjustment by $ 0.8 million to $ 24.5 million , which was included as a component of income tax expense.

Deemed Repatriation Transition Tax :

The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain foreign subsidiaries.

To determine the amount of the Transition Tax, the Company must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S.

income taxes paid on such earnings.

After further analysis, the Company concluded that its Transition Tax was zero based on the aggregate post-1986 foreign earnings and profits deficit of the relevant subsidiaries.

Therefore, there was no change from the initial estimate as of December 31, 2017.

QUAD/GRAPHICS, INC.

1 unchanged sentence

(In millions, except share and per share data and unless otherwise indicated)

Global intangible low taxed income:

The Tax Act creates a new requirement that certain income ( i.e.

GILTI) earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S.

GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return, which is currently defined as the excess of (1) ten percent of the aggregate of the U.S.

shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S.

shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income.

Under GAAP , the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S.

inclusions in taxable income related to GILTI as current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”).

The Company has elected to account for GILTI as a period cost.

Accordingly, this income has been included as a component of current income tax expense for the years ended December 31, 2019 and 2018 .

As a result of the Tax Act, historical earnings in certain foreign subsidiaries became subject to the U.S.

Transition Tax, as described above.

However, an actual repatriation from these subsidiaries could be subject to additional foreign and U.S.

state income taxes.

In general, it is the Company’s practice and intention to reinvest certain earnings of its non-U.S.

The Company’s practice and intention is to reinvest certain earnings of its non-U.S.

subsidiaries in those operations.

The Company has analyzed its global working capital and cash requirements and the potential tax liabilities attributable to repatriation of earnings, and has determined not to change its prior assertion.

The Company does not have significant prior year untaxed, undistributed earnings from its foreign operations at December 31, 2020, and the Company does not provide for, nor expect to incur, any significant, additional taxes which could become payable upon repatriation of such amounts.

7 unchanged sentences

There were no Level 3 recurring measurements of assets or liabilities as of December 31, 2020.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Interest Rate Swaps

The Company currently holds two interest rate swap contracts designated as cash flow hedges, as the purpose is to reduce the variability of cash flows from interest payments related to a portion of Quad’s variable-rate debt.

The swaps effectively convert the notional value of the Company’s variable rate debt based on one-month LIBOR to a fixed rate, including a spread on underlying debt, and a monthly reset in the variable interest rate.

The key terms of the interest rate swaps are as follows:

The Company currently holds two interest rate swap contracts.

The purpose of entering into the contracts was to reduce the variability of cash flows from interest payments related to a portion of Quad’s variable-rate debt.

The interest rate swaps were previously designated as cash flow hedges as they effectively converted the notional value of the Company’s variable rate debt based on one-month LIBOR to a fixed rate, including a spread on underlying debt, and a monthly reset in the variable interest rate.

However, the Company amended its Senior Secured Credit Facility during the second quarter of 2020, which added a 0.75 % LIBOR floor to the Company’s variable rate debt, changing the critical terms of the hedged instrument.

Due to this change in critical terms, the Company has elected to de-designate the swaps as cash flow hedges, resulting in future changes in fair value being recognized in interest expense.

The balance of the accumulated other comprehensive loss attributable to the interest rate swaps as of June 30, 2020, will be amortized to interest expense on a straight-line basis over the remaining lives of the swap contracts.

The Company expects to reclassify $ 7.1 million of this balance to interest expense over the next twelve months.

March 19, 2019

Interest Rate Swap

February 7, 2017

Interest Rate Swap February 7, 2017

Interest Rate Swap

Effective date

March 29, 2019

February 28, 2017

Termination date

March 28, 2024

February 28, 2022

Effective date March 29, 2019 February 28, 2017

Termination date March 28, 2024 February 28, 2022

Term 5 years 5 years

Notional amount $ 130.0 $ 250.0

Fixed swap rate 2.43 % 1.89 %

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The Company classifies the interest rate swaps as Level 2 because the inputs into the valuation model are observable or can be derived or corroborated utilizing observable market data at commonly quoted intervals.

The fair values of the interest rate swaps classified as Level 2 as of December 31, 2020 and 2019, were as follows:

Balance Sheet Location

December 31, 2019

December 31, 2018

Interest rate swap assets

Prepaid expenses and other current assets

Interest rate swap liabilities

Other long-term liabilities

The interest rate swaps were highly effective as of December 31, 2019 .

No amount of ineffectiveness has been recorded into earnings related to these cash flow hedges.

The cash flows associated with the interest rate swaps have been recognized as an adjustment to interest expense in the consolidated statements of operations, and the changes in the fair value of the interest rate swaps have been included in other comprehensive loss in the consolidated statements of comprehensive income (loss):

Balance Sheet Location December 31, 2020 December 31, 2019

Interest rate swap liabilities Other long-term liabilities ( 14.4 ) ( 6.4 )

Prior to the Company’s de-designation of the interest rate swaps as cash flow hedges, the interest rate swaps were considered highly effective, with no amount of ineffectiveness recorded into earnings.

The changes in the fair value of the interest rate swaps have been included in other comprehensive loss in the consolidated statements of comprehensive loss through the first quarter of 2020, and have been recorded as an adjustment to interest expense in the consolidated statements of operations in the periods thereafter.

The cash flows associated with the interest rate swaps have been recognized as an adjustment to interest expense in the consolidated statements of operations:

Year Ended December 31,

Cash Flow Impacts

Net interest paid (received) $ 5.6 $ ( 0.8 )

Gain (loss) recognized in other comprehensive income (loss)

Impacts with Swaps as Hedging Instruments

Loss recognized in other comprehensive loss $ 11.1 $ 10.7

Impacts with Swaps as Nonhedging Instruments

Income recognized in interest expense excluded from hedge effectiveness assessments $ ( 3.1 ) $ —

Amounts reclassified out of accumulated other comprehensive loss to interest expense 3.6 —

Net interest expense 5.6 ( 0.8 )

Total impact of swaps to interest expense $ 6.1 $ ( 0.8 )

Foreign Exchange Contracts

3 unchanged sentences

There were no open foreign currency exchange contracts as of December 31, 2020.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Natural Gas Forward Contracts

3 unchanged sentences

See Note 12, “Debt,” for the fair value of the Company’s debt as of December 31, 2020.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Nonrecurring Fair Value Measurements

13 unchanged sentences

Diversified Plan is comprised of participant-directed 401(k) contributions, Company match and profit sharing contributions, with total participant assets of $ 2.2 billion as of December 31, 2020.

Company 401(k) matching contributions were $ 15.4 million , $ 8.5 million and $ 7.2 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

The ESOP holds profit sharing contributions of Company stock, which are made at the discretion of the Company’s Board of Directors.

On February 16, 2018 , the Company’s Board of Directors authorized the issuance of 1,006,061 shares of Company class A common stock from treasury to the Company’s ESOP , at a stock price of $ 22.18 per share for a total value of $ 22.3 million .

Company 401(k) matching contributions were $ 11.7 million and $ 15.4 million for the years ended December 31, 2020 and 2019, respectively.

The Company’s ESOP holds profit sharing contributions of Company stock, which are made at the discretion of the Company’s Board of Directors.

There were no profit sharing contributions for the years ended December 31, 2020 and 2019.

4 unchanged sentences

The Company funds at least the minimum amount required for all qualified plans using actuarial cost methods and assumptions acceptable under government regulations.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The components of net pension income for the years ended December 31, 2020 and 2019, were as follows:

5 unchanged sentences

Net pension income $ 10.5 $ 6.0

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The underfunded pension obligations are calculated using generally accepted actuarial methods and are measured annually as of December 31.

4 unchanged sentences

Interest cost ( 13.6 ) ( 17.5 )

Actuarial gain (loss)

Actuarial loss ( 40.5 ) ( 64.6 )

Benefits paid 43.6 42.8

Liability benefit from settlement 0.6 —

Projected benefit obligation, end of year ( 525.6 ) ( 515.7 )

1 unchanged sentence

Fair value of plan assets, beginning of year 436.8 393.8

Actual return (loss) on plan assets

Actual return on plan assets 68.0 80.0

Employer contributions 7.8 5.8

2 unchanged sentences

Funded status $ ( 56.6 ) $ ( 78.9 )

The net underfunded defined benefit plan obligations decreased by $ 22.3 million during the year ended December 31, 2020.

This decrease 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 % and $7.8 million of employer contributions.

The asset increase 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.

Amounts recognized on the consolidated balance sheets as of December 31, 2020 and 2019, were as follows:

12 unchanged sentences

Amount arising during the period 3.2

Impact of pension plan settlement charge included in net loss 0.1

Balance at December 31, 2020 $ ( 38.1 )

On July 1, 2017, the Company provided the option to receive a lump-sum pension payment to a select group of terminated vested participants.

Total lump sum payments of $ 21.4 million were paid during 2017, of which $ 8.4 million was paid in October 2017 under the lump-sum program.

During 2017, the Company settled $ 23.3 million of pension liabilities for $ 21.4 million of pension payments.

Payments to eligible participants who elected to receive a lump-sum pension payment were funded from existing pension plan assets and constituted a settlement of the Company’s pension liabilities with respect to these participants.

As a result of the lump-sums paid to participants, non-cash settlement charges of $ 0.8 million were recognized during the year ended December 31, 2017.

These charges resulted from the recognition in earnings of a portion of the actuarial losses recorded in accumulated other comprehensive loss based on the proportion of the obligation settled.

Actuarial gains and losses in excess of 10% of the greater of the projected benefit obligation or the market-related value of plan assets are recognized as a component of net periodic benefit costs over the average remaining service period of a plan’s active employees.

Unrecognized prior service costs or credits are also recognized as a component of net periodic benefit cost over the average remaining service period of a plan’s active employees.

No amortization of amounts in accumulated other comprehensive loss is expected to be recognized as a component of net periodic pension income in 2020 .

The weighted average assumptions used to determine net periodic benefit costs for the years ended December 31, 2020 and 2019, were as follows:

6 unchanged sentences

The Company determines its assumed discount rate based on an index of high-quality corporate bond yields and matched-funding yield curve analysis as of the measurement date.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Estimated Company Contributions and Benefit Payments

2 unchanged sentences

The estimated benefit payments may differ based on actual experience.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Estimated Future Benefit Payments by the Plans to or on Behalf of Plan Participants

2 unchanged sentences

Benefit Payments

2026 - 2030 149.6

Thereafter 199.3

Total $ 525.6

Plan Assets and Investment Strategy

18 unchanged sentences

The fair values of the Company’s pension plan assets at December 31, 2020 and 2019, by asset category were as follows:

December 31, 2019

December 31, 2018

Asset Category

December 31, 2020 December 31, 2019

Asset Category Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3

Cash and cash equivalents $ 5.3 $ 5.3 $ — $ — $ 1.9 $ 1.9 $ — $ —

2 unchanged sentences

Total pension plan assets, excluding those measured at net asset value (“NAV”)

159.9 $ 5.3 $ 154.6 $ — 146.9 $ 1.9 $ 145.0 $ —

Investments measured at NAV (1)

1 unchanged sentence

$ 469.0 $ 436.8

______________________________

(1) These investments consist of privately placed funds that are valued based on NAV.

19 unchanged sentences

The fair value measurements in common/collective trusts, calculated using a NAV and their redemption restrictions, for the years ended December 31, 2020 and 2019, are as follows:

Redemption Frequency (If Currently Eligible)

Redemption Notice Period

JP Morgan Chase Bank Strategic Property Fund

Pyramis Long Corporate A or Better

Pyramis Long Duration

Russell 3000 Index NL

Fair Value Redemption Frequency (If Currently Eligible) Redemption Notice Period

JP Morgan Chase Bank Strategic Property Fund $ 12.8 $ 12.6 Quarterly 30 days

Pyramis Long Corporate A or Better 98.5 93.3 Daily 15 days

Pyramis Long Duration 98.8 92.2 Daily 15 days

Russell 3000 Index NL 99.0 91.8 Daily 1 day

Total value of investments measured at NAV $ 309.1 $ 289.9

21 unchanged sentences

As a result, the GCIU Plan implemented a rehabilitation plan to improve the plan’s funded status.

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.

3 unchanged sentences

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

The Company made payments totaling $ 10.4 million , $ 13.1 million and $ 24.0 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

The Company made payments totaling $ 11.4 million and $ 10.4 million for the years ended December 31, 2020 and 2019, respectively.

The Company has reserved $ 35.7 million as its estimate of the total MEPPs withdrawal liability as of December 31, 2020, of which $ 32.2 million was recorded in other long-term liabilities and $ 3.5 million was recorded in other current liabilities in the consolidated balance sheets.

Earnings (Loss) Per Share Attributable to Quad Common Shareholders

Loss Per Share Attributable to Quad Common Shareholders

Basic earnings (loss) per share attributable to Quad common shareholders is computed as net earnings (loss) attributable to Quad common shareholders, divided by the basic weighted average common shares outstanding.

1 unchanged sentence

The Company uses the treasury stock method to calculate the effect of outstanding dilutive equity incentive instruments, which requires the Company to compute total proceeds as the sum of the amount the employee must pay upon exercise of the award and the amount of unearned stock-based compensation costs attributed to future services.

Equity incentive instruments for which the total employee proceeds from exercise exceed the average fair value of the same equity incentive instrument over the period have an anti-dilutive effect on earnings per share during periods with net earnings, and accordingly, the Company excludes them from the calculation.

Due to the net loss incurred during the years ended December 31, 2020 and 2019, the assumed exercise of all equity incentive instruments was anti-dilutive and therefore, not included in the diluted loss per share calculation.

QUAD/GRAPHICS, INC.

1 unchanged sentence

(In millions, except share and per share data and unless otherwise indicated)

Due to the net loss incurred during the year ended December 31, 2019 , the assumed exercise of all equity incentive instruments was anti-dilutive and therefore, not included in the diluted loss per share calculation.

Anti-dilutive equity incentive instruments of 0.5 million and 0.7 million of class A common shares were excluded from the computations of diluted net earnings per share for the years ended December 31, 2018 and 2017 , respectively.

Reconciliations of the numerator and the denominator of the basic and diluted per share computations for the Company’s common stock for the years ended December 31, 2020 and 2019, are summarized as follows:

Net earnings (loss) from continuing operations

Net loss from continuing operations $ ( 106.6 ) $ ( 55.7 )

net loss attributable to noncontrolling interests ( 0.2 ) —

Net earnings (loss) from continuing operations attributable to Quad common shareholders

Net loss from continuing operations attributable to Quad common shareholders ( 106.4 ) ( 55.7 )

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

Net earnings (loss) attributable to Quad common shareholders

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

Basic weighted average number of common shares outstanding for all classes of common stock 50.6 50.0

1 unchanged sentence

Diluted weighted average number of common shares outstanding for all classes of common shares 50.6 50.0

Earnings per share attributable to Quad common shareholders:

Continuing operations

Discontinued operations

Basic earnings (loss) per share attributable to Quad common shareholders

Loss per share attributable to Quad common shareholders:

Basic and diluted:

Continuing operations $ ( 2.10 ) $ ( 1.11 )

Discontinued operations ( 0.43 ) ( 2.01 )

Diluted earnings (loss) per share attributable to Quad common shareholders

Basic and diluted loss per share attributable to Quad common shareholders $ ( 2.53 ) $ ( 3.12 )

Cash dividends paid per common share for all classes of common shares $ 0.15 $ 1.05

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Equity Incentive Programs

The shareholders of the Company approved the Quad/Graphics, Inc.

2010 Omnibus Incentive Plan (“ Omnibus Plan ”) for two complementary purposes:

2020 Omnibus Incentive Plan (the “2020 Plan”) at the Company’s annual meeting of shareholders held on May 18, 2020, (the “Annual Meeting”) for two complementary purposes:

(1) to attract and retain outstanding individuals to serve as directors, officers and employees;

and (2) to increase shareholder value.

In May 2019, an additional 1,800,000 shares were approved for issuance, providing for an aggregate 12,671,652 shares of class A stock reserved for issuance under the Omnibus Plan.

Awards under the Omnibus Plan may consist of incentive awards, stock options, stock appreciation rights, performance shares, performance share units, shares of class A stock, restricted stock (“RS”), restricted stock units (“RSU”), deferred stock units (“DSU”) or other stock-based awards as determined by the Company’s Board of Directors.

Each stock option granted has an exercise price of no less than 100 % of the fair market value of the class A stock on the date of grant.

As of December 31, 2019 , there were 1,682,404 shares available for issuance under the Omnibus Plan.

Authorized but unissued shares of the Company’s class A stock or treasury shares may be used for issuance under the Company’s equity incentive programs.

The Company plans to either use treasury shares of its class A common stock or issue shares of class A common stock to meet the stock requirements of its awards in the future.

The Company’s previous plan, the Quad/Graphics, Inc.

2010 Omnibus Plan (the “2010 Plan”), was terminated on the date of approval of the 2020 Plan, and no new awards will be granted under the 2010 Plan.

All awards that were granted under the 2010 Plan that were outstanding as of May 18, 2020, will remain outstanding and will continue to be governed by the 2010 Plan.

The 2020 Plan provides for an aggregate 3,000,000 shares of class A common stock reserved for issuance, plus shares still available for issuance or re-credited under the 2010 Plan.

Awards under the 2020 Plan may consist of incentive awards, stock options, stock appreciation rights, performance shares, performance share units, shares of class A common stock, restricted stock (“RS”), restricted stock units (“RSU”), deferred stock units (“DSU”) or other stock-based awards as determined by the Company’s Board of Directors.

Each stock option granted has an exercise price of no less than 100% of the fair market value of the class A common stock on the date of grant.

There were 3,580,483 shares of class A common stock reserved for issuance under the 2020 Plan as of December 31, 2020, including 3,000,000 shares of class A common stock that were approved for issuance at the Annual Meeting and 580,483 shares of class A common stock that were remaining and available for issuance that transferred from the 2010 Plan.

Authorized unissued shares or treasury shares may be used for issuance under the Company’s equity incentive programs.

The Company plans to either

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

use treasury shares of its class A common stock or issue shares of class A common stock to meet the stock requirements of its awards in the future.

The Company recognizes compensation expense based on estimated grant date fair values for all share-based awards issued to employees and non-employee directors, including stock options, performance shares, performance share units, restricted stock, restricted stock units and deferred stock units.

3 unchanged sentences

Equity Incentive Compensation Expense

The total compensation expense recognized related to all equity incentive programs was $ 13.6 million , $ 15.6 million and $ 16.4 million for the years ended December 31, 2019 , 2018 and 2017 , respectively, and was recorded primarily in selling, general and administrative expenses in the consolidated statements of operations.

Total stock-based compensation expense included income of $ 1.1 million recognized for liability awards that are remeasured on a quarterly basis during the year ended December 31, 2019 .

Equity incentive compensation expense was recorded primarily in selling, general and administrative expenses in the consolidated statements of operations and includes expense (income) recognized for liability awards that are remeasured on a quarterly basis.

The total compensation expense recognized related to all equity incentive programs for the years ended December 31, 2020 and 2019, was as follows:

Year ended December 31,

RS and RSU equity awards expense $ 9.7 $ 13.8

RSU liability awards income ( 0.1 ) ( 1.1 )

DSU awards expense 1.0 0.9

Total equity incentive compensation expense $ 10.6 $ 13.6

Total future compensation expense related to all equity incentive programs granted as of December 31, 2020, is estimated to be $ 9.3 million, which consists entirely of expense for RS and RSU awards.

13 unchanged sentences

The following table is a summary of the stock option activity for the year ended December 31, 2020:

Option Weighted

Price Weighted

(years) Aggregate

Outstanding and exercisable at December 31, 2019 790,237 $ 25.27 1.1 $ —

Exercised — —

Canceled/forfeited/expired ( 275,361 ) 21.11

2 unchanged sentences

All outstanding options are vested as of December 31, 2020.

The following table is a summary of the stock option exercises and vesting activity for the years ended December 31, 2019 , 2018 and 2017 :

Total intrinsic value of stock options exercised

Proceeds from stock options exercised

Total grant date fair value of stock options vested

There were no stock options exercised for the years ended December 31, 2020 and 2019.

Restricted Stock and Restricted Stock Units

7 unchanged sentences

Upon vesting, RSUs will be settled either through cash payment equal to the fair market value of the RSUs on the vesting date or through issuance of Company class A stock.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

The following table is a summary of RS and RSU award activity for the year ended December 31, 2020:

Restricted Stock

Restricted Stock Units

Restricted Stock Restricted Stock Units

Shares Weighted-

Per Share Weighted-

Term (Years) Units Weighted-

Per Share Weighted-

Nonvested at December 31, 2019 2,623,971 $ 17.82 1.5 230,621 $ 14.75 1.9

Granted 1,111,141 4.65 45,353 4.67

Vested ( 550,516 ) 26.84 ( 25,228 ) 26.88

Forfeited ( 222,846 ) 13.22 ( 1,208 ) 12.32

Nonvested at December 31, 2020 2,961,750 $ 11.55 1.3 249,538 $ 11.70 1.3

In the first quarter of 2019, the Company issued RSU awards in connection with the acquisition of Periscope that are accounted for as liability awards that will vest on March 1, 2022.

The awards were recorded at fair value on the initial issuance date and are remeasured to fair value at each reporting period, with the change in fair value being recorded in selling, general and administrative expense in the consolidated statements of operations.

The awards were recorded at fair value on the initial issuance date and are remeasured to fair value at each reporting period, with the change in fair value being

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

recorded in selling, general and administrative expense in the consolidated statements of operations.

The change in fair value of the awards classified as liabilities resulted in income of $ 0.1 million for the year ended December 31, 2020.

1 unchanged sentence

In general, RS and RSU awards will vest on the third anniversary of the grant date, provided the holder of the share is continuously employed by the Company until the vesting date.

Compensation expense recognized for RS and RSUs classified as equity was $ 13.8 million , $ 14.7 million and $ 15.5 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

Compensation expense recognized for RS and RSUs classified as equity was $ 9.7 million and $ 13.8 million for the years ended December 31, 2020 and 2019, respectively.

Deferred Stock Units

2 unchanged sentences

Deferred Stock Units

Weighted Average Grant Date Fair Value Per Share

Units Weighted Average Grant Date Fair Value Per Share

Outstanding at December 31, 2019 314,658 $ 16.22

Granted 204,088 4.67

Dividend equivalents granted 21,145 3.40

Settled ( 38,930 ) 19.81

Outstanding at December 31, 2020 500,961 $ 10.69

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Each DSU award entitles the grantee to receive one share of class A stock upon the earlier of the separation date of the grantee or the second anniversary of the grant date, but could be subject to acceleration for a change in control, death or disability as defined in the individual DSU grant agreement.

Grantees of DSU awards may not exercise voting rights, but are credited with dividend equivalents and those dividend equivalents will be converted into additional DSU awards based on the closing price of the class A stock.

Compensation expense recognized for DSUs was $ 0.9 million for each of the years ended December 31, 2019 , 2018 and 2017 .

Compensation expense recognized for DSUs was $ 1.0 million and $ 0.9 million for the years ended December 31, 2020 and 2019, respectively.

As DSU awards are fully vested on the grant date, all compensation expense was recognized at the date of grant.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Shareholders’ Equity

1 unchanged sentence

Issued Common Stock

Authorized Shares

Total Issued Shares

Authorized Shares Outstanding Treasury Total Issued Shares

Class A stock ($ 0.025 par value)

1 unchanged sentence

December 31, 2019 39.2 1.1 40.3

December 31, 2017

Class B stock ($ 0.025 par value)

1 unchanged sentence

December 31, 2019 13.5 — 13.5

December 31, 2017

Class C stock ($ 0.025 par value)

1 unchanged sentence

December 31, 2019 — 0.5 0.5

December 31, 2017

In accordance with the Articles of Incorporation, each class A common share has one vote per share and each class B and class C common share has ten votes per share on all matters voted upon by the Company’s shareholders.

2 unchanged sentences

The Company has no present plans to issue any preferred stock.

On May 20, 2019 , the Company held its annual meeting of shareholders.

At the meeting, the shareholders of the Company approved an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of class A common stock from 80.0 million to 105.0 million , and a corresponding increase to the number of authorized shares of capital stock from 180.5 million to 205.5 million .

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.

The timing, manner, price and amount of any repurchase will depend on economic and market conditions, share price, trading volume, applicable legal requirements and other factors.

The program may be suspended or discontinued at any time.

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 ended December 31, 2020 and 2019.

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

QUAD/GRAPHICS, INC.

1 unchanged sentence

(In millions, except share and per share data and unless otherwise indicated)

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 stock .

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 were $ 100.0 million of authorized repurchases remaining under the program.

On October 13, 2017 , the Company’s Board of Directors authorized the cancellation of 1,027,907 shares of the Company’s class B common stock held in the Company’s treasury and returned the shares to the status of authorized, but unissued shares.

In addition, all future acquired shares of the Company’s class B common stock will be immediately canceled and returned to the status of authorized but unissued shares.

During the year ended December 31, 2018 , 284,845 shares of class B common stock were converted to class A common stock.

The shares of class B common stock were canceled and returned to the status of authorized but unissued shares.

There were no conversions of class B common stock during the year ended December 31, 2019 .

In accordance with the Articles of Incorporation, dividends are paid equally for all three classes of common shares.

The following table details the dividend activity related to the then outstanding shares of common stock for the years ended December 31, 2020 and 2019:

Declaration Date

Dividend Amount per Share

October 29, 2019

November 18, 2019

December 6, 2019

July 30, 2019

August 19, 2019

September 6, 2019

April 30, 2019

February 19, 2019

February 25, 2019

March 8, 2019

October 30, 2018

November 19, 2018

December 7, 2018

July 31, 2018

August 20, 2018

September 7, 2018

February 21, 2018

March 19, 2018

March 30, 2018

October 31, 2017

November 20, 2017

December 1, 2017

August 1, 2017

August 21, 2017

September 1, 2017

February 17, 2017

February 27, 2017

March 10, 2017

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Declaration Date Record Date Payment Date Dividend Amount per Share

Q1 Dividend February 18, 2020 February 28, 2020 March 9, 2020 $ 0.15

Q4 Dividend October 29, 2019 November 18, 2019 December 6, 2019 0.15

Q3 Dividend July 30, 2019 August 19, 2019 September 6, 2019 0.30

Q2 Dividend April 30, 2019 May 20, 2019 June 7, 2019 0.30

Q1 Dividend February 19, 2019 February 25, 2019 March 8, 2019 0.30

Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss by component, net of tax, for the years ended December 31, 2020 and 2019, were as follows:

Translation Adjustments

Interest Rate Swap Adjustments

Pension Benefit Plan Adjustments

Translation Adjustments Interest Rate Swap Adjustments Pension Benefit Plan Adjustments Total

Balance at January 1, 2019 $ ( 130.0 ) $ 3.3 $ ( 25.5 ) $ ( 152.2 )

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive loss to net earnings (loss)

Net other comprehensive income (loss)

Balance at December 31, 2018

Other comprehensive loss before reclassifications ( 1.0 ) ( 8.0 ) ( 6.0 ) ( 15.0 )

Amounts reclassified from accumulated other comprehensive loss to net earnings (loss)

Amounts reclassified from accumulated other comprehensive loss to net loss — — — —

Net other comprehensive loss ( 1.0 ) ( 8.0 ) ( 6.0 ) ( 15.0 )

Balance at December 31, 2019 ( 131.0 ) ( 4.7 ) ( 31.5 ) ( 167.2 )

There were no reclassifications from accumulated other comprehensive loss to net earnings (loss) for the years ended December 31, 2019 and 2018 .

The details about the reclassifications from accumulated other comprehensive loss to net earnings for the year ended December 31, 2017 , were as follows:

Details about Accumulated Other

Comprehensive Loss Components

December 31, 2017

Consolidated Statements of Operations Presentation

Revaluation loss on the sale of a business

Restructuring, impairment and transaction-related charges

Settlement charge on pension benefit plans

Net pension income

Impact of income taxes

Income tax (benefit) expense

Settlement charge on pension benefit plans, net of tax

Total reclassifications for the period

Impact of income taxes

Total reclassifications for the period, net of tax

Other comprehensive income (loss) before reclassifications 0.2 ( 11.2 ) 3.2 ( 7.8 )

Amounts reclassified from accumulated other comprehensive loss to net loss — 3.6 0.1 3.7

Net other comprehensive income (loss) 0.2 ( 7.6 ) 3.3 ( 4.1 )

Balance at December 31, 2020 $ ( 130.8 ) $ ( 12.3 ) $ ( 28.2 ) $ ( 171.3 )

QUAD/GRAPHICS, INC.

1 unchanged sentence

(In millions, except share and per share data and unless otherwise indicated)

There were no reclassifications from accumulated other comprehensive loss to net loss for the year ended December 31, 2019.

The details about the reclassifications from accumulated other comprehensive loss to net loss for the year ended December 31, 2020, were as follows:

Details about Accumulated Other

Comprehensive Loss Components Year Ended Consolidated Statements of Operations Presentation

December 31, 2020

Amortization of amounts accumulated for interest rate swaps de-designated as cash flow hedges $ 3.6 Interest expense

Impact of income taxes — Income tax benefit

Amortization of amounts accumulated for interest rate swaps de-designated as cash flow hedges, net of tax 3.6

Plan settlements on pension benefit plans 0.1 Pension income

Impact of income taxes — Income tax benefit

Plan settlements on pension benefit plans, net of tax 0.1

Total reclassifications for the period, net of tax $ 3.7

Segment Information

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 operating and reportable segments are aligned with how the chief operating decision maker of the Company currently manages the business.

10 unchanged sentences

As of December 31, 2020, the Company has no unrestricted subsidiaries as defined in the Company’s Senior Unsecured Notes indenture.

Corporate consists of unallocated general and administrative activities and associated expenses including, in part, executive, legal and finance, as well as certain expenses and income from frozen employee retirement plans, such as pension benefit plans.

QUAD/GRAPHICS, INC.

1 unchanged sentence

(In millions, except share and per share data and unless otherwise indicated)

The following is a summary of segment information for the years ended December 31, 2020 and 2019:

Restructuring, Impairment and Transaction-Related Charges

Operating Income (Loss)

Depreciation and Amortization

Capital Expenditures

Year ended December 31, 2019

United States Print and Related Services

International

Total operating segments

Operating Income (Loss) from Continuing Operations Restructuring, Impairment and Transaction-Related Charges

Net Sales Depreciation and Amortization Capital Expenditures

Products Services

Year ended December 31, 2020

2 unchanged sentences

Total operating segments 2,228.7 700.9 0.9 179.7 60.9 122.3

Corporate — — ( 46.9 ) 1.9 0.1 1.8

Total $ 2,228.7 $ 700.9 $ ( 46.0 ) $ 181.6 $ 61.0 $ 124.1

Year ended December 31, 2019

2 unchanged sentences

Total operating segments 3,098.3 825.1 138.7 208.2 111.0 34.6

Corporate — — ( 104.0 ) 1.3 — 54.8

Total $ 3,098.3 $ 825.1 $ 34.7 $ 209.5 $ 111.0 $ 89.4

Capital expenditures shown in the above table includes capital expenditures from discontinued operations for all periods presented.

Restructuring, impairment and transaction-related charges for the years ended December 31, 2020 and 2019, are further described in Note 5, “Restructuring, Impairment and Transaction-Related Charges,” and are included in the operating income (loss) results by segment above.

A reconciliation of operating income from continuing operations to earnings (loss) from continuing operations before income taxes and equity in (earnings) loss of unconsolidated entity as reported in the consolidated statements of operations for the years ended December 31, 2019 , 2018 and 2017 , was as follows:

Operating income from continuing operations

A reconciliation of operating income from continuing operations to loss from continuing operations before income taxes and equity in loss of unconsolidated entity as reported in the consolidated statements of operations for the years ended December 31, 2020 and 2019, was as follows:

Operating income (loss) from continuing operations $ ( 46.0 ) $ 34.7

interest expense 68.8 90.0

1 unchanged sentence

loss on debt extinguishment 1.8 30.5

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

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

QUAD/GRAPHICS, INC.

6 unchanged sentences

Total operating segments 1,878.0 2,341.2

Corporate 49.7 75.9

Total $ 1,927.7 $ 2,417.1

Geographic Area Information

1 unchanged sentence

The amounts in this table differ from the segment data presented in Note 21, “Segment Information,” because each operating segment includes operations in multiple geographic regions, based on the Company’s management reporting structure.

United States

Latin America

United States Europe Latin America Other Combined

Products $ 1,908.2 $ 156.0 $ 154.7 $ 9.8 $ 2,228.7

Services 683.6 17.3 — — 700.9

Property, plant and equipment—net 756.9 71.6 49.8 5.9 884.2

2 unchanged sentences

Other long-term assets 55.4 7.4 10.2 0.4 73.4

Property, plant and equipment—net

Other intangible assets—net

Other long-term assets

Products $ 2,679.1 $ 178.5 $ 234.3 $ 6.4 $ 3,098.3

Services 807.7 17.4 — — 825.1

Property, plant and equipment—net 896.3 73.5 60.0 6.7 1,036.5

Operating lease right-of-use assets—net 92.2 1.5 3.3 0.9 97.9

Other intangible assets—net 131.5 5.4 0.3 — 137.2

Other long-term assets 108.2 8.9 9.8 0.6 127.5

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Separate Financial Information of Subsidiary Guarantors of 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 condensed consolidating financial information reflects the summarized financial information of Quad, the Company’s Guarantor Subsidiaries on a combined basis and the Company’s non-guarantor subsidiaries on a combined basis.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Condensed Consolidating Statement of Operations For the Year Ended December 31, 2019

Quad/Graphics,

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

Cost of sales

Selling, general and administrative expenses

Depreciation and amortization

Restructuring, impairment and transaction-related charges

Total operating expenses

Operating income (loss) from continuing operations

Interest expense (income)

Net pension income

Loss on debt extinguishment

Earnings (loss) before income taxes and equity in (earnings) loss of consolidated and unconsolidated entities

Income tax expense (benefit)

Earnings (loss) before equity in (earnings) loss of consolidated and unconsolidated entities

Equity in (earnings) loss of consolidated entities

Equity in (earnings) loss of unconsolidated entity

Net earnings (loss) from continuing operations

Loss from discontinued operations, net of tax

Net earnings (loss)

net earnings (loss) attributable to noncontrolling interests

Net earnings (loss) attributable to Quad common shareholders

Condensed Consolidating Statement of Comprehensive Income (Loss) For the Year Ended December 31, 2019

Quad/Graphics,

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

Net earnings (loss)

Other comprehensive income (loss), net of tax

Total comprehensive income (loss)

comprehensive income (loss) attributable to noncontrolling interests

Comprehensive income (loss) attributable to Quad common shareholders

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Condensed Consolidating Statement of Operations For the Year Ended December 31, 2018

Quad/Graphics,

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

Cost of sales

Selling, general and administrative expenses

Depreciation and amortization

Restructuring, impairment and transaction-related charges

Total operating expenses

Operating income (loss) from continuing operations

Interest expense (income)

Net pension income

Loss on debt extinguishment

Earnings (loss) before income taxes and equity in (earnings) loss of consolidated and unconsolidated entities

Income tax expense (benefit)

Earnings (loss) before equity in (earnings) loss of consolidated and unconsolidated entities

Equity in (earnings) loss of consolidated entities

Equity in (earnings) loss of unconsolidated entity

Net earnings (loss) from continuing operations

Loss from discontinued operations, net of tax

Net earnings (loss)

net earnings (loss) attributable to noncontrolling interests

Net earnings (loss) attributable to Quad common shareholders

Condensed Consolidating Statement of Comprehensive Income (Loss) For the Year Ended December 31, 2018

Quad/Graphics,

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

Net earnings (loss)

Other comprehensive income (loss), net of tax

Total comprehensive income (loss)

comprehensive income (loss) attributable to noncontrolling interests

Comprehensive income (loss) attributable to Quad common shareholders

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Condensed Consolidating Statement of Operations For the Year Ended December 31, 2017

Quad/Graphics,

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

Cost of sales

Selling, general and administrative expenses

Depreciation and amortization

Restructuring, impairment and transaction-related charges

Total operating expenses

Operating income (loss) from continuing operations

Interest expense (income)

Net pension income

Loss on debt extinguishment

Earnings (loss) before income taxes and equity in (earnings) loss of consolidated and unconsolidated entities

Income tax expense (benefit)

Earnings (loss) before equity in (earnings) loss of consolidated and unconsolidated entities

Equity in (earnings) loss of consolidated entities

Equity in (earnings) loss of unconsolidated entity

Net earnings (loss) from continuing operations

Loss from discontinued operations, net of tax

Net earnings (loss)

net earnings (loss) attributable to noncontrolling interests

Net earnings (loss) attributable to Quad common shareholders

Condensed Consolidating Statement of Comprehensive Income (Loss) For the Year Ended December 31, 2017

Quad/Graphics,

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

Net earnings (loss)

Other comprehensive income (loss), net of tax

Total comprehensive income (loss)

comprehensive income (loss) attributable to noncontrolling interests

Comprehensive income (loss) attributable to Quad common shareholders

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Condensed Consolidating Balance Sheet As of December 31, 2019

Quad/Graphics,

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

Cash and cash equivalents

Receivables, less allowances for doubtful accounts

Intercompany receivables

Other current assets

Current assets of discontinued operations

Total current assets

Property, plant and equipment—net

Investment in consolidated entities

Goodwill and intangible assets—net

Intercompany loan receivable

Other long-term assets

Long-term assets of discontinued operations

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable

Intercompany accounts payable

Short-term debt and current portion of long-term debt and lease obligations

Other current liabilities

Current liabilities of discontinued operations

Total current liabilities

Long-term debt and lease obligations

Intercompany loan payable

Other long-term liabilities

Long-term liabilities of discontinued operations

Total liabilities

Total shareholders' equity and noncontrolling interests

Total liabilities and shareholders' equity

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Condensed Consolidating Balance Sheet As of December 31, 2018

Quad/Graphics,

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

Cash and cash equivalents

Receivables, less allowances for doubtful accounts

Intercompany receivables

Other current assets

Current assets of discontinued operations

Total current assets

Property, plant and equipment—net

Investment in consolidated entities

Goodwill and intangible assets—net

Intercompany loan receivable

Other long-term assets

Long-term assets of discontinued operations

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable

Intercompany accounts payable

Short-term debt and current portion of long-term debt and lease obligations

Other current liabilities

Current liabilities of discontinued operations

Total current liabilities

Long-term debt and lease obligations

Intercompany loan payable

Other long-term liabilities

Long-term liabilities of discontinued operations

Total liabilities

Total shareholders' equity and noncontrolling interests

Total liabilities and shareholders' equity

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Condensed Consolidating Statement of Cash Flows For the Year Ended December 31, 2019

Quad/Graphics,

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

OPERATING ACTIVITIES

Net cash from (used in) operating activities

INVESTING ACTIVITIES

Purchases of property, plant and equipment

Acquisition related investing activities—net of cash acquired

Intercompany investing activities

Other investing activities

Net cash from (used in) investing activities

FINANCING ACTIVITIES

Proceeds from issuance of long-term debt

Payments of long-term debt and finance lease obligations

Borrowings on revolving credit facilities

Payments on revolving credit facilities

Purchases of treasury stock

Payment of cash dividends

Intercompany financing activities

Other financing activities

Net cash from (used in) financing activities

Effect of exchange rates on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Condensed Consolidating Statement of Cash Flows For the Year Ended December 31, 2018

Quad/Graphics,

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

OPERATING ACTIVITIES

Net cash from (used in) operating activities

INVESTING ACTIVITIES

Purchases of property, plant and equipment

Acquisition related investing activities—net of cash acquired

Intercompany investing activities

Other investing activities

Net cash from (used in) investing activities

FINANCING ACTIVITIES

Proceeds from issuance of long-term debt

Payments of long-term debt and finance lease obligations

Borrowings on revolving credit facilities

Payments on revolving credit facilities

Purchases of treasury stock

Payment of cash dividends

Intercompany financing activities

Other financing activities

Net cash from (used in) financing activities

Effect of exchange rates on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Condensed Consolidating Statement of Cash Flows For the Year Ended December 31, 2017

Quad/Graphics,

Guarantor Subsidiaries

Non-Guarantor Subsidiaries

OPERATING ACTIVITIES

Net cash from (used in) operating activities

INVESTING ACTIVITIES

Purchases of property, plant and equipment

Divestiture related investing activities

Acquisition related investing activities—net of cash acquired

Intercompany investing activities

Other investing activities

Net cash from (used in) investing activities

FINANCING ACTIVITIES

Proceeds from issuance of long-term debt

Payments of long-term debt and finance lease obligations

Borrowings on revolving credit facilities

Payments on revolving credit facilities

Purchases of treasury stock

Payment of cash dividends

Intercompany financing activities

Other financing activities

Net cash from (used in) financing activities

Effect of exchange rates on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

New Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2020-04 “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform.

ASU 2020-04 permits entities to apply certain expedients and exceptions for contracts, hedging relationships, and other transactions impacted by the anticipated transition away from the use of LIBOR or other interbank offered rates to alternative reference rates.

This optional guidance is effective as of March 12,

QUAD/GRAPHICS, INC.

1 unchanged sentence

(In millions, except share and per share data and unless otherwise indicated)

New Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2019-12 “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, accounting for hybrid tax regimes, interim-period accounting for enacted changes in tax law and limitation of tax benefit on year-to-date losses.

This guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted.

2020, through December 31, 2022.

The Company is evaluating the impact of the adoption of ASU 2020-04 on the consolidated financial statements.

In August 2018, the FASB issued Accounting Standards Update 2018-15 “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

In December 2019, the FASB issued Accounting Standards Update 2019-12 “Income Taxes (Topic 740):

This guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted.

Entities are allowed to apply either a retrospective or prospective transition approach to adopt the guidance.

The Company has adopted this standard as of January 1, 2020, and the adoption of ASU 2018-15 did not have a material impact on the consolidated financial statements.

The Company has adopted this standard as of January 1, 2021.

The Company evaluated the impact of the adoption of ASU 2019-12 on the consolidated financial statements and believes there is no material financial impact.

In August 2018, the FASB issued Accounting Standards Update 2018-14 “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20):

Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”), which adds, removes and clarifies year-end disclosure requirements related to defined benefit pension and other postretirement plans.

Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans”, which adds, removes and clarifies year-end disclosure requirements related to defined benefit pension and other postretirement plans.

This guidance is effective for annual periods ending after December 15, 2020, with early adoption permitted.

This new guidance will require a retrospective adoption approach.

The Company is evaluating the impact of the adoption of ASU 2018-14 on the notes to the consolidated financial statements.

In August 2018, the FASB issued Accounting Standards Update 2018-13 “Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which changes the requirements on fair value measurements by removing, modifying or adding certain disclosures.

This guidance is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted.

Entities electing to early adopt are permitted to early adopt the eliminated or modified disclosure requirements and delay the adoption of all the new disclosure requirements until their effective date.

The adoption of ASU 2018-13 requires the application of a combination of the prospective and retrospective methods of transition, depending on the topic of disclosure.

The Company has adopted this standard as of January 1, 2020, and the adoption of ASU 2018-13 did not have a material impact on the consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update 2016-13 “Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments.

Under the new guidance, entities will be required to measure expected credit losses for financial instruments, including trade receivables, based on historical experience, current conditions and reasonable forecasts.

This guidance is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual periods beginning after December 15, 2018.

This new guidance will require a modified retrospective transition approach, where the entity will need to apply a cumulative-effect adjustment to retained earnings (accumulated deficit) as of the beginning of the first reporting period in which the guidance is adopted.

The Company has adopted this standard as of January 1, 2020.

The Company is in the final stages of calculating the transition adjustment, which is estimated to be an increase to the Company’s allowance for credit losses between $ 5.0 million and $ 8.0 million , with no impact to the consolidated statements of operations.

QUAD/GRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except share and per share data and unless otherwise indicated)

Subsequent Events

Sale of Omaha Packaging Plant

On January 31, 2020, the Company completed the sale of its Omaha, Nebraska packaging plant to Graphic Packaging International, a leading provider of packaging solutions, for $ 41.3 million in cash, subject to final working capital adjustments.

The divestiture allows the Company to focus on its other two packaging plants to provide high-value packaging solutions that help clients create a cohesive brand experience across all marketing solution channels.

The cash proceeds were used to reduce debt obligations.

Declaration of Quarterly Dividend

On February 18, 2020 , the Company declared a quarterly dividend of $ 0.15 per share, which will be paid on March 9, 2020 , to shareholders of record as of February 28, 2020 .

The Company has adopted this standard for the year ended December 31, 2020, and has included the required disclosures within Note 16, “Employee Retirement Plans”.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

1 unchanged sentence

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 8. Financial Statements and Supplementary Data