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Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-27 · 173 added, 270 removed, 390 unchanged (53% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Following discussion of the financial condition and results of operations of Quad should be read together with Quad’s audited consolidated financial statements for each of the two years in the period ended December 31, 2022, including the notes thereto, included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.

The following discussion of the financial condition and results of operations of Quad should be read together with Quad’s audited consolidated financial statements for each of the two years in the period ended December 31, 2023, including the notes thereto, included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.

This discussion contains forward-looking statements that reflect the Company’s plans, estimates and beliefs.

The Company’s actual results could differ materially from those discussed in these forward-looking statements.

Factors that could cause or contribute to these differences include, but are not limited to, those discussed in “Forward-Looking Statements” and Part I, Item 1A, “Risk Factors,” included earlier within this Annual Report on Form 10-K.

Factors that could cause or contribute to these differences include, but are not limited to, those discussed in “Cautionary Statement Regarding Forward-Looking Statements” and Part I, Item 1A, “Risk Factors,” included earlier within this Annual Report on Form 10-K.

Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to the Company’s consolidated financial statements and accompanying notes to help provide an understanding of the Company’s financial condition, the changes in the Company’s financial condition and the Company’s results of operations.

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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, 2023, to the year ended December 31, 2022.

The comparability of the Company’s results of operations between periods was impacted by the divestiture of the Company’s third-party logistics business on June 30, 2021.

The results of operations of the divestiture are included in the Company’s consolidated results until the date of disposition.

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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In addition, all of the Company’s significant accounting policies, including critical accounting policies, are summarized in Note 1, “Basis of Presentation and Summary of Significant Accounting Policies,” to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.

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Business Overview

Quad is a global marketing experience company that gives brands a more streamlined, impactful, flexible and frictionless way to go to market and reach consumers.

The Company leverages its three key competitive advantages — integrated marketing platform excellence, ongoing innovation, and culture and social purpose — to create a better way for its clients, employees and communities.

With a marketing platform intentionally built for integrated marketing execution, Quad helps brands reduce the complexity of working with multiple agency partners and vendors;

increase marketing process efficiency;

and maximize marketing effectiveness.

The Company’s holistic, multichannel, through-the-line marketing solutions include strategy and consulting, data and analytics, technology solutions, media services, creative and content solutions, and managed services.

With unmatched scale for client-based, on-site services and highly qualified talent with expansive subject matter expertise, the Company has the resources and knowledge to help a wide variety of clients across multiple verticals, including those in industries such as retail, publishing, consumer packaged goods, financial services, healthcare, insurance and direct-to-consumer.

Quad is a global marketing experience (MX) company that helps brands make direct consumer connections, from household to in-store to online.

The Company is focused on providing a better marketing experience for its clients, so they can focus on delivering the best customer experience to theirs.

Quad does this with a suite of marketing solutions that is flexible, scalable and connected.

Supported by state-of-the-art technology and data-driven intelligence, these solutions are designed to streamline the complexities of marketing and remove friction from wherever it occurs in the marketing journey.

Quad tailors its solutions to its clients’ objectives, driving cost efficiencies, improving speed to market, strengthening marketing effectiveness, and delivering value on their investments.

The Company supports a diverse base of clients, including industry-leading blue-chip companies that serve both businesses and consumers across multiple industry verticals, with a particular focus on commerce, including retail, consumer packaged goods and direct-to-consumer;

financial services;

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.

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

The Company’s operating and reportable segments, including its product and service offerings, and a “Corporate” category, are summarized below.

The Company’s operating and reportable segments, including their product and service offerings, and a “Corporate” category, are summarized below.

The United States Print and Related Services segment is predominantly comprised of the Company’s United States printing operations and is managed as one integrated platform.

This includes print execution and logistics for retail inserts, catalogs, long-run publications, special interest publications, journals, direct mail, directories, in-store marketing and promotion, packaging, newspapers, custom print products, as well as other commercial and specialty printed products, along with global paper procurement, and marketing and other complementary services, such as data and analytics, technology solutions, media services, creative and content solutions, managed services and execution in non-print channels (e.g., digital and broadcast).

This includes print execution and logistics for retail inserts, catalogs, long-run publications, special interest publications, journals, direct mail, directories, in-store marketing and promotion, packaging, newspapers, custom print products, as well as other commercial and specialty printed products, along with global paper procurement, and marketing and other complementary services, such as data intelligence and analytics, technology solutions, media planning, placement and optimization, creative strategy and content creation, as well as execution in non-print channels (e.g., digital and broadcast).

This segment also includes the manufacture of ink.

The United States Print and Related Services segment accounted for approximately 86% and 87% of the Company’s consolidated net sales during the years ended December 31, 2023 and 2022, 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 India.

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

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

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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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Key Performance Metrics Overview

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The Company uses period-over-period net sales growth, EBITDA, EBITDA margin, net cash provided by operating activities, Free Cash Flow and Debt Leverage Ratio as metrics to measure operating performance, financial condition and liquidity.

EBITDA, EBITDA margin, Free Cash Flow and Debt Leverage Ratio are non-GAAP financial measures (see the definitions of EBITDA, EBITDA margin and the reconciliation of net earnings to EBITDA in the “Results of Operations” section below, and see the definitions of Free Cash Flow and Debt Leverage Ratio, the reconciliation of net cash provided by operating activities to Free Cash Flow, and the calculation of Debt Leverage Ratio in the “Liquidity and Capital Resources” section below).

EBITDA, EBITDA margin, Free Cash Flow and Debt Leverage Ratio are non-GAAP financial measures (see the definitions of EBITDA, EBITDA margin and the reconciliation of net earnings (loss) to EBITDA in the “Results of Operations” section below, and see the definitions of Free Cash Flow and Debt Leverage Ratio, the reconciliation of net cash provided by operating activities to Free Cash Flow, and the calculation of Debt Leverage Ratio in the “Liquidity and Capital Resources” section below).

Net sales growth.

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The Company remains disciplined with its debt leverage.

The Company’s consolidated debt and finance lease obligations decreased by $234 million during the year ended December 31, 2022, primarily due to the use of cash and cash equivalents and cash provided by operating activities.

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The Company’s consolidated debt and finance lease obligations decreased by $47.5 million during the year ended December 31, 2023, primarily due to the use of cash and cash equivalents, cash provided by operating activities and proceeds from the sale of property, plant and equipment.

Overview of Trends Affecting Quad

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

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

This trend greatly influences Quad’s ongoing efforts to help brands reduce the complexities of working with multiple agency partners and vendors, increase marketing process efficiency and maximize marketing effectiveness.

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

As new marketing channels emerge, these providers must expand their capabilities to create effective multichannel campaigns for their clients, and providers face increased client demand to offer integrated, end-to-end marketing services (i.e., from strategy and creative through execution).

These trends greatly influence Quad’s ongoing efforts to help brands reduce the complexities of working with multiple agency partners and vendors, increase marketing process efficiency and maximize marketing effectiveness.

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

The commercial printing industry has moved toward a demand for shorter print runs, faster product turnaround and increased production efficiencies of products with lower page counts and increased complexity.

This — combined with increases in postage expenses and marketers’ increasing use of online marketing and communication channels (exacerbated by the COVID-19 pandemic, as well as the current macroeconomic conditions) — has led to excess manufacturing capacity.

This — combined with increases in postage and paper costs as well as marketers’ increasing use of online marketing and communication channels — has led to excess manufacturing capacity.

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

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As a result of these financial difficulties, the USPS has continued 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.

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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, digital and mobile channels and other alternative media channels, in order to ensure that they stay within their expected postage budgets.

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

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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.

The USPS is expected to use these additional rate authorities to implement twice a year increases in the future.

The USPS has used these additional rate authorities to implement twice a year increases and are expected to continue to do so in the future.

This has led 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 how much of the authority the USPS will use on any specific rate increase 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.

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

Through its data analytics, unique software to merge mail streams on a large scale, advanced finishing capabilities and technology, and in-house transportation and logistics operations, the Company manages the mail preparation and distribution of most of its clients’ products to maximize efficiency, to enable on-time and consistent delivery and to partially reduce these costs.

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

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

Throughout the pandemic, the Company implemented cost reduction and cash conservation initiatives in response to the pandemic’s impact on its business.

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

The COVID-19 pandemic weakened demand for the Company’s products and services, disrupted the Company’s supply chain and resulted in rising inflationary cost and labor pressures, distribution challenges and recessionary concerns from evolving macroeconomic conditions.

The Company continues to evaluate the current economic environment and may implement additional cost reduction measures as necessary.

Additionally, rising interest rates, 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 during the Company’s seasonally higher third and fourth quarters.

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

As the 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 its raw materials, distribution and labor, the Company has and will continue to pass along price increases to its clients.

The Company expects inflationary cost pressures and certain supply chain shortages to potentially continue through fiscal year 2023.

The Company is unable to predict the future impact of 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.

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The Company continues to face several other industry challenges that have been, and are expected to continue to, adversely impact the Company’s results of operation.

The Company continues to operate in a high interest rate environment, which is expected to continue through 2024.

Additionally, the price and availability of paper has been, and may continue to be, adversely affected by paper mills’ permanent or temporary closures, and mills’ access to raw materials, conversion to produce other types of paper, and ability to transport paper produced.

Postal rate increases, along with the previously described industry challenges, have led to reduced demand for printed products and has caused clients to move more aggressively into other delivery methods, such as the many digital and mobile options now available to consumers.

This reduced volume has driven the Company to institute several cost saving measures through its restructuring program, including plant closures and headcount reductions.

Through these cost saving measures and proceeds from asset sales, the Company has been able to maintain focus on its transformation into an MX company, with flexibility to invest into the growing business, as well as continuing to be advantageous in its efforts to return capital to shareholders and reduce debt.

The Company is also 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 Company is unable to predict the full future impact these challenges will have on its business, financial condition, cash flows and results of operations, but expects them to continue into 2024.

Results of Operations for the Year Ended December 31, 2023, Compared to the Year Ended December 31, 2022

Summary Results

The Company’s operating income, operating margin, net earnings (computed using a 25% normalized tax rate for all items subject to tax) and diluted earnings per share for the year ended December 31, 2022, changed from the year ended December 31, 2021, as follows (dollars in millions, except per share data):

Operating Income Operating Margin Net Earnings Diluted Earnings Per Share

The Company’s operating income, operating margin, net earnings (loss) (computed using a 25% normalized tax rate for all items subject to tax) and diluted earnings (loss) per share for the year ended December 31, 2023, changed from the year ended December 31, 2022, as follows (dollars in millions, except per share data):

Operating Income Operating Margin Net Earnings (Loss) Diluted Earnings (Loss) Per Share

For the year ended December 31, 2022 $ 53.5 1.7 % $ 9.3 $ 0.18

Gains from sale and leaseback (1)

(24.5) (0.8) % (18.4) (0.35)

Restructuring, impairment and transaction-related charges (1)

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N/A N/A (8.2) (0.15)

Loss on debt extinguishment (6)

N/A N/A 0.5 0.01

Income taxes (5)

N/A N/A (19.5) (0.41)

Investments in unconsolidated entity, net of tax (8)

N/A N/A (0.3) (0.01)

For the year ended December 31, 2023 $ 25.7 0.9 % $ (55.4) $ (1.14)

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(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.

(1) Restructuring, impairment and transaction-related charges increased $32.7 million ($24.5 million, net of tax), to $77.5 million during the year ended December 31, 2023, and included the following:

A $2.6 million decrease in employee termination charges from $9.9 million during the year ended December 31, 2021, to $7.3 million during the year ended December 31, 2022;

A $32.7 million decrease in impairment charges from $34.9 million during the year ended December 31, 2021, to $2.2 million during the year ended December 31, 2022;

A $27.8 million increase in employee termination charges from $7.3 million during the year ended December 31, 2022, to $35.1 million during the year ended December 31, 2023;

A $23.0 million increase in impairment charges from $2.2 million during the year ended December 31, 2022, to $25.2 million during the year ended December 31, 2023;

A $2.2 million increase in transaction-related charges from $2.0 million during the year ended December 31, 2022, to $4.2 million during the year ended December 31, 2023;

A $0.7 million increase in integration-related charges from zero during the year ended December 31, 2021, to $0.7 million during the year ended December 31, 2022;

A $59.1 million increase in various other restructuring charges from $26.5 million of income during the year ended December 31, 2021, to $32.6 million of expense during the year ended December 31, 2022.

A $0.3 million increase in integration-related charges from $0.7 million during the year ended December 31, 2022, to $1.0 million during the year ended December 31, 2023;

A $20.6 million decrease in various other restructuring charges from $32.6 million during the year ended December 31, 2022, to $12.0 million during the year ended December 31, 2023.

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.

(2) Other operating income elements increased $4.9 million ($3.7 million, net of tax) primarily due to the following:

(1) higher print pricing and volume;

(1) the impact from print product pricing;

(2) a $14.1 million decrease in selling, general and administrative expenses;

(3) a $12.5 million decrease in depreciation and amortization expense;

and (3) savings from other cost reduction initiatives.

These cost decreases were partially offset by cost increases from supply chain disruptions, cost inflation in materials and freight and labor shortages and a $13.4 million gain from a property insurance claim in 2021 that did not repeat in 2022.

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(4) Interest expense decreased $11.2 million ($8.4 million, net of tax) during the year ended December 31, 2022, to $48.4 million.

This change was due to a $9.3 million decrease in interest expense related to the interest rate swaps and lower average debt levels, partially offset by a higher weighted average interest rate on borrowings during the year ended December 31, 2022, as compared to the year ended December 31, 2021.

(4) impacts from improved manufacturing productivity;

and (5) savings from other cost reduction initiatives, partially offset by print volume decreases.

(3) Interest expense increased $21.6 million ($16.2 million, net of tax) during the year ended December 31, 2023, to $70.0 million.

This change was due to higher weighted average interest rates on borrowings and a $6.1 million increase in interest expense related to the interest rate swaps, partially offset by lower average debt levels during the year ended December 31, 2023, as compared to the year ended December 31, 2022.

(4) Net pension income decreased $10.9 million ($8.2 million, net of tax) during the year ended December 31, 2023, to $1.7 million.

This was due to a $1.9 million decrease from the expected long-term return on pension plan assets and a $0.9 million increase from interest cost on pension plan liabilities, partially offset by a $0.9 million decrease in a non-cash settlement charge in 2021 that did not repeat in 2022.

(6) The $0.7 million ($0.5 million, net of tax) decrease in loss on debt extinguishment 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 which were due on 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.

There was no loss on debt extinguishment during the year ended December 31, 2022.

(7) The $6.2 million increase in income tax expense as calculated in the following table is primarily due to a $22.3 million increase from valuation allowance reserves, partially offset by the following:

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

(2) a $5.1 million decrease from loss on the sale of its Argentina print business in 2022;

(3) a $2.6 million decrease from income in foreign branches;

and (4) a $1.6 million decrease from equity award activity and executive compensation limitation.

This was due to the following:

(1) a $7.9 million increase from interest cost on pension plan liabilities;

(2) a $2.4 million decrease from the expected long-term return on pension plan assets;

and (3) amortization of actuarial loss of $0.6 million in 2023 that did not occur in 2022.

(5) The $19.5 million increase in income tax expense as calculated in the following table is primarily due to the following:

(1) a $10.7 million increase in the Company’s liability for audit assessments and unrecognized tax benefits;

(2) a $5.1 million increase from the loss on the sale of its Argentina print business in 2022;

and (3) a $1.3 million increase from valuation allowance reserves.

Year Ended December 31,

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(dollars in millions)

Earnings before income taxes and equity in earnings of unconsolidated entity $ 17.7 $ 47.0 $ (29.3)

Earnings (loss) before income taxes $ (42.6) $ 17.7 $ (60.3)

Normalized tax rate 25.0 % 25.0 %

Income tax expense at normalized tax rate 4.4 11.7 (7.3)

Income tax expense (benefit) at normalized tax rate (10.7) 4.4 (15.1)

Income tax expense from the consolidated statements of operations 12.8 8.4 4.4

Impact of income taxes $ 23.5 $ 4.0 $ 19.5

(8) The decrease from investments in unconsolidated entity, net of tax, of $0.3 million during the year ended December 31, 2022, was due to the equity in earnings of $0.3 million for the year ended December 31, 2021 at the Company’s investment in Plural Industria Gráfica Ltda.

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

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

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Operating Results

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Selling, general & administrative expenses 344.5 11.6 % 358.6 11.1 % (14.1) (3.9) %

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

Depreciation and amortization 128.8 4.4 % 141.3 4.4 % (12.5) (8.8) %

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Operating income $ 25.7 0.9 % $ 53.5 1.7 % $ (27.8) (52.0) %

Product sales increased $281.2 million, or 12.5%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to a $191.2 million increase from paper sales and a $110.1 million increase in sales in the Company’s print product lines, primarily due to increased print pricing and volume, partially offset by $20.1 million in unfavorable foreign exchange impacts.

Service sales, which primarily consist of logistics, distribution, marketing services, imaging and medical services, decreased $24.6 million, or 3.4%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to a $58.0 million decrease in sales due to the divestiture of the Company’s third-party logistics business, partially offset by a $22.4 million increase in logistics sales and an $11.0 million increase in marketing services and medical services.

Product sales decreased $194.2 million, or 7.7%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the following:

(1) a $117.3 million decrease from paper sales;

(2) a $65.4 million decrease in sales in the Company’s print product lines, mainly due to decreased print volumes;

and (3) a $26.4 million decrease in net sales (which includes $8.3 million in paper sales) due to the divestiture of the Company’s print operations in Argentina, partially offset by $14.9 million in favorable foreign exchange impacts.

Service sales, which primarily consist of logistics, distribution, marketing services, imaging and medical services, decreased $65.1 million, or 9.5%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a $59.2 million decrease in logistics sales from lower print volumes and a $5.9 million decrease in marketing services and medical services.

Cost of Sales

Cost of product sales increased $295.2 million, or 15.9%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the following:

(1) an increase in paper costs;

(2) the impacts from rising costs of material, labor and other costs of production;

and (3) higher print volumes.

These increases were partially offset by savings from other cost reduction initiatives.

Cost of service sales decreased $66.3 million, or 12.5%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the impact from the divestiture of the Company’s third-party logistics business and savings from other cost reduction initiatives.

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Cost of product sales decreased $171.5 million, or 8.0%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the following:

(1) a decrease in paper costs;

(2) the impact from lower print volumes;

(3) the impact from the divestiture of the Company’s print operations in Argentina;

(4) impacts from improved manufacturing productivity;

and (5) savings from other cost reduction initiatives.

Cost of service sales decreased $66.1 million, or 14.3%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to decreased freight volumes and other cost reduction initiatives.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $32.6 million, or 10.0%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the following:

(1) a $14.0 million increase in employee-related costs;

(2) a $13.4 million gain from a property insurance claim in 2021 that did not repeat in 2022;

and (3) a $2.1 million increase in credit loss expense.

Selling, general and administrative expenses decreased $14.1 million, or 3.9%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the following:

(1) a $6.6 million decrease in employee-related expenses;

(2) $6.5 million in favorable foreign exchange impacts;

and (3) $2.2 million in lower professional fees.

Selling, general and administrative expenses as a percentage of net sales increased from 11.1% for the year ended December 31, 2022, to 11.6% for the year ended December 31, 2023.

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 $12.5 million, or 8.8%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, due to a $9.5 million decrease in depreciation expense, primarily from property, plant and equipment becoming fully depreciated over the past year, a decrease in purchases of property, plant and equipment and a $3.0 million decrease in amortization expense.

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Restructuring, Impairment and Transaction-Related Charges

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Integration costs 1.0 0.7 0.3

Other restructuring charges (income)

Other restructuring charges

Vacant facility carrying costs and lease exit charges 16.6 5.4 11.2

Equipment and infrastructure removal costs 0.9 0.7 0.2

Gains on the sale of facilities (b)

Gain on the sale of a facility (b)

(9.2) — (9.2)

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3.7 26.5 (22.8)

Other restructuring charges (income) 32.6 (26.5) 59.1

Other restructuring charges 12.0 32.6 (20.6)

Total restructuring, impairment and transaction-related charges $ 77.5 $ 44.8 $ 32.7

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(a) Includes $2.2 million and $2.8 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction and strategic divestiture activities during the years ended December 31, 2022 and 2021, respectively.

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

(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 $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.

Also includes $1.8 million and $0.6 million in charges from foreign currency losses as a result of the economy in Argentina being classified as highly inflationary during the years ended December 31, 2022 and 2021, respectively.

The Company has considered the economy in Argentina to be highly inflationary since June 30, 2018.

(a) Includes $25.2 million and $2.2 million of impairment charges during the years ended December 31, 2023 and 2022, respectively, which consisted of the following:

(1) $17.5 million and $2.2 million, respectively, for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction activities;

(2) $4.1 million for software licensing and related implementation costs from a terminated project in 2023;

and (3) $3.6 million for right-of-use assets in 2023.

(b) Includes a $9.2 million gain on the sale of the Merced, California facility during the year ended December 31, 2023.

(c) Includes a $23.1 million loss on the sale of its Argentina print business and $1.8 million in charges from foreign currency losses as a result of the economy in Argentina being classified as highly inflationary during the year ended December 31, 2022.

The Company considered the economy in Argentina to be highly inflationary since June 30, 2018.

EBITDA and EBITDA Margin—Consolidated

EBITDA is defined as net earnings, excluding (1) interest expense, (2) income tax expense and (3) depreciation and amortization.

EBITDA is defined as net earnings (loss), excluding (1) interest expense, (2) income tax expense and (3) depreciation and amortization.

EBITDA margin represents EBITDA as a percentage of net sales.

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

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

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

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

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EBITDA and EBITDA margin (non-GAAP) $ 156.2 5.3 % $ 207.4 6.4 %

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EBITDA decreased $56.8 million for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the following:

(1) $25.9 million of increased restructuring, impairment and transaction-related charges;

(2) $24.5 million in gains from sale and leaseback transactions in 2021 that did not repeat in 2022;

(3) a $13.4 million gain from a property insurance claim in 2021 that did not repeat in 2022;

and (4) cost increases from supply chain disruptions, cost inflation in materials and freight and labor shortages.

These cost increases were partially offset by an increase in print product pricing and volume and savings from other cost reduction initiatives.

A reconciliation of EBITDA to net earnings for the years ended December 31, 2022 and 2021, was as follows:

EBITDA decreased $51.2 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to $32.7 million of increased restructuring, impairment and transaction-related charges and the impact from lower print and logistics volumes, partially offset by the following:

(1) an increase in print product pricing;

(2) impacts from improved manufacturing productivity;

and (3) savings from other cost reduction initiatives.

A reconciliation of EBITDA to net earnings (loss) for the years ended December 31, 2023 and 2022, was as follows:

Year Ended December 31,

(dollars in millions)

Net earnings (1)

Net earnings (loss) (1)

$ (55.4) $ 9.3

Interest expense 70.0 48.4

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______________________________

(1) Net earnings included the following:

(1) Net earnings (loss) included the following:

Restructuring, impairment and transaction-related charges of $77.5 million and $44.8 million for the years ended December 31, 2023 and 2022, respectively.

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

Loss on debt extinguishment of $0.7 million for the year ended December 31, 2021;

Equity in earnings of unconsolidated entity of $0.3 million for the year ended December 31, 2021.

United States Print and Related Services

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Restructuring, impairment and transaction-related charges $ 66.3 $ 12.1 $ 54.2 nm

Product sales for the United States Print and Related Services segment increased $190.8 million, or 9.9%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to a $128.7 million increase from paper sales and a $62.1 million increase in sales in the Company’s print product lines, primarily due to increased print pricing and volume.

Service sales for the United States Print and Related Services segment decreased $24.7 million, or 3.6%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to a $58.0 million decrease in sales due to the divestiture of the Company’s third-party logistics business, partially offset by a $22.6 million increase in logistics sales and a $10.7 million increase in marketing services and medical services.

Product sales for the United States Print and Related Services segment decreased $176.9 million, or 8.3%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to an $89.3 million decrease from paper sales and an $87.6 million decrease in sales in the Company’s print product lines, primarily due to decreased volumes.

Service sales for the United States Print and Related Services segment decreased $63.5 million, or 9.5%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a $56.4 million decrease in logistics sales from lower print volumes and a $7.1 million decrease in marketing services and medical services.

Operating Income

Operating income for the United States Print and Related Services segment decreased $54.8 million, or 33.6%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the following:

(1) a $26.6 million increase in restructuring, impairment and transaction-related charges;

(2) $24.5 million in gains from sale and leaseback transactions in 2021 that did not repeat in 2022;

(3) a $13.4 million gain from a property insurance claim in 2021 that did not repeat in 2022;

and (4) cost increases from supply chain disruptions, cost inflation in materials and freight and labor shortages.

These cost increases were partially offset by the following:

(1) an increase in print product pricing and volume;

Operating income for the United States Print and Related Services segment decreased $51.7 million, or 47.7%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a $54.2 million increase in restructuring, impairment and transaction-related charges and the impact from decreased print volumes, partially offset by the following:

(1) the impact from an increase in print product pricing;

(2) a $11.0 million decrease in depreciation and amortization expense;

(3) impacts from improved manufacturing productivity;

and (4) savings from other cost reduction initiatives.

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23.2 1.1 22.1

Transaction-related charges — — —

Integration costs — — —

Other restructuring charges (income)

Other restructuring charges

Vacant facility carrying costs and lease exit charges 16.6 5.4 11.2

Equipment and infrastructure removal costs 0.9 0.7 0.2

Gains on the sale of facilities (b)

— (24.8) 24.8

Other restructuring activities (c)

Gain on the sale of a facility (b)

(9.2) — (9.2)

Other restructuring charges (income) 6.9 (25.5) 32.4

Other restructuring activities 0.5 0.8 (0.3)

Other restructuring charges 8.8 6.9 1.9

Total restructuring, impairment and transaction-related charges $ 66.3 $ 12.1 $ 54.2

______________________________

(a) Includes $1.1 million and $2.8 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction and strategic divestiture activities during the years ended December 31, 2022 and 2021, respectively.

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(a) Includes $23.2 million and $1.1 million of impairment charges during the years ended December 31, 2023 and 2022, respectively, which consisted of the following:

(1) $15.5 million and $1.1 million, respectively, for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction;

(2) $4.1 million for software licensing and related implementation costs from a terminated project in 2023;

and (3) $3.6 million for right-of-use assets in 2023.

(b) Includes a $9.2 million gain on the sale of the Merced, California facility during the year ended December 31, 2023.

International

The following table summarizes net sales, operating income, operating margin, certain items impacting comparability and equity in loss of unconsolidated entities within the International segment:

The following table summarizes net sales, operating income (loss), operating margin, and certain items impacting comparability within the International segment:

Year Ended December 31,

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Services 19.0 20.6 (1.6) (7.8) %

Operating loss (including restructuring, impairment and transaction-related charges) (4.5) (16.1) 11.6 (72.0) %

Operating income (loss) (including restructuring, impairment and transaction-related charges) 18.3 (4.5) 22.8 nm

Operating margin 4.5 % (1.1) % N/A N/A

Restructuring, impairment and transaction-related charges $ 9.6 $ 30.7 $ (21.1) (68.7) %

Equity in earnings — (0.3) 0.3 100.0 %

Product sales for the International segment increased $90.4 million, or 29.0%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to a $62.5 million increase in paper sales and a $48.0 million increase in print pricing and volume, primarily in Mexico and Colombia, partially offset by $20.1 million in unfavorable foreign exchange impacts, primarily in Europe, Argentina and Colombia.

Service sales for the International segment increased $0.1 million, or 0.5%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to an increase in marketing services in Europe.

Operating Loss

Operating loss for the International segment decreased $11.6 million, or 72.0%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to an $11.0 million increase in operating income from increased print pricing and volume and a $0.6 million decrease in restructuring, impairment and transaction-related charges.

Product sales for the International segment decreased $17.3 million, or 4.3%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a $28.0 million decrease in paper sales and a $26.4 million decrease in net sales (which includes $8.3 million of paper sales) due to the divestiture of the Company’s print operations in Argentina, partially offset by a $22.2 million increase in print pricing and volume, primarily in Mexico, Peru and Colombia, and $14.9 million in favorable foreign exchange impacts, primarily in Mexico.

Service sales for the International segment decreased $1.6 million, or 7.8%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a $2.8 million decrease in logistics sales, partially offset by a $1.2 million increase in marketing services sales.

Operating Income (Loss)

Operating income (loss) for the International segment increased $22.8 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a $21.1 million decrease in restructuring, impairment and transaction-related charges and a $1.3 million decrease in depreciation and amortization.

Restructuring, Impairment and Transaction-Related Charges

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Impairment charges (a)

1.1 32.1 (31.0)

Transaction-related charges 2.7 0.1 2.6

Integration costs 1.0 0.7 0.3

Other restructuring charges (income) (b)

Other restructuring charges (b)

3.4 25.6 (22.2)

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______________________________

(a) Includes $1.1 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, 2022 and 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.

(b) Includes a $23.1 million loss on the sale of its Argentina print business during the year ended December 31, 2022.

Also includes $1.8 million and $0.6 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, 2022 and 2021, respectively, and a $2.7 million gain from the reclassification of foreign currency translation adjustments during the year ended December 31, 2021.

Equity in Earnings of Unconsolidated Entities

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

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.

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.

(a) Includes $2.0 million and $1.1 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 activities, during the years ended December 31, 2023 and 2022, respectively.

(b) Includes a $23.1 million loss on the sale of its Argentina print business and $1.8 million in charges from foreign currency losses as result of the economy in Argentina being classified as highly inflationary during the year ended December 31, 2022.

The following table summarizes unallocated operating expenses presented as Corporate:

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Operating Expenses

Corporate operating expenses decreased $3.9 million, or 7.2%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the following:

(1) a $2.0 million decrease in employee-related costs;

(2) a $1.6 million decrease in professional fees;

and (3) a $0.1 million decrease in restructuring, impairment and transaction-related charges.

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Corporate operating expenses decreased $1.1 million, or 2.2%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to lower employee-related costs and a $0.4 million decrease in restructuring, impairment and transaction-related charges.

Restructuring, Impairment and Transaction-Related Charges

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Transaction-related charges 1.5 1.9 (0.4)

Other restructuring charges 0.1 1.0 (0.9)

Other restructuring charges (income) (0.2) 0.1 (0.3)

Total restructuring, impairment and transaction-related charges $ 1.6 $ 2.0 $ (0.4)

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The Company had total liquidity of $454.3 million as of December 31, 2023, which consisted of up to $401.4 million of unused capacity under its revolving credit arrangement, which was net of $31.1 million of issued letters of credit, and cash and cash equivalents of $52.9 million.

Total liquidity is reduced to $398.0 million under the Company’s most restrictive debt covenants, and consists of $25.2 million in cash and cash equivalents and $372.8 million available under its revolving credit arrangement.

Total liquidity is reduced to $406.7 million under the Company’s most restrictive debt covenants, and consists of $353.8 million available under its revolving credit arrangement and $52.9 million in cash and cash equivalents.

There were no borrowings under the $432.5 million revolving credit facility as of December 31, 2023.

Due to a portion of the revolving credit facility maturing on January 31, 2024, the total capacity under the revolving credit facility was reduced to $342.5 million as of this date.

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.

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Year Ended December 31, 2023, Compared to Year Ended December 31, 2022

Net cash provided by operating activities was $154.6 million for the year ended December 31, 2022, compared to $136.5 million for the year ended December 31, 2021, resulting in a $18.1 million increase in cash provided by operating activities.

The increase was primarily due to a $24.4 million increase in cash from earnings, offset by a $6.3 million decrease in cash flows provided by changes in operating assets and liabilities.

Net Cash (Used in) Provided by Investing Activities

Net cash provided by operating activities was $147.6 million for the year ended December 31, 2023, compared to $154.6 million for the year ended December 31, 2022, resulting in a $7.0 million decrease in cash provided by operating activities.

The decrease was primarily due to a $92.6 million decrease in cash from earnings, offset by a $85.6 million increase in cash flows provided by changes in operating assets and liabilities.

Net Cash Used in Investing Activities

Year Ended December 31, 2023, Compared to Year Ended December 31, 2022

Net cash used in investing activities was $60.5 million for the year ended December 31, 2022, compared to $129.4 million cash provided by investing activities for the year ended December 31, 2021, resulting in a $189.9 million increase in cash used in investing activities.

The increase was primarily due to the following:

(1) a $121.7 million decrease in proceeds from the sale of property, plant and equipment;

(2) a $39.7 million decrease in proceeds from the sale of a business;

(3) a $15.0 million decrease in proceeds from a property insurance claim;

(4) a $10.3 million increase in purchases of property, plant and equipment;

(5) a $2.6 million increase in cash used in the acquisition of a business;

and (6) a $1.9 million increase in cost investment in unconsolidated entities.

These increases were partially offset by a $1.3 million increase in cash provided by other investing activities.

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Net cash used in investing activities was $46.4 million for the year ended December 31, 2023, compared to $60.5 million for the year ended December 31, 2022, resulting in a $14.1 million decrease in cash used in investing activities.

The decrease was primarily due to the following:

(1) a $27.1 million increase in proceeds from the sale of property, plant and equipment;

(2) a $2.6 million decrease in cost investment in unconsolidated entities;

and (3) a $1.1 million decrease in cash used in acquisition of businesses.

These decreases were partially offset by (1) a $10.5 million increase in purchases of property, plant and equipment;

(2) a $5.6 million increase in cash used in other investing activities;

and (3) a $0.6 million increase in loan to an unconsolidated entity.

Net Cash Used in Financing Activities

Year Ended December 31, 2023, Compared to Year Ended December 31, 2022

Net cash used in financing activities was $248.7 million for the year ended December 31, 2022, compared to $140.9 million for the year ended December 31, 2021, resulting in a $107.8 million increase in cash used in financing activities.

The increase was primarily due to the following:

(1) a $112.2 million increase in net payments of debt and lease obligations in 2022 compared to 2021;

(2) a $10.0 million increase in purchases of treasury stock;

and (3) a $1.4 million increase in equity awards redeemed to pay employees’ tax obligations.

These increases were partially offset by (1) an $8.0 million decrease in cash used in other financing activities;

(2) a $5.9 million decrease in payments of debt issuance costs and financing fees;

and (3) a $1.9 million decrease in cash used in changes in ownership of noncontrolling interests.

Net cash used in financing activities was $73.6 million for the year ended December 31, 2023, compared to $248.7 million for the year ended December 31, 2022, resulting in a $175.1 million decrease in cash used in financing activities.

The decrease was primarily due to the following:

(1) a $175.6 million decrease in net payments of debt and lease obligations in 2023 compared to 2022;

(2) a $1.3 million decrease in payment of accrued dividends from vested equity awards;

and (3) a $0.8 million decrease in equity awards redeemed to pay employees’ tax obligations.

These decreases were partially offset by a $2.6 million increase in purchases of treasury stock.

Free Cash Flow

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Free Cash Flow (non-GAAP) $ 76.8 $ 94.3

Free Cash Flow increased $7.8 million for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to an $18.1 million increase in net cash provided by operating activities, partially offset by a $10.3 million increase 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 (Used in) Provided by Investing Activities” section above for further explanations of the changes in purchases of property, plant and equipment.

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Free Cash Flow decreased $17.5 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a $10.5 million increase in capital expenditures and a $7.0 million decrease in net cash provided by operating activities.

See the “Net Cash Provided by Operating Activities” section above for further explanations of the change in operating cash flows.

Debt Leverage Ratio

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

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

(3) gains from sale and leaseback;

(4) loss on debt extinguishment;

(5) equity in earnings of unconsolidated entity;

and (6) Adjusted EBITDA for unconsolidated equity method investments (calculated in a consistent manner with the calculation for Quad).

The Debt Leverage Ratio is defined as total debt and finance lease obligations less cash and cash equivalents (Net Debt) divided by the trailing twelve months Adjusted EBITDA, comprised of the sum of the last twelve months of EBITDA (see the definition of EBITDA and the reconciliation of net earnings (loss) to EBITDA in the “Results of Operations” section above) and restructuring, impairment and transaction-related charges.

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

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The Debt Leverage Ratio calculated below differs from the Total Leverage Ratio, the Total Net Leverage Ratio and Senior Secured Leverage Ratio included in the Company’s debt covenant calculations (see “Covenants and Compliance” section below for further information on debt covenants).

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

The Total Leverage Ratio included in the Company’s debt covenants includes interest rate derivative liabilities, letters of credit and surety bonds as debt, and excludes non-cash stock-based compensation expense from EBITDA.

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

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Debt Leverage Ratio (non-GAAP) 2.01 x 2.16 x

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The calculation of Adjusted EBITDA for the years ended December 31, 2023 and 2022, was as follows:

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(dollars in millions)

Net earnings $ 9.3 $ 37.8

Net earnings (loss) $ (55.4) $ 9.3

Interest expense 70.0 48.4

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Restructuring, impairment and transaction-related charges 77.5 44.8

Gains from sale and leaseback — (24.5)

Loss on debt extinguishment — 0.7

Adjusted EBITDA (non-GAAP) $ 233.7 $ 252.2

$ 252.2 $ 260.5

______________________________

(1) Other is comprised of equity in earnings of unconsolidated entity and Adjusted EBITDA for unconsolidated equity method investments.

(2) The Company made a change in its definition of Adjusted EBITDA to include net pension income.

This change is reflected in all periods presented.

The Debt Leverage Ratio, at December 31, 2022, decreased 0.23x to 2.16x compared to December 31, 2021, primarily due to a $78.8 million decrease in debt and finance lease obligations, partially offset by an $8.3 million decrease in Adjusted EBITDA.

The Debt Leverage Ratio, at December 31, 2023, decreased 0.15x to 2.01x compared to December 31, 2022, primarily due to a $75.2 million decrease in net debt, partially offset by an $18.5 million decrease in Adjusted EBITDA.

The Debt Leverage Ratio, at December 31, 2023, is within management’s desired target Debt Leverage Ratio range of 1.75x to 2.25x;

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• Master Note and Security Agreement ($2.5 million outstanding as of December 31, 2023).

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Senior Secured Credit Facility

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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;

(b) extend the maturity of a portion of the existing term loan facility such that $91.5 million (of which a principal payment of $87.7 million was due upon maturity on January 31, 2024) 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.

and (e) modify the interest rate provisions relating to the phase-out of London Interbank Offered Rate (“LIBOR”) as a reference rate.

The Company completed the sixth amendment to the Senior Secured Credit Facility on March 25, 2022, which expanded the number of currencies available for letters of credit.

The Company completed the seventh amendment to the Senior Secured Credit Facility on January 24, 2023, which transitioned the Company’s reference rate from LIBOR to SOFR effective February 1, 2023.

The transition from LIBOR to SOFR does not have a material impact on the consolidated financial statements.

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, 2022, the Company had no outstanding borrowings on the revolving credit facility, and had $32.7 million of issued letters of credit, leaving up to $399.8 million available for future borrowings.

The Company elected the practical expedient outlined in Accounting Standards Update (“ASU”) 2020-04 and ASU 2021-01 which allowed the Company to prospectively adjust the effective interest rate after the reference rate change.

The transition from LIBOR to SOFR did not have a material impact on the condensed consolidated financial statements.

The Company completed the eighth amendment to the Senior Secured Credit Facility on January 4, 2024, which added an additional $25.0 million principal value to the Term Loan A (under the Extended Maturity Date).

On January 31, 2024, the Company used liquidity available under its revolving credit facility and available cash on hand to fund the repayment on maturity of $87.7 million aggregate principal amount, outstanding at the time, of its Term Loan A.

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 SOFR, or 1.75% in excess of an alternate base rate with a SOFR floor of 0.75% for the extended tranche and bear interest at 2.50% in excess of reserve adjusted SOFR, or 1.50% in excess of an alternate base rate with a SOFR floor of 0.75% for the non-extending tranche.

At December 31, 2023, the Company had no ou tstanding borrowings on the revolving credit facility, and had $31.1 million of issue d letters of credit, leaving up t o $401.4 million available for future borrowings.

The amount available for future borrowings is reduced to $353.8 million under the Company’s most restrictive debt covenants.

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

The Senior Secured Credit Facility also requires the Company to provide additional collateral to the lenders in certain limited circumstances.

Master Note and Security Agreement

On September 1, 1995, and as last amended on November 24, 2014, the Company entered into its Master Note and Security Agreement.

As of December 31, 2023, the borrowings outstanding under the Master Note and Security Agreement were $2.5 million.

The senior notes under the Master Note and Security Agreement had a weighted average interest rate of 8.09% at December 31, 2023, which is fixed to maturity, with interest payable semiannually.

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

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

Senior Unsecured Notes

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

The Company issued $300.0 million aggregate principal amount of its unsecured 7.0% senior notes due May 1, 2022 (the “Senior Unsecured Notes”) on April 28, 2014.

During the first quarter of 2022, the Company repurchased $2.4 million of its outstanding Senior Unsecured Notes in the open market.

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.

All repurchased Senior Unsecured Notes were canceled.

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On May 2, 2022, the Company used liquidity available under its revolving credit facility and available cash on hand to fund the repayment on maturity of all $209.1 million aggregate principal amount, outstanding at the time, of its Senior Unsecured Notes.

Master Note and Security Agreement

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 whi ch $4.4 million was outstanding as of December 31, 2022.

The senior notes under the Master Note and Security Agreement had a weighted average interest rate of 7.92% at December 31, 2022, which is fixed to maturity, with interest payable semiannually.

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

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

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Covenants and Compliance

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• Total Leverage Ratio.

On a rolling twelve-month basis, the Total Leverage Ratio, defined as consolidated total indebtedness to consolidated EBITDA, shall not exce ed 3.75 to 1.00 (for the twelve months ended December 31, 2022, the Company’s Total Leverage Ratio was 2.22 to 1.00).

On a rolling twelve-month basis, the Total Leverage Ratio, defined as consolidated total indebtedness to consolidated EBITDA, shall not exce ed 3.75 to 1.00 (for the twelve months ended December 31, 2023, the Company’s Total Leverage Ratio was 2.18 t o 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 Senio r Secured Credit Facility to lenders that are not extending lenders are paid in full.

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◦ Se nior Secured Leverage Ratio.

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, 2022, the Company’s Senior Secured Leverage Ratio was 2.13 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, 2023, the Company’s Senior Secured Leverage Ratio was 1.99 t o 1.00).

◦ Interest Coverage Ratio.

On a rolling twelve-month basis, the Interest Coverage Ratio, defined as consolidated EBITDA to cash consolidated interest expense, shall not be less than 3.00 to 1.00 (for the twelve months ended December 31, 2023, the Company’s Interest Coverage Ratio was 4.10 to 1.00).

The Company was in compliance with all financial covenants in its debt agreements as of December 31, 2022.

The Company wa s in compliance with all financial covenants in its debt agreements as of December 31, 2023.

While the Company currently expects to be in compliance in future periods with all of the financial covenants, there can be no assurance that these covenants will continue to be met.

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If the T otal 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, 2022, was 2.22 to 1.00, the limitations described above are not applicable at this time.

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As the Company’s Total Leverage Ratio as of December 31, 2023, was 2.18 t o 1.00, the limitations described above are not applicable at this time.

• 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 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.

The limitations described above are currently not applicable, as the Company’s Senior Secured Leverage Ratio was 2.13 to 1.00 and Total Net Leverage Ratio was 2.14 to 1.00, as of December 31, 2022 .

The limitations described above are currently not applicable, as the Company’s Senior Secured Leverage Ratio w as 1.99 to 1.00 and Total Net Leverage Ratio wa s 1.99 to 1.00, as of December 31, 2023 .

Net Pension Obligations

The net underfunded pension and MEPPs obligations increased by $13.2 million during the year ended December 31, 2022, from $51.4 million at December 31, 2021, to $64.6 million at December 31, 2022.

This increase was primarily due to an overall decrease in pension plan assets due to a negative actual return on pension plan assets of (21.76%) during the year ended December 31, 2022, which was below the expected return on plan assets assumption of 5.25%.

This decrease in plan assets was partially offset by a decrease in overall pension obligations, primarily due to a 269 basis point increase in the pension discount rate from 2.77% at December 31, 2021 to 5.46% at December 31, 2022, payments totaling $6.2 million made to the MEPPs and $1.0 million in pension benefit payments during the year ended December 31, 2022.

The net underfunded pension and MEPPs obligations decreased by $1.2 million during the year ended December 31, 2023, from $64.6 million at December 31, 2022, to $63.4 million at December 31, 2023.

This decrease was primarily due to a $4.3 million decrease in MEPPs obligations, primarily due to payments totaling $6.2 million made to the MEPPS during the year ended December 31, 2023.

The underfunded defined benefit plan obligations increased by $3.1 million during the year ended December 31, 2023, due to an overall decrease of $9.7 million in pension plan assets from $36.6 million in benefits paid, offset by an actual gain on pension plan assets of $26.2 million or 10.67% during the year ended December 31, 2023, which was above the expected return on plan assets assumption of 6.75% and employer contributions of $0.7 million.

The decrease in plan assets was partially offset by a decrease in overall pension obligations of $6.6 million from $36.6 million in benefits paid, offset by a $17.6 million increase in interest cost due to a 35 basis point decrease in the pension discount rate from 5.46% at December 31, 2022, to 5.11% at December 31, 2023 and $12.4 million from an actuarial loss.

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.

During the year ended December 31, 2022, the Company repurchased 3,093,662 shares of its Class A common stock at a weighted average price of $3.21 per share for a total purchase price of $9.9 million ($10.0 million, including commissions).

There were no shares repurchased during the year ended December 31, 2021.

The following repurchases occurred during the years ended December 31, 2023 and 2022:

December 31, 2023 December 31, 2022

Shares of Class A common stock 2,852,501 3,093,662

Weighted average price per share $ 4.40 $ 3.21

Total repurchases during the period (in millions) (1)

$ 12.6 $ 10.0

______________________________

(1) Excluding commissions, total repurchases were $12.6 million and $9.9 million during the years ended December 31, 2023 and 2022.

As of December 31, 2023, there were $77.5 million of authorized repurchases remaining under the program.

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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.

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Contractual Obligations and Other Commitments

The Company’s contractual cash obligations at December 31, 2022, were as follows (in millions):

Payments Due by Period

Total 2023 2024 2025 2026 2027 Thereafter

Debt obligations (1)

$ 677.2 $ 95.0 $ 177.2 $ 94.0 $ 311.0 $ — $ —

Operating lease obligations (2)

131.3 33.1 25.7 21.4 17.1 13.9 20.1

MEPPs withdrawal obligations (3)

38.9 6.1 4.0 3.9 3.9 3.9 17.1

Pension benefit obligations (4)

35.3 1.5 9.7 8.2 8.4 7.5 —

Finance lease obligations (5)

2.7 0.9 0.6 0.5 0.2 0.2 0.3

Purchase obligations (6)

35.4 35.4 — — — — —

$ 920.8 $ 172.0 $ 217.2 $ 128.0 $ 340.6 $ 25.5 $ 37.5

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(1) Debt obligations include $102.5 million for anticipated future interest payments, including $3.9 million of estimated interest payment refunds from the interest rate swaps, and excludes $6.9 million for future amortization of debt issuance costs.

During 2021, the Company paid in advance $62.4 million of required amortization payments on its Term Loan A for the year ended December 31, 2023.

(2) Operating lease obligations include $16.4 million for anticipated future interest payments.

(3) MEPPs withdrawal obligations include $10.5 million for anticipated future interest payments.

See Note 14, “Employee Retirement Plans,” to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K for further discussion of the MEPPs withdrawal liability.

(4) For the pension benefit obligations, contributions and benefit payments to be funded from Company assets included in the table have been actuarially estimated over a five year period.

While benefit payments under these benefit plans are expected to continue beyond 2027, the Company believes that an estimate beyond this period is unreasonable.

(5) Finance lease obligations include $0.3 million for anticipated future interest payments.

(6) Purchase obligations consist primarily of $32.9 million in firm commitments to purchase press and finishing equipment and $2.5 million of other purchase obligations.

(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 $11.1 million as of December 31, 2022, of which $6.7 million was included in deferred income taxes and $4.4 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.

See the “Share Repurchase Program” section above for further discussion, including the maximum potential cash payments under the program.

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Critical Accounting Policies and Estimates

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In these situations, the Company may receive warehouse management fees for the services it provides.

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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.

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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.

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

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

The Company performs impairment evaluations of its long-lived assets whenever business conditions, events or circumstances indicate that those assets may be impaired, including whether the estimated useful life of such long-lived assets may warrant revision or whether the remaining balance of an asset may not be recoverable.

The Company’s most significant long-lived assets are property, plant and equipment and customer relationship intangible assets recorded in conjunction with an acquisition.

The Company’s most significant long-lived assets are property, plant and equipment, right-of-use assets and customer relationship intangible assets recorded in conjunction with an acquisition.

Assessing the impairment of long-lived assets requires the Company to make important estimates and assumptions, including, but not limited to, the expected future cash flows that the assets will generate, how the assets will be used based on the strategic direction of the Company, their remaining useful life and their residual value, if any.

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This fair value determination was categorized as Level 3 in the fair value hierarchy (see Note 13, “Financial Instruments and Fair Value Measurements,” to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K for the definition of Level 3 inputs).

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The Company classifies long-lived assets to be sold as held for sale in the period in which:

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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, 2022, and 2021, the Company recognized property, plant and equipment impairment charges of $2.2 million and $2.8 million, respectively, primarily related to facility consolidations, as well as other capacity reduction and strategic divestiture activities.

Based on the assessments completed during the years ended December 31, 2023, and 2022, the Company recognized property, plant and equipment and right-of-use assets impairment charges of $21.1 million and $2.2 million, respectively, primarily related to facility consolidations and other capacity reduction.

There were no finite-lived intangible asset impairment charges recorded during the years ended December 31, 2023 and 2022.

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New Accounting Pronouncements

See Note 21, “New Accounting Pronouncements,” to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.

As of December 31, 2023, there have been no new accounting pronouncements requiring disclosure within the consolidated financial statements of this Annual Report on Form 10-K.

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