What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-23 compared with 2021-02-24 · 218 added, 335 removed, 483 unchanged (53% of the section changed)

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This section contains an analysis of the Company’s results of operations by comparing the results for the year ended December 31, 2021, to the year ended December 31, 2020.

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

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

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

The comparability of the Company’s results of operations between periods was impacted by acquisitions, strategic investments and divestitures, including the divestiture of the Omaha, Nebraska packaging plant, which was sold on January 31, 2020, the additional investment in Rise in June 2020, and the divestiture of Company’s third-party logistics business on June 30, 2021.

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

The results of the Company’s United States Book business (“Book business”) have been reported as discontinued operations for the year ended December 31, 2020.

Forward-looking statements providing a general description of recent and projected industry and Company developments that are important to understanding the Company’s results of operations are included in this section.

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Business Overview

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.

As a worldwide marketing solutions partner, Quad leverages its more than 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 removes friction throughout the marketing process thereby helping brands and marketers reduce complexity, increase efficiency and enhance marketing spend effectiveness.

Quad provides its clients

with a complete through-the-line marketing offering, providing unmatched scale for on-site services and expanded

subject expertise in marketing strategy, creative solutions, media deployment and marketing management services.

a client-centric approach that drives the Company to continuously hone and evolve its offering, combined with leading-edge technology, advanced data and analytics and single-source simplicity, the Company has the resources and

knowledge to help a wide variety of clients target, more deeply engage and grow audiences in multiple verticals,

including those in established and emerging industries, such as retail, publishing, consumer technology, consumer

packaged goods, financial services, insurance, healthcare and direct-to-consumer.

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

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This segment also includes the manufacture of ink.

The United States Print and Related Services segment accounted for approximately 90% of the Company’s consolidated net sales during the year ended December 31, 2020.

The United States Print and Related Services segment accounted for approximately 89% and 90% of the Company’s consolidated net sales during the years ended December 31, 2021 and 2020, respectively.

The International segment consists of the Company’s printing operations in Europe and Latin America, including operations in England, France, Germany, Poland, Argentina, Colombia, Mexico and Peru, as well as investments in printing operations in Brazil and India.

This segment provides printed products and marketing and other complementary services consistent with the United States Print and Related Services segment.

The International segment accounted for approximately 10% of the Company’s consolidated net sales during the year ended December 31, 2020.

The International segment accounted for approximately 11% and 10% of the Company’s consolidated net sales during the years ended December 31, 2021 and 2020, respectively.

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.

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The Company remains disciplined with its debt leverage.

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

The Company’s consolidated debt and finance lease obligations decreased by $125 million during the year ended December 31, 2021, primarily due to the use of cash provided by operating activities, cash proceeds from the sale of property, plant and equipment, and the sale of the Company’s third-party logistics business.

Since the Company completed the World Color Press acquisition in July 2010, the Company has reduced debt and finance lease obligations by $936 million and has reduced the obligations for pension, postretirement and MEPPs by $511 million, for a total obligation reduction since July 2010 of approximately $1.4 billion.

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

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

there are indicators of heightened competitive pressures.

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

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

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

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

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

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The Company continues to focus on proactively aligning its cost structure to the realities of the top-line pressures it faces in the printing industry through Lean Manufacturing and sustainable continuous improvement programs.

Restructuring actions initiated by the Company beginning in 2010 have resulted in the announcement of 50 plant closures through December 31, 2020.

The Company believes it will continue to drive productivity improvements and sustainable cost reduction initiatives into the future through an engaged workforce and ongoing adoption of the latest manufacturing automation and technology.

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

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

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

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

The USPS continues to experience financial problems.

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

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

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

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

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

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

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

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

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

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

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

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

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

The uncertainty as to how much of the authority the USPS will use also creates potential volume declines as rate predictability with respect to cost is no longer known for mailers.

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

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

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

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

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

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

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

These investments, which included digital press technology to help clients gain a competitive edge with data-driven, personalized print marketing and quick-makeready wide-web offset press technology, help Quad sustain its position as a high-quality, low-cost producer.

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

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

The Company’s results of operations have been adversely impacted as a result of the COVID-19 pandemic and the emergence of new variants.

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

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

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

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

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

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

suspending quarterly dividend payments through the Covenant Relief Period;

and delaying capital spending projects.

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

(1) Taunton, Massachusetts;

(2) Fernley, Nevada;

(3) Nashville, Tennessee;

(4) Oklahoma City, Oklahoma;

and (5) Charlotte, North Carolina.

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

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

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

With ongoing advancements against the COVID-19 pandemic, the effects on the Company have lessened from previous periods, particularly from the heavily impacted second and third quarters of 2020.

The Company is continuing to evaluate the impact and may implement additional cost reduction measures as necessary.

The ultimate impact of COVID-19 on the Company’s business, financial condition, cash flows, results of operations and supply chain will depend on future developments, including the duration of the pandemic and the related length of its impact on the global economy, all of which are still uncertain.

Additionally, the increasing cost and availability of raw materials, such as paper, ink, supplies, distribution and labor, have been and are expected to continue to adversely impact the Company’s results of operation.

The Company is dependent on its production personnel to print the Company’s products in a cost-effective and efficient manner that allows the Company to obtain new clients and to drive sales from existing clients.

The nationwide shortage of available production personnel may put a strain on the Company’s ability to accept new work from client requests, including the Company’s seasonally higher third and fourth quarters.

The ongoing labor shortage is also placing upward price pressure on freight, as the number of available drivers have been reduced, and may have an adverse effect on our operations.

Due to the reduced number of freight drivers available, the Company may not be able to meet rising customer demand and could fail to meet our clients’ expectations.

The Company has also experienced and anticipates it will continue to experience certain distribution challenges, including, but not limited to, the above-noted delivery delays at the USPS and recent volume restrictions at the United Parcel Service, Federal Express and certain local couriers.

As the labor shortages, supply chain and distribution challenges continue to evolve, the Company is unable to predict the duration of the shortages and challenges and the

extent of the impact on the Company’s business, financial condition, cash flows and results of operations.

As a result of the rising inflationary cost pressures within our raw materials, distribution and labor, the Company has and will continue to pass along price increases to our clients.

The Company expects inflationary cost pressures and supply chain shortages to potentially continue through fiscal year 2022.

The Company is unable to predict the future impact of the labor and supply chain shortages as well as cost inflation, and the resulting impact on the Company’s business, financial condition, cash flows and results of operations.

Results of Operations for the Year Ended December 31, 2021, Compared to the Year Ended December 31, 2020

Summary Results

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

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

The Company’s operating income (loss) from continuing operations, operating margin, net earnings (loss) attributable to Quad common shareholders (computed using a 25% normalized tax rate for all items subject to tax) and diluted earnings (loss) per share attributable to Quad common shareholders for the year ended December 31, 2021, changed from the year ended December 31, 2020, as follows (dollars in millions, except per share data):

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

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

Gains from sale and leaseback (1)

24.5 0.8 % 18.4 0.35

Restructuring, impairment and transaction-related charges (2)

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N/A N/A 0.8 0.02

2019 loss on debt extinguishment (4)

N/A N/A 22.9 0.46

Income taxes (6)

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N/A N/A 0.3 0.01

Operating loss from continuing operations (8)

Operating income (loss) from continuing operations (9)

9.1 0.3 % 6.8 0.07

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

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

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

(1) The Company executed sale and leaseback transactions of its Chalfont, Pennsylvania and West Allis, Wisconsin facilities resulting in $24.5 million ($18.4 million, net of tax) in gains during the year ended December 31, 2021.

(2) Restructuring, impairment and transaction-related charges decreased $105.2 million ($78.9 million, net of tax), to $18.9 million during the year ended December 31, 2021, and included the following:

A $24.8 million decrease in employee termination charges from $34.7 million during the year ended December 31, 2020, to $9.9 million during the year ended December 31, 2021;

A $29.2 million decrease in impairment charges from $64.1 million during the year ended December 31, 2020, to $34.9 million during the year ended December 31, 2021;

A $0.8 million decrease in transaction-related charges from $1.4 million during the year ended December 31, 2020, to $0.6 million during the year ended December 31, 2021;

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

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

A $1.9 million decrease in integration-related charges from $1.9 million during the year ended December 31, 2020, to zero during the year ended December 31, 2021;

A $48.5 million decrease in various other restructuring charges from $22.0 million of expense during the year ended December 31, 2020, to $26.5 million of income during the year ended December 31, 2021.

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

(3) Interest expense decreased $9.2 million ($6.9 million, net of tax) during the year ended December 31, 2021, to $59.6 million.

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

This change was due to lower average debt levels and a $0.7 million decrease in interest expense related to the interest rate swaps during the year ended December 31, 2021, as compared to the year ended December 31, 2020.

(4) Net pension income increased $4.0 million ($3.0 million, net of tax) during the year ended December 31, 2021, to $14.5 million.

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

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

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

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

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

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

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

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

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

This was due to a $4.8 million decrease from interest cost on pension plan liabilities, partially offset by an increase in non-cash settlement charges of $0.8 million.

(5) Loss on debt extinguishment decreased $1.1 million ($0.8 million, net of tax) from $1.8 million during the year ended December 31, 2020, to $0.7 million during the year ended December 31, 2021.

The $0.7 million loss on debt extinguishment recorded during the year ended December 31, 2021, relates to a $0.5 million loss on debt extinguishment recorded during the fourth quarter of 2021, primarily related to the repurchase of the Company’s unsecured 7.0% senior notes due May 1, 2022 and a $0.2 million loss on debt extinguishment from the fifth amendment to the Company’s April 28, 2014 Senior Secured Credit Facility, completed on November 2, 2021.

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

(6) The $29.1 million increase in income tax benefit as calculated in the following table is primarily due to a $54.1 million increase from decreased valuation allowance reserves, partially offset by the following:

(1) a $14.3 million income tax benefit related to the Coronavirus Aid, Relief, and Economic Security Act net operating loss carry back provisions in 2020 that did not repeat in 2021;

(2) a $6.2 million decrease from impairment charges related to foreign investments in 2021;

and (3) a $2.4 million decrease from income in foreign branches.

Year Ended December 31,

2021 2020 $ Change

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

Income (loss) from continuing operations before income taxes and equity in loss of unconsolidated entity $ 47.0 $ (106.1) $ 153.1

Normalized tax rate 25.0 % 25.0 %

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

Income tax expense (benefit) at normalized tax rate 11.7 (26.6) 38.3

Income tax expense (benefit) from the consolidated statements of operations 9.5 0.3 9.2

Impact of income taxes $ 2.2 $ (26.9) $ 29.1

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

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

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

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

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

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

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

These decreases were partially offset by the following:

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

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

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

(7) The loss from discontinued operations, net of tax, of $21.9 million was recognized during the year ended December 31, 2020.

The Company completed the sale of the Book business in 2020.

(8) The increase from investments in unconsolidated entity and noncontrolling interests, net of tax, of $0.3 million during the year ended December 31, 2021, was primarily due to a $0.5 million increase in earnings at the Company’s investment in Plural Industria Gráfica Ltda.

(“Plural”), the Company’s Brazilian joint venture, partially offset by a $0.2 million decrease in loss attributed to noncontrolling interests in the Company’s consolidated statements of operations related to the Company’s majority ownership of Rise.

(9) Operating income from continuing operations, excluding the gains from sale and leaseback and restructuring, impairment and transaction-related charges, increased $9.1 million ($6.8 million, net of tax) primarily due to the following:

(1) a $24.3 million decrease in depreciation and amortization expense;

(2) a $22.2 million increase in paper byproduct recoveries;

(3) an $8.7 million net benefit in 2021 of gains from property insurance claims;

(4) higher print volume and pricing;

and (5) savings from other cost reduction initiatives.

These cost decreases were partially offset by the following:

(1) $38.5 million in COVID-related temporary cost reductions primarily from temporary salary reduction and furloughs in 2020;

(2) net cost increases from labor, freight and materials inflationary cost impacts;

and (3) a $12.0 million benefit in 2020 from a change in the hourly production employee vacation policy.

Operating Results From Continuing Operations

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Selling, general & administrative expenses 326.0 11.0 % 335.1 11.4 % (9.1) (2.7) %

Gains from sale and leaseback (24.5) (0.8) % — — % (24.5) (100.0) %

Depreciation and amortization 157.3 5.3 % 181.6 6.2 % (24.3) (13.4) %

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Total operating expenses 2,867.6 96.9 % 2,975.6 101.5 % (108.0) (3.6) %

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

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

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

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

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

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

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

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

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

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

Operating income (loss) from continuing operations $ 92.8 3.1 % $ (46.0) (1.6) % $ 138.8 nm

Product sales increased $18.4 million, or 0.8%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the following:

(1) a $19.4 million increase in sales in the Company’s print product lines, primarily due to increased print volume and pricing;

(2) a $6.8 million increase from pass-through paper sales, partially offset by a $7.5 million decrease in sales due to the divestiture of the Company’s Omaha packaging plant and $0.3 million in unfavorable foreign exchange impacts

Service sales, which primarily consist of logistics, distribution, marketing services, imaging and medical services, increased $12.4 million, or 1.8%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to a $44.3 million increase in logistics sales and a $21.5 million increase in print imaging services and sales of marketing services, partially offset by a $53.4 million decrease in sales due to the divestiture of the Company’s third-party logistics business.

Cost of Sales

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

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

(2) lower print volume;

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

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

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

and (6) other cost reduction initiatives.

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

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

Cost of product sales increased $29.5 million, or 1.6%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the following:

(1) higher print volume compared to the COVID-19 pandemic impacted 2020;

(2) a $12.0 million benefit in 2020 from a change in the hourly production employee vacation policy;

(3) an increase in pass-through paper costs;

(4) the impacts from rising costs of labor, materials and other costs of production.

These increases were partially offset by a $22.2 million increase in paper byproduct recoveries and the impact from the divestiture of the Omaha packaging plant.

Cost of service sales increased $25.6 million, or 5.1%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to increased freight costs, partially offset by the impact from the divestiture of the Company’s third-party logistics business.

Selling, General and Administrative Expenses

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

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

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

(3) savings from other cost reduction initiatives;

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

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

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

Selling, general and administrative expenses decreased $9.1 million, or 2.7%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to an $8.7 million net benefit in 2021 of gains from property insurance claims, a $7.8 million decrease in credit loss expense mainly due to specific client credit reviews and savings from other cost reduction initiatives, partially offset by a $14.3 million increase in employee-related costs.

Selling, general and administrative expenses as a percentage of net sales decreased from 11.4% for the year ended December 31, 2020, to 11.0% for the year ended December 31, 2021.

Gains from sale and leaseback

The Company executed sale and leaseback transactions of its Chalfont, Pennsylvania and West Allis, Wisconsin facilities resulting in $24.5 million ($18.4 million, net of tax) in gains during the year ended December 31, 2021.

Depreciation and Amortization

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

Depreciation and amortization decreased $24.3 million, or 13.4%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, due to a $16.7 million decrease in depreciation expense, primarily from property, plant and equipment becoming fully depreciated over the past year and a decrease in purchases of property, plant and equipment and a $7.6 million decrease in amortization expense.

Restructuring, Impairment and Transaction-Related Charges

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

Restructuring, impairment and transaction-related charges decreased $105.2 million, or 84.8%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the following:

Year Ended December 31,

3 unchanged sentences

34.9 64.1 (29.2)

Transaction-related charges (b)

1.4 51.6 (50.2)

Transaction-related charges 0.6 1.4 (0.8)

Integration costs — 1.9 (1.9)

Other restructuring charges

Other restructuring charges (income)

Vacant facility carrying costs and lease exit charges 19.8 11.5 8.3

Equipment and infrastructure removal costs 1.6 1.1 0.5

Gains on the sale of facilities (c)

Gains on the sale of facilities (b)

(24.8) (1.6) (23.2)

Other restructuring activities (d)

Other restructuring activities (c)

(23.1) 11.0 (34.1)

Other restructuring charges 22.0 4.4 17.6

Other restructuring charges (income) (26.5) 22.0 (48.5)

Total restructuring, impairment and transaction-related charges $ 18.9 $ 124.1 $ (105.2)

______________________________

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

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

(a) Includes $2.8 million and $22.1 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction and strategic divestiture activities during the years ended December 31, 2021 and 2020, respectively;

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

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

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

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

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

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

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

$32.1 million of the impairment charges recorded during the year ended December 31, 2021 were related to the Company’s decision to sell the investment in Plural.

(b) Includes a $13.8 million gain on the sale of the Oklahoma City, Oklahoma facility, a $7.6 million gain on the sale of the Riverside, California facility, a $1.0 million gain on the sale of the Fernley, Nevada facility and a $2.4 million gain on the sale of other facilities during the year ended December 31, 2021;

and a $0.8 million gain on the sale of the Shakopee, Minnesota facility and a $0.8 million gain on the sale of the Midland, Michigan facility during the year ended December 31, 2020.

(c) Includes a $20.9 million gain on the sale of a business and a $2.7 million gain from the reclassification of foreign currency translation adjustments during the year ended December 31, 2021;

and a $2.9 million loss on the sale of a business during the year ended December 31, 2020.

EBITDA and EBITDA Margin—Consolidated

11 unchanged sentences

EBITDA increased $141.8 million for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the following:

(1) $105.2 million of decreased restructuring, impairment and transaction-related charges;

(2) $24.5 million in gains from sale and leaseback transactions;

(3) a $22.2 million increase in paper byproduct recoveries;

(4) a $21.9 million decrease in loss from discontinued operations, net of tax;

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

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

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

and (5) savings from other cost reduction initiatives.

and (5) an $8.7 million net benefit in 2021 of gains from property insurance claims.

These increases were partially offset by the following:

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

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

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

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

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

(1) $38.5 million in COVID-related temporary cost reductions primarily from temporary salary reduction and furloughs in 2020;

(2) net cost increases from labor, freight and materials inflationary cost impacts;

and (3) a $12.0 million benefit in 2020 from a change in the hourly production employee vacation policy.

A reconciliation of EBITDA to net earnings (loss) attributable to Quad common shareholders for the years ended December 31, 2021 and 2020, was as follows:

Year Ended December 31,

(dollars in millions)

Net loss attributable to Quad common shareholders (1)

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

$ 37.8 $ (128.3)

Interest expense 59.6 68.8

Income tax expense (benefit) 0.3 (24.4)

Income tax expense 9.5 0.3

Depreciation and amortization 157.3 181.6

1 unchanged sentence

______________________________

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

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

Restructuring, impairment and transaction-related charges of $18.9 million and $124.1 million for the years ended December 31, 2021 and 2020, respectively;

Gains from sale and leaseback of $24.5 million for the year ended December 31, 2021;

Net pension income of $14.5 million and $10.5 million for the years ended December 31, 2021 and 2020, respectively;

Loss on debt extinguishment of $0.7 million and $1.8 million for the years ended December 31, 2021 and 2020, respectively;

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

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

Equity in earnings of unconsolidated entity of $0.3 million for the year ended December 31, 2021 and equity in loss of unconsolidated entity of $0.2 million for the yeas ended December 31, 2020 ;

Loss from discontinued operations, net of tax, of $21.9 million for the year ended December 31, 2020 ;

Net loss attributable to noncontrolling interests of $0.2 million for the year ended December 31, 2020 .

6 unchanged sentences

Services 692.8 683.6 9.2 1.3 %

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

Operating income from continuing operations (including restructuring, impairment and transaction-related charges) 163.1 1.7 161.4 nm

Operating margin 6.2 % 0.1 % N/A N/A

Restructuring, impairment and transaction-related charges $ (14.5) $ 110.1 $ (124.6) (113.2) %

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

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

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

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

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

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

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

Product sales for the United States Print and Related Services segment decreased $8.2 million, or 0.4%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to a $8.8 million decrease from pass-through paper sales and a $7.5 million decrease in sales due to the divestiture of the Company’s Omaha packaging plant, partially offset by a $8.1 million increase in sales in the Company’s print product lines, primarily due to increased print volume and pricing.

Service sales for the United States Print and Related Services segment increased $9.2 million, or 1.3%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to to a $42.0 million increase in logistics sales and a $20.6 million increase in print imaging services and sales of marketing services, partially offset by a $53.4 million decrease in sales due to the divestiture of the Company’s third-party logistics business.

Operating Income from Continuing Operations

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

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

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

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

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

and (5) lower print service sales.

These decreases were partially offset by the following:

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

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

Operating income from continuing operations for the United States Print and Related Services segment increased $161.4 million for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the following:

(1) a $124.6 million decrease in restructuring, impairment and transaction-related charges;

(2) $24.5 million in gains from sale and leaseback transactions;

(3) a $22.2 million increase in paper byproduct recoveries;

(4) a $22.0 million decrease in depreciation and amortization expense;

(5) a $8.7 million net benefit in 2021 in gains from property insurance claims;

and (6) savings from other cost reduction initiatives.

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

These increases were partially offset by the following:

(1) $38.5 million in COVID-related temporary cost reductions primarily from temporary salary reduction and furloughs in 2020;

(2) net inflationary cost increases from labor, freight and materials;

and (3) a $12.0 million benefit in 2020 from a change in the hourly production employee vacation policy.

The operating margin for the United States Print and Related Services segment increased to 6.2% for the year ended December 31, 2021, from 0.1% for the year ended December 31, 2020, primarily due to the reasons provided above.

Restructuring, Impairment and Transaction-Related Charges

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

Restructuring, impairment and transaction-related charges for the United States Print and Related Services segment decreased $124.6 million for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the following:

Year Ended December 31,

12 unchanged sentences

(22.1) 3.1 (25.2)

Other restructuring charges 14.1 (4.1) 18.2

Other restructuring charges (income) (25.5) 14.1 (39.6)

Total restructuring, impairment and transaction-related charges $ (14.5) $ 110.1 $ (124.6)

______________________________

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

(a) Includes $2.8 million and $22.0 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction and strategic divestiture activities during the years ended December 31, 2021 and 2020, respectively;

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

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

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

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

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

and a $0.8 million gain on the sale of the Shakopee, Minnesota facility and a $0.8 million gain on the sale of the Midland, Michigan facility during the year ended December 31, 2020.

(c) Includes a $20.9 million gain on the sale of a business and a $2.9 million loss on the sale of a business during the years ended December 31, 2021 and 2020, respectively.

International

5 unchanged sentences

Services 20.5 17.3 3.2 18.5 %

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

Operating loss from continuing operations (including restructuring, impairment and transaction-related charges) (16.1) (0.8) (15.3) nm

Operating margin (4.9) % (0.3) % N/A N/A

Restructuring, impairment and transaction-related charges $ 31.3 $ 12.2 $ 19.1 156.6 %

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

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

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

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

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

Operating Income from Continuing Operations

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

Equity in (earnings) loss of unconsolidated entity (0.3) 0.2 (0.5) 250.0 %

Product sales for the International segment increased $26.6 million, or 9.3%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to a $15.6 million increase in pass-through paper sales and a $11.3 million increase in volume, primarily in Mexico and Europe, partially offset by $0.3 million in unfavorable foreign exchange impacts, primarily in Argentina.

Service sales for the International segment increased $3.2 million, or 18.5%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to a increase in logistics sales and imaging services in Europe.

Operating Loss from Continuing Operations

Operating loss from continuing operations for the International segment increased $15.3 million for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due a $19.1 million increase in restructuring, impairment and transaction-related charges and the receipt of a $2.2 million COVID-19 related government subsidy in Poland in 2020 that did not repeat in 2021, partially offset by a $6.0 million increase in operating income from cost saving initiatives and increased print volume.

Restructuring, Impairment and Transaction-Related Charges

5 unchanged sentences

32.1 0.1 32.0

Other restructuring charges (b)

Other restructuring charges (income) (b)

(2.0) 7.6 (9.6)

1 unchanged sentence

______________________________

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

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

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

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

Equity in Loss of Unconsolidated Entities

(a) Includes $32.1 million of impairment charges related to the Company’s decision to sell the investment in Plural during the year ended December 31, 2021;

and $0.1 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction and strategic divestiture activities during the year ended December 31, 2020.

(b) Includes a $2.7 million gain from the reclassification of foreign currency translation adjustments during the year ended December 31, 2021;

and $0.6 million and $5.9 million in charges from foreign currency losses as result of the economy in Argentina being classified as highly inflationary during the years ended December 31, 2021 and 2020, respectively.

Equity in (Earnings) Loss of Unconsolidated Entities

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

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

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

At December 31, 2021, the Company held a 49% ownership interest in Plural, a commercial printer based in São Paulo, Brazil.

The equity in earnings of unconsolidated entity in the International segment was $0.3 million for the year ended December 31, 2021, compared to equity in loss of unconsolidated entity of $0.2 million for the year ended December 31, 2020, due to an increase in earnings at the Company’s investment in Plural.

In January 2022, the Company sold its investment in Plural.

As a result of the planned sale, the Company recorded a $32.1 million impairment charge during the year ended December 31, 2021.

Unrestricted Subsidiaries

7 unchanged sentences

Operating Expenses

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

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

Corporate operating expenses increased $7.3 million, or 15.6%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to a $6.6 million increase in employee-related costs and a $0.3 million increase in restructuring, impairment and transaction-related charges.

Restructuring, Impairment and Transaction-Related Charges

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

Corporate restructuring, impairment and transaction-related charges increased $0.3 million, or 16.7%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the following:

Year Ended December 31,

1 unchanged sentence

Employee termination charges $ 0.5 $ 0.2 $ 0.3

Impairment charges (a)

Transaction-related charges (b)

1.3 51.6 (50.3)

Transaction-related charges 0.6 1.3 (0.7)

Other restructuring charges 1.0 0.3 0.7

Total restructuring, impairment and transaction-related charges $ 2.1 $ 1.8 $ 0.3

______________________________

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

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

Liquidity and Capital Resources

3 unchanged sentences

There were no borrowings under the $432.5 million revolving credit facility as of December 31, 2021, and peak borrowings were $59.7 million during the year ended December 31, 2021.

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

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

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

The Company believes its expected future cash flows from operating activities and its current liquidity and capital resources, are sufficient to fund ongoing operating requirements and service debt and pension requirements for both the next 12 months and beyond.

Net Cash Provided by Operating Activities

Year Ended December 31, 2021, Compared to Year Ended December 31, 2020

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

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

Net Cash Provided by (Used in) Investing Activities

Net cash provided by operating activities was $136.5 million for the year ended December 31, 2021, compared to $190.2 million for the year ended December 31, 2020, resulting in a $53.7 million decrease in cash provided by operating activities.

The decrease was primarily due to a $29.6 million decrease in cash from earnings and a $24.1 million decrease in cash flows provided by changes in operating assets and liabilities, primarily due to the strategic decision to carry higher inventory levels to serve clients.

Net Cash Provided by Investing Activities

Year Ended December 31, 2021, Compared to Year Ended December 31, 2020

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

Net cash provided by investing activities was $129.4 million for the year ended December 31, 2021, compared to $9.7 million for the year ended December 31, 2020, resulting in a $119.7 million increase in cash provided by investing activities.

The increase was primarily due to the following:

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

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

(1) a $118.9 million increase in proceeds from the sale of property, plant and equipment;

(2) a $11.0 million decrease in purchases of property, plant and equipment;

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

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

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

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

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

Net Cash Provided by (Used in) Financing Activities

(3) a $10.2 million increase in the proceeds from property insurance claims;

and (4) a $2.2 million decrease in cash used in the acquisition of business.

These increases were partially offset by a $21.6 million decrease in the proceeds from the sale of businesses and a $0.9 million increase in cost investment in unconsolidated entities.

Net Cash Used in Financing Activities

Year Ended December 31, 2021, Compared to Year Ended December 31, 2020

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

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

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

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

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

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

Net cash used in financing activities was $140.9 million for the year ended December 31, 2021, compared to $223.6 million for the year ended December 31, 2020, resulting in a $82.7 million decrease in cash used in financing activities.

The decrease was primarily due to a (1) a $63.4 million decrease in net payments of debt and lease obligations in 2021 compared to 2020;

(2) a $20.5 million decrease in cash used in changes in ownership of noncontrolling interests;

and (3) a $8.1 million decrease in cash used in the payment of dividends.

These decreases were partially offset by a $6.0 million increase in other financing activities and a $3.2 million increase in payments of debt issuance costs and financing fees.

Free Cash Flow

Free Cash Flow is defined as net cash provided by operating activities less purchases of property, plant and equipment, plus LSC-related payments.

Free Cash Flow is defined as net cash provided by operating activities less purchases of property, plant and equipment.

The Company’s management assesses Free Cash Flow as a measure to quantify cash available for (1) strengthening the balance sheet (debt reduction), (2) strategic capital allocation and deployment through investments in the business (acquisitions and strategic investments) and (3) returning capital to the shareholders (dividends and share repurchases).

7 unchanged sentences

purchases of property, plant and equipment (50.0) (61.0)

LSC-related payments (1)

Free Cash Flow (non-GAAP) $ 86.5 $ 129.2

______________________________

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

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

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

The above calculation of Free Cash Flow includes the cash flows related to the Book business for all periods presented.

Free Cash Flow decreased $42.7 million for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to a $53.7 million decrease in net cash provided by operating activities, partially offset by an $11.0 million decrease in capital expenditures.

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

The above calculation of Free Cash Flow includes the cash flows related to the Book business for the year ended December 31, 2020.

Debt Leverage Ratio

4 unchanged sentences

(4) net pension income;

(5) employee stock ownership plan contributions;

(6) loss (gain) on debt extinguishment;

(5) gain from sale and leaseback;

(6) (gain) loss on debt extinguishment;

(7) equity in (earnings) loss of unconsolidated entity;

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

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

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

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

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(dollars in millions)

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

Net earnings (loss) attributable to Quad common shareholders $ 37.8 $ (128.3)

Interest expense 59.6 68.8

Income tax benefit 0.3 (24.4)

Income tax expense 9.5 0.3

Depreciation and amortization 157.3 181.6

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Net pension income (14.5) (10.5)

Gains from sale and leaseback (24.5) —

Loss on debt extinguishment 0.7 1.8

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______________________________

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

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

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

The Debt Leverage Ratio, at December 31, 2021, decreased 0.81x to 2.54x compared to December 31, 2020, primarily due to a $249.2 million decrease in debt and finance lease obligations, partially offset by a $14.4 million decrease in Adjusted EBITDA.

The Debt Leverage Ratio, at December 31, 2021, is above management’s desired target Debt Leverage Ratio range of 2.0x to 2.5x;

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

however, the Company expects to operate above the Debt Leverage Ratio target range due to the ongoing supply chain shortages.

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

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On April 28, 2014, the Company entered into its Senior Secured Credit Facility, which included a revolving credit facility, Term Loan A and Term Loan B.

The Company completed the third amendment to the Senior Secured Credit Facility on January 31, 2019.

This third amendment was completed to provide Quad with the liquidity and structural flexibility to consummate the proposed, but now terminated, acquisition of LSC and to extend existing maturities by (a) increasing the aggregate amount of the existing revolving credit facility from $725.0 million to $800.0 million with a term of five years, maturing on January 31, 2024;

(b) increasing the aggregate amount of the existing Term Loan A from $375.0 million to $825.0 million with a delayed draw feature and term of five years, maturing on January 31, 2024;

and (c) increasing the aggregate amount of the existing Term Loan B from $300.0 million to $500.0 million with a term of seven years, maturing on January 31, 2026.

The Company intended that the loans available under the amended revolving credit facility would be used to repay, refinance, repurchase, redeem, exchange or otherwise terminate LSC’s existing indebtedness in connection with the consummation of the merger, and to pay transaction expenses.

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 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);

The Senior Secured Credit Facility was amended to (a) provide for certain financial covenant relief through the fiscal quarter ended 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, 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.

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.

The Company completed the fifth amendment to the Senior Secured Credit Facility on November 2, 2021.

The Senior Secured Credit Facility was amended to (a) reduce the aggregate amount of the existing revolving credit facility from $500.0 million to $432.5 million, and extend the maturity of a portion of the revolving credit facility such that $90.0 million under the revolving credit facility is due on the existing maturity date of January 31, 2024 (the “Existing Maturity Date”) and $342.5 million under the revolving credit facility is due on November 2, 2026 (the “Extended Maturity Date”);

(b) extend the maturity of a portion of the existing term loan facility such that $91.5 million of such term loan facility is due on the Existing Maturity Date and $483.9 million is due on the Extended Maturity Date;

(c) make certain adjustments to pricing, including an increase of 0.50% to the interest rate margin applicable to the loans maturing on the Extended Maturity Date;

(d) modify certain financial and operational covenants;

and (e) modify the interest rate provisions relating to the phase-out of LIBOR as a reference rate.

Borrowings under the revolving credit facility and Term Loan A made under the Senior Secured Credit Facility bear interest at 2.75% in excess of reserve adjusted LIBOR, or 1.75% in excess of an alternate base rate with a LIBOR floor of 0.75% for the extended tranche and bear interest at 2.50% in excess of reserve adjusted LIBOR, or 1.50% in excess of an alternate base rate with a LIBOR floor of 0.75% for the non-extending tranche.

At December 31, 2021, the Company had no outstanding borrowings on the revolving credit facility, and had $35.8 million of issued letters of credit, leaving up to $396.7 million available for future borrowings.

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

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

The Senior Unsecured Notes were issued to extend and stagger the Company’s debt maturity profile, further diversify its capital structure and provide more borrowing capacity to better position the Company to execute on its strategic goals.

The Company received $294.8 million in net proceeds from the sale of the Senior Unsecured Notes, after deducting the initial purchasers’ discounts and commissions.

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

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

During the year ended December 31, 2021, the Company repurchased $27.2 million of its outstanding Senior Unsecured Notes in the open market, resulting in a net loss on debt extinguishment of $0.5 million.

During the year ended December 31, 2020, 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.

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.

These repurchases were completed primarily to reduce interest expense.

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”).

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Master Note and Security Agreement

On September 1, 1995, and as last amended on November 24, 2014, the Company entered into the Master Note and Security Agreement pursuant to which the Company issued over time senior notes in an aggregate principal amount of $1.1 billion in various tranches, of which $15.6 million was outstanding as of December 31, 2020.

On September 1, 1995, and as last amended on November 24, 2014, the Company entered into its Master Note and Security Agreement pursuant to which the Company issued over time senior notes in an aggregate principal amount of $1.1 billion in various tranches, of which $7.2 million was outstanding as of December 31, 2021.

The senior notes under the Master Note and Security Agreement had a weighted average interest rate of 7.81% at December 31, 2021, which is fixed to maturity, with interest payable semiannually.

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

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

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

Covenants and Compliance

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Among these covenants, the Company was required to maintain the following as of December 31, 2021:

• 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.

• 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, 2021, the Company’s Total Leverage Ratio was 3.22 to 1.00).

• Liquidity, defined as unrestricted cash and permitted investments of the Company and its subsidiaries (subject to certain conditions) plus the aggregate amount of the unused revolving credit facility commitments, shall not be less than $181.6 million at any time during the period commencing December 15, 2023 and ending when all obligations owed under the Senior Secured Credit Facility to lenders that are not extending lenders are paid in full.

• 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:

◦ Senior Secured Leverage Ratio.

On a rolling twelve-month basis, the Senior Secured Leverage Ratio, defined as consolidated senior secured net indebtedness to consolidated EBITDA, shall not exceed 3.50 to 1.00 (for the twelve months ended December 31, 2020, the Company’s Senior Secured Leverage Ratio was 2.41 to 1.00).

On a rolling four-quarter basis, the Senior Secured Leverage Ratio, defined as the ratio of consolidated senior secured net indebtedness to consolidated EBITDA, shall not exceed (a) 3.50 to 1.00 for any fiscal quarter ending prior to December 31, 2023, and (b) 3.25 to 1.00 for any fiscal quarter ending on or after December 31, 2023 (other than, in the case of this clause (b), any fiscal quarter ending September 30 of any year, each of which shall be subject to a maximum Senior Secured Leverage Ratio not to exceed 3.50 to 1.00) (for the twelve months ended December 31, 2021, the Company’s Senior Secured Leverage Ratio was 1.68 to 1.00).

• Interest Coverage Ratio.

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In addition to those covenants, the Senior Secured Credit Facility also includes certain limitations on acquisitions, indebtedness, liens, dividends and repurchases of capital stock.

The following limitations utilize a Total Net Leverage Ratio calculation, which, on a rolling twelve-month basis, is defined as consolidated net indebtedness to consolidated EBITDA (for the twelve months ended December 31, 2020, the Company’s Total Net Leverage Ratio was 3.30 to 1.00).

• 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, 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).

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

If the Company’s Total Leverage Ratio is above 2.50 to 1.00 but below 2.75 to 1.00, the Company is prohibited from making greater than $100.0 million of dividend payments, capital stock repurchases and certain other payments, over the course of the agreement.

If the Total Leverage Ratio is less than 2.50 to 1.00, there are no such restrictions.

As the Company’s Total Leverage Ratio as of December 31, 2021, was 3.22 to 1.00, 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 which, on a rolling twelve-month basis, is defined as consolidated net indebtedness to consolidated EBITDA, 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).

If the Senior Secured Leverage Ratio is less than 3.00 to 1.00 and the Total Net Leverage Ratio is less than 3.50 to 1.00, there are no such restrictions.

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The net underfunded pension and MEPPs obligations decreased by $40.9 million during the year ended December 31, 2021, from $92.3 million at December 31, 2020, to $51.4 million at December 31, 2021.

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

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

This decrease in overall pension obligations was primarily due to a 40 basis point increase in the pension discount rate from 2.37% at December 31, 2020 to 2.77% at December 31, 2021, payments totaling $6.2 million made to the MEPPs and $1.6 million in employer pension contributions during the year ended December 31, 2021.

The decrease was partially offset by an actual return on pension plan assets of 5.11% during the year ended December 31, 2021, which was below the expected return on plan assets assumption of 5.50%.

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

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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 December 31, 2021 and 2020.

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For a discussion of the Company’s exposure to market risks and management of those market risks, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of this Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

Except as set forth below in the Contractual Obligations and Other Commitments table, the Company has no off-balance sheet arrangements, financings or special purpose entities that the Company expects to have a material current or future effect on financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources or significant components of sales or expenses.

Contractual Obligations and Other Commitments

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21.4 14.9 2.9 2.1 1.3 0.2 —

Business acquisitions (7)

$ 1,129.2 $ 336.4 $ 113.4 $ 193.3 $ 109.2 $ 325.9 $ 51.0

______________________________

(1) Debt obligations include $97.4 million for anticipated future interest payments, including $5.2 million of estimated interest payments from the interest rate swaps, and excludes $9.1 million for future amortization of debt issuance costs.

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

During 2021, the Company paid in advance $35.7 million on its Term Loan A for the year ended December 31, 2022.

The Company also paid in advance $62.4 million of required amortization payments on its Term Loan A for the year ended December 31, 2023.

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

(2) Operating lease obligations include $20.3 million for anticipated future interest payments.

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(6) Purchase obligations consist primarily of $10.0 million in firm commitments to purchase press and finishing equipment and $11.4 million of other purchase obligations.

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

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

The Company has taken tax positions for which the ultimate amount and the year(s) any necessary payments will be made that pertain to those tax positions is uncertain.

The reserve for uncertain tax positions prior to interest and penalties was $11.6 million as of December 31, 2020, of which $5.2 million was included in other long-term liabilities, $6.1 million was included in deferred income taxes and $0.3 million was included in accrued liabilities in the consolidated balance sheets.

The Company has also recorded reserves for interest and penalties related to uncertain tax positions of $0.6 million and $0.1 million, respectively, as of December 31, 2020.

The reserve for uncertain tax positions prior to interest and penalties was $11.7 million as of December 31, 2021, of which $6.5 million was included in deferred income taxes and $5.2 million was included in other long-term liabilities.

(8) The contractual obligations table above does not include the share repurchase program as no repurchases are required under the program.

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

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

on Form 10-K.

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

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

In some instances, the Company will deliver print work for a customer and bill the customer for postage.

In some instances, the Company will

deliver print work for a customer and bill the customer for postage.

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

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When the transaction price requires allocation to multiple performance obligations, the Company uses the estimated stand-alone selling prices using the adjusted market assessment approach.

Costs to Obtain Contracts

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.

Costs to obtain contracts with a duration of less than one year are expensed as incurred.

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

Impairment of Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination and is assigned to specific reporting units.

Changes in management’s estimates or judgments, including changes based on actual results differing from the estimates and judgments used in the purchase price allocation process, could result in an impairment charge, and such a charge could have a material adverse effect on the Company's results of operations.

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

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

(1) Core Print and Related Services;

(2) Specialty Print and Related Services;

and (3) Other United States Products and Services.

As of December 31, 2020, goodwill totaled $103.0 million and was allocated to the Core Print and Related Services.

The Specialty Print and Related Services reporting unit and the Other United States Products and Services reporting unit have no goodwill allocated to them.

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

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

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

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

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

Significant assumptions used under the income approach included:

estimated future cash flows including expected future revenue growth, profit margins, capital expenditures, working capital levels, terminal value multiples and an 11.1% after-tax weighted average cost of capital for the Core Print and Related Services.

Estimated future cash flows were based on the Company's internal projection models, industry projections and other assumptions deemed reasonable by management.

Significant assumptions used under the market approach included:

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

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

After completing the annual evaluation, the estimated fair value of the Core Print and Related Services reporting unit in the United States Print and Related Services segment was determined to exceed the carrying value of the reporting unit.

In addition, the Company performed a sensitivity analysis as of October 31, 2020, on the material assumptions used in the discounted cash flow valuation models.

In performing the annual goodwill impairment assessment, the percentage by which estimated fair value exceeded carrying value in the Core Print and Related Services reporting unit was more than 50%.

As such, management concluded that no impairment existed as of October 31, 2020.

No additional indications of impairment were identified between October 31, 2020, and December 31, 2020.

Impairment of Property, Plant and Equipment and Finite-lived Intangible Assets

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

Once designated as held for sale, the Company stops recording

depreciation expense on the property, plant and equipment.

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

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

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

Based on the assessments completed during the years ended December 31, 2021, and 2020, the Company recognized property, plant and equipment impairment charges from continuing operations of $2.8 million and $64.1 million, respectively, primarily related to facility consolidations, as well as other capacity reduction and strategic divestiture activities.

There were no finite-lived intangible asset impairment charges recorded during the years ended December 31, 2021 and 2020.

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In the event that there are significant and unanticipated changes in circumstances, such as significant adverse changes in business climate, adverse actions by regulators, unanticipated competition, loss of key customers and/or changes in technology or markets, or that actual results differ from management’s estimates, a provision for impairment could be required in a future period.

Pension Plans

As a result of the acquisition of World Color Press, the Company acquired multiple underfunded pension plans.

Pension plan costs are determined using actuarial methods and are funded through contributions determined in accordance with the projected benefit method pro-rated based on service.

The Company records amounts relating to its pension plans based on calculations which include various actuarial assumptions.

The Company believes that the two most critical assumptions are the discount rate and assumed rate of return on assets.

Changes in these assumptions are primarily influenced by factors outside of the Company’s control and can have a significant effect on the amounts reported in the financial statements.

The Company reviews its actuarial assumptions on an annual basis and modifies the assumptions based on current rates and trends when it is appropriate to do so.

The effects of modifications are recognized immediately on the consolidated balance sheets, but are generally amortized into operating income over future periods, with the deferred amount recorded in accumulated other comprehensive loss on the consolidated balance sheets included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.

The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience, market conditions and input from its actuaries and investment advisors.

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.

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

The Company determines its assumption for the discount rate to be used for purposes of computing annual service and interest costs for each pension plan based on an index of high-quality corporate bond yields and matched-funding yield curve analysis as of that date.

The Company measures interest costs for pension benefits by applying the specific spot rates along that yield curve to the plans’ liability cash flows.

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

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

Increase 1.0%

(in millions)

Projected benefit obligation $ (47.9) $ 55.9

Net pension income $ (3.4) $ 2.6

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

The intent of this strategy is to outperform the growth in plan liabilities over the long run, such that plan contributions can be decreased, balanced with maintaining a lower degree of investment risk.

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

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

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

The expected long-term rate of return for plan assets is based upon many factors including expected asset allocations, historical asset returns, current and expected future market conditions and risk.

The current target asset allocation for plan assets on a weighted average basis are 30% equity securities and 70% debt securities.

The actual asset allocation as of December 31, 2020, was approximately 30% equity securities and 70% debt securities.

The expected return on plan assets assumption was 5.75% and 6.25% at December 31, 2020 and 2019, respectively, for the Company’s funded United States pension plans.

Actual return on plan assets was 17.00% and 21.28% for the years ended December 31, 2020 and 2019, respectively.

Certain pension plans are unfunded (those plans do not hold plan assets).

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

Increase 0.25%

(in millions)

Net pension income $ 1.1 $ (1.1)

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

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.

The two MEPPs, the GCIU and the GCC, are significantly underfunded, and require the Company to pay a withdrawal liability to fund its pro rata share of the underfunding as of the plan year the full withdrawal was completed.

As a result of the decision to withdraw, the Company accrued the estimated withdrawal liability based on information provided by each plan’s trustee.

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

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

New Accounting Pronouncements

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

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

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

Statement of Operations Financial Information December 31, 2021 December 31, 2020

17 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis