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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to
Commission File Number 001-34806
QUAD/GRAPHICS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1152983
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
N61 W23044 Harry’s Way, Sussex, Wisconsin 53089-3995
(Address of principal executive offices) (Zip Code)
(414) 566-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Trading Symbol Name of Each Exchange on Which Registered
Class A Common Stock, par value $0.025 per share QUAD The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes   No 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes   No 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes   No
The aggregate market value of the class A common stock (based on the closing price of $4.15 per share on the New York Stock Exchange) on June 30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, held by non-affiliates was $146,450,960. The registrant’s class B common stock is not listed on a national securities exchange or traded in an organized over-the-counter market, but each share of the registrant’s class B common stock is convertible into one share of the registrant’s class A common stock.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
Class   Outstanding as of January 31, 2022
Class A Common Stock   42,416,771
Class B Common Stock   13,556,858
Class C Common Stock  
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the registrant’s 2022 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.




























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QUAD/GRAPHICS, INC.
FORM 10-K INDEX
For the Year Ended December 31, 2021
Page No.
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Forward-Looking Statements

To the extent any statements in this Annual Report on Form 10-K contain information that is not historical, these statements are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to, among other things, the objectives, goals, strategies, beliefs, intentions, plans, estimates, prospects, projections and outlook of Quad/Graphics, Inc. (the “Company” or “Quad”), and can generally be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “plan,” “foresee,” “believe” or “continue” or the negatives of these terms, variations on them and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements.

These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the control of the Company. These risks, uncertainties and other factors could cause actual results to differ materially from those expressed or implied by those forward-looking statements. Among risks, uncertainties and other factors that may impact Quad are those described in Part I, Item 1A, “Risk Factors,” of this Annual Report on Form 10-K, as such may be amended or supplemented in Part II, Item 1A, “Risk Factors,” of the Company’s subsequently filed Quarterly Reports on Form 10-Q, and the following:

The impact of fluctuations in costs (including labor and labor-related costs, energy costs, freight rates and raw materials, including paper and the materials to manufacture ink) and the impact of fluctuations in the availability of raw materials, including paper and the materials to manufacture ink;

The impact of inflationary cost pressures and supply chain shortages;

The impact of decreasing demand for printed materials and significant overcapacity in a highly competitive environment creates downward pricing pressures and potential under-utilization of assets;

The negative impacts the COVID-19 pandemic has had and will continue to have on the Company’s business, financial condition, cash flows, results of operations and supply chain, including rising inflationary cost pressures on raw materials, distribution and labor, and future uncertain impacts;

The failure to attract and retain qualified talent across the enterprise;

The impact of increased business complexity as a result of the Company’s transformation to a marketing solutions partner;

The impact of digital media and similar technological changes, including digital substitution by consumers;

The inability of the Company to reduce costs and improve operating efficiency rapidly enough to meet market conditions;

The impact of changes in postal rates, service levels or regulations, including delivery delays due to ongoing COVID-19 impacts on daily operational staffing at the United States Postal Service;

The impact of a data-breach of sensitive information, ransomware attack or other cyber incident on the Company;

The impact negative publicity could have on our business;

The impact of changing future economic conditions;

The failure of clients to perform under contracts or to renew contracts with clients on favorable terms or at all;

The fragility and decline in overall distribution channels;

The failure to successfully identify, manage, complete and integrate acquisitions, investment opportunities or other significant transactions, as well as the successful identification and execution of strategic divestitures;

The impact of an other than temporary decline in operating results and enterprise value that could lead to non-cash impairment charges due to the impairment of property, plant and equipment and other intangible
assets;

The impact of risks associated with the operations outside of the United States (“U.S.”), including costs incurred or reputational damage suffered due to improper conduct of its employees, contractors or agents;

Significant investments may be needed to maintain the Company’s platforms, processes, systems, client and product technology and marketing and to remain technologically and economically competitive;

The impact of the various restrictive covenants in the Company’s debt facilities on the Company’s ability to operate its business, as well as the uncertain negative impacts COVID-19 may have on the Company’s ability to continue to be in compliance with these restrictive covenants;

The impact of regulatory matters and legislative developments or changes in laws, including changes in cyber-security, privacy and environmental laws; and

The impact on the holders of Quad’s class A common stock of a limited active market for such shares and the inability to independently elect directors or control decisions due to the voting power of the class B common stock.

Quad cautions that the foregoing list of risks, uncertainties and other factors is not exhaustive and you should carefully consider the other factors detailed from time to time in Quad’s filings with the United States Securities and Exchange Commission (“SEC”) and other uncertainties and potential events when reviewing the Company’s forward-looking statements.

Because forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. You are cautioned not to place undue reliance on such statements, which speak only as of the date of this Annual Report on Form 10-K. Except to the extent required by the federal securities laws, Quad undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I

Item 1.    Business

Overview

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. With 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.

Quad was founded in Pewaukee, Wisconsin, as a Wisconsin corporation, in 1971 by the late Harry V. Quadracci. As of January 31, 2022, the Quadracci family, through the Quad/Graphics, Inc. Amended and Restated Voting Trust Agreement (“Quad Voting Trust”), has voting control of approximately 71%, which the Company believes provides it with continued stability and flexibility as Quad works to achieve its long-term strategic vision. As of December 31, 2021, the Company had approximately 15,100 full-time equivalent employees in North America (including Mexico and the Dominican Republic), South America, Europe and Asia, and served a diverse base of approximately 4,600 clients. Quad locations span 14 countries, including 45 manufacturing and distribution facilities and more than 90 client-based on-site locations, with additional investments in printing operations in India.

During Quad’s first 40 years, the Company grew rapidly through greenfield growth, built a premier manufacturing and distribution platform equipped with the latest technology, established its reputation as one of the printing industry’s foremost innovators and created a strong Company culture based on enduring values and commitment to social purpose that remains in place today.

Beginning in 2010, Quad strategically expanded its offerings to create enhanced value for its clients. Quad saw an opportunity to participate in industry consolidation in response to economic and industry pressures following the great recession of 2008 and 2009 that severely impacted print volumes and accelerated the impact of media disruption. Through a series of disciplined consolidating acquisitions that included World Color Press, Inc., Vertis Holdings Inc. and Brown Printing Company, the Company added experienced talent and enhanced and expanded its print-based product and service offerings while removing inefficient and underutilized capacity by transitioning work to more efficient facilities, and reducing costs. This period of consolidation created a disciplined cost reduction philosophy and advanced investment in the highly automated and efficient manufacturing and distribution capabilities the Company operates today.

Beginning in 2014, Quad focused on strategic investments in marketing services, talent and technology to accelerate its transformation as a marketing solutions partner. During this transformation period, known as Quad 3.0, Quad made several growth acquisitions including a premier marketing services provider specializing in customized marketing and business process outsourcing with unmatched scale for on-site marketing services; a top five independent creative agency offering world-class capabilities in strategy, including media buying and analytics, creative and account management, and packaging design and premedia services; and a leading performance marketing agency specializing in media, analytics and customer experience in digital channels. In addition, the Company hired business professionals with client-side marketing experience and consulting expertise to strategically expand its integrated marketing offering, enter new market verticals, and change product-centric conversations with clients to a solutions-based approach. To reflect its transformation to a marketing solutions partner with a strong foundation in print, the Company evolved its brand from Quad/Graphics to Quad in 2019.
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Today, Quad provides 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 removing friction in the marketing process and speeding the overall marketing journey by delivering all the elements of a successful campaign under one roof. For Quad clients, this:

Reduces the complexities of working with multiple agency partners and vendors.
Increases process efficiencies through workflow re-engineering, content production and process optimization.
Enhances marketing spend effectiveness through integrated solutions that help clients target, more deeply engage and grow audiences; plan and measure marketing; strategize, create and activate big ideas; produce content at scale; and connect with consumers in the most appropriate channels and with the right amplitude for eliciting maximum response.

As a good corporate citizen, Quad also creates societal value through a strong commitment to proactively addressing environmental, social and governance matters. This dedication to driving positive, sustainable change in its business and in the world aligns with Quad’s long-standing commitment to create a better way – a hallmark of the Company’s culture.

In 2021, the Company delivered strong financial results while navigating the COVID-19 pandemic, paper and supply chain disruptions, inflationary cost pressures and labor shortages. Despite these challenges, Quad worked thoughtfully and diligently to mitigate these impacts on the business and proactively manage client expectations. Quad continued to grow print segment share because of its dependable performance, operational and financial stability, and ongoing investments in its platform. It also continued to expand its marketing solutions with new and existing accounts, providing clients with the simplicity, efficiency and effectiveness of an integrated approach. Further, Quad shared how it is creating a better way to drive positive change in its business and the world through a comprehensive environmental, social and governance report featuring commitments in key areas integral to its business strategy as a marketing solutions partner. Quad believes it will be able to maintain its leading competitive position through its consistent business strategy, dedicated and passionate employees, and integrated marketing platform, providing stability and innovative solutions for clients into the future.

More information regarding Quad is available on the Company’s website at QUAD.com. Quad is not including the information contained on or available through its website as part of, or incorporating such information by reference into, this Annual Report on Form 10-K. The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports are made available to the public at no charge through a link appearing on the Investor Relations section of the Company’s website. Quad provides access to such materials through its website as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC.

Industry and Competition

According to an October 2021 Dun & Bradstreet First Research report, the U.S. advertising and marketing services industry is forecast to grow at an annual compounded rate of 4% between 2021 and 2026, as compared to portions of the printing industry which are in secular decline. The secular decline of the printing industry has accelerated due to the COVID-19 pandemic and the further migration of advertising dollars from print to digital channels. These industry dynamics support Quad’s transformation as a marketing solutions partner.

The advertising and marketing services industry is highly fragmented. According to the October 2021 Dun & Bradstreet First Research report, the top 50 companies in the U.S. advertising and marketing services industry generate approximately 40% of industry revenue. Services in this industry include advertising for print, broadcast and online media (about 43% of industry sales); public relations (12%); and direct marketing (10%). Other services include display advertising, media buying (reselling advertising time or space), and media representation (selling advertising time or space on behalf of media outlet owners). The U.S. advertising and marketing services industry includes about 38,000 establishments (single-location companies and units of multi-location companies), with combined annual revenue of about $110 billion.
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The commercial print industry is also highly fragmented. According to the October 2021 Printing in the U.S. IBISWorld industry report, the United States commercial printing industry, in the aggregate, generates an estimated $78 billion in annual revenue, employs approximately 350,000 people and is comprised of over 45,000 companies. The report also states that no printing company accounts for more than 5% of total commercial print industry annual revenue in the United States.

In addition to being highly fragmented, competition in the printing industry remains intense, and the Company believes that there are indicators of heightened competitive pressures. The Company faces competition due to the increased accessibility and quality of digital alternatives to traditional delivery of printed documents through the online distribution and hosting of media content, and the digital distribution of documents and data. The Company faces competition from print management and marketing consulting firms that look to streamline processes and reduce the overall print spend of the Company’s clients.

The commercial print industry has moved toward a demand for shorter print runs, faster product turnaround and increased production efficiency of products with lower page counts and increased complexity. This, combined with increases in postage expenses and the increased use of digital marketing and communication channels, has led to excess manufacturing capacity in the print industry. This excess capacity has allowed certain larger competitors, like Quad, with economies of scale, strong balance sheets and access to capital markets, the ability to invest in automation and more efficient equipment, take advantage of consolidating acquisition opportunities to remove excess, inefficient and/or underutilized capacity, and reduce overall costs.

Competition in both the advertising and marketing services and print industries is affected by real gross domestic product growth, as economic activity and advertising spending are key drivers of consumer demand. In times of economic prosperity, advertisers may increase spending to build brand awareness and to drive sales. Conversely, in times of global economic uncertainty and budget pressures, advertisers may reduce spending or shift their spending to other forms of media, as demonstrated during the COVID-19 pandemic. For print specifically, magazine publishers that face diminished advertising pages reduce total page counts and frequency; catalog marketers reduce page counts, circulation or frequency of print campaigns; retailers curb investments in store inventory and cut back on retail insert newspaper circulation and advertising; and other advertisers reduce their direct mail volume. It is possible that these customers instead decide to move advertising spend to digital alternatives.

Marketing services providers face pressure to satisfy major clients’ needs, as the win or loss of a major client account can impact revenue significantly. Another challenge facing marketing service providers relates to public concern and general annoyance with advertising methods. For example, data collection of personal information for marketing purposes is an issue under scrutiny from federal and state legislation, and marketing service providers are facing future restrictions on certain types of data they collect. In Europe, the European Union enforces data protection through the General Data Protection Regulations.

The Company faces competition in the advertising and marketing services industry based on access to a skilled workforce, pricing, adapting quickly to new technology, creating unique and effective campaigns and offering superior customer service. Across Quad’s range of printed products, competition is based on total price of printing, materials and distribution; availability of materials; quality; distribution capabilities; customer service; access to a highly skilled workforce; availability of labor; availability to schedule work on appropriate equipment; on-time production and delivery; and state-of-the-art technology to meet a client’s business objectives, including the ability to adopt new technology quickly.

As consumer media consumption habits change, marketing services providers face increased demand to offer end-to-end marketing services, from strategy and creative through execution, across all channels, traditional and digital. As new marketing and advertising channels emerge, marketing services providers must expand their services beyond traditional channels, such as for television, newspapers, print publications and radio, to digital channels, such as mobile, internet search, internet display and video, to create effective multichannel campaigns for their clients.

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Quad believes that business users of print and print-related services are focused on generating and tracking the highest returns on their marketing spend. Quad believes it is well positioned to help clients achieve greater process efficiencies and marketing spend effectiveness through data-driven integrated marketing solutions. The Company believes that its clients receive the greatest return on their marketing spend when they start with a strong marketing strategy that uses print in combination with other media channels, informed by customer data, to create targeted and relevant multichannel marketing campaigns.

Seasonality

Quad is subject to seasonality in its quarterly results as net sales and operating income are higher in the third and fourth quarters of the calendar year as compared to the first and second quarters. The fourth quarter is typically the highest seasonal quarter for cash flows from operating activities and Free Cash Flow due to the reduction of working capital requirements that reach peak levels during the third quarter. Seasonality is driven by increased retail inserts and catalogs primarily due to back-to-school and holiday-related advertising and promotions. The Company expects this seasonality impact to continue in future years. Due to the continued uncertainty surrounding the continuing COVID-19 pandemic and supply chain shortages, the Company anticipates this seasonality may be further impacted in future periods, as the Company is heavily dependent on consumer demand.

Strategic Priorities

Quad’s overarching business strategy and singular vision as a marketing solutions partner is achieved through the execution of the following five consistent strategic priorities:

Walk in the Shoes of Clients

The Company encourages all employees, regardless of job title, to walk in the shoes of clients by putting a priority on listening to clients’ needs and challenges, doing what they can to make it easy to work with Quad, and making the client experience enjoyable and inclusive at every touchpoint. With a focus on solving problems and removing friction wherever a client experiences it in the marketing process, Quad seeks to become an invaluable strategic marketing partner for its clients, helping them successfully navigate today’s constantly evolving media landscape through innovative data-driven solutions, produced and deployed efficiently across multiple media channels. A key component of Quad’s client-facing strategy is to strengthen relationships at higher levels within a client’s organization so the Company can better understand, anticipate and satisfy the organization’s requirements, including their diversity, equity and inclusion goals, and broader environmental, social and governance objectives. The Company also believes its proactive thought leadership in the key issues facing its clients, including data-driven marketing, mar-tech and postal reform, will foster loyalty to the Quad brand.

Grow the Business Profitably

This strategic priority centers on Quad’s ability to defend against significant media disruption, deploy balanced use of capital, including disciplined and compelling investments, and grow the business as a marketing solutions partner. Key components of this priority are:

Acquire new and expand existing account relationships by introducing clients to the Company’s complete through-the-line marketing offering – from strategy and creative through production, execution and analytics – that helps them market more efficiently and effectively. To this end, Quad is focused on ensuring it has the right talent in the right positions to facilitate strategic marketing conversations and tailored solutions based on a better understanding of their needs.

Expand in key vertical industries with growth opportunities, such as consumer technology, consumer-packaged goods, financial services, insurance, healthcare and direct-to-consumer, while continuing to capitalize on the Company’s established expertise in retail and publishing. Through existing and new offerings, Quad delivers solutions dedicated to solving client marketing and process challenges.

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Make disciplined and compelling investments that take many different forms. The Company intends to continue to pursue growth investments that help expand and strengthen its integrated marketing platform. In addition, the Company intends to continue making long-term investments in its talent, such as hiring business professionals with client-side marketing experience and consulting expertise to enhance its position as a marketing solutions partner, as well as investments to attract new employees and increase existing employee engagement, retention and productivity.

Bolster Platform Strength

The Company operates what it believes to be a superior and unparalleled integrated marketing platform, which it has consciously built to remove friction in the marketing process and speed the overall marketing journey through reduced complexity, increased efficiencies and enhanced marketing spend effectiveness across channels. Through this unique platform, the Company offers a complete through-the-line marketing offering featuring agency, consulting and implementation solutions encompassing marketing strategy, including consumer insights and data analytics; creative solutions for producing quality content at scale; and media deployment and optimization for all channels, including print, broadcast, digital, in-store, out-of-home and packaging supported by 24/7 global production, including industry-leading print manufacturing and mail-distribution capabilities. Quad uses a disciplined return on capital framework to make regular, strategic investments in this platform, resulting in what it believes is the most integrated, automated, efficient, innovative and modern marketing platform of its kind. The Company’s long-standing, disciplined culture of holistic Continuous Improvement and commitment to Lean Enterprise methodologies, along with ongoing, strategic investments in talent, technology, products and services to accelerate its position as a marketing solutions partner.

To strengthen its offering, the Company continually seeks to enhance its product portfolio, especially in the direct marketing, in-store and packaging spaces, with innovations that support clients’ ability to stand out in a consumer’s mailbox or front doorstep, or on the store shelf. These innovations include proprietary solutions unavailable anywhere else in the marketing, communications or printing industries.

Additionally, Quad has chosen to strategically divest of those businesses that cannot be easily leveraged as part of its greater integrated marketing platform, such as the QuadExpress third-party logistics business Quad sold in 2021. Through these types of optimization efforts, Quad maintains a superior, unparalleled platform that delivers value to clients and, ultimately, their customers.

Empower Employees

Quad’s strategic priority to empower employees throughout their career journey builds on the key aspects of the Company’s distinct corporate culture, which the Company views as a competitive advantage. These aspects include the Company’s enduring values, which are centered on trust, innovation, growth, believing in people and doing the right thing. The Company understands that its employees perform better at work when they can simply be themselves – confident in their abilities, comfortable sharing their ideas, opinions and beliefs, and able to bring their truest and best selves to the workplace – all of which leads to a more inclusive environment and better engagement, decision-making and business outcomes. The Company embraces forward-thinking workplace practices, such as flexible work models for the long-term future of work; implements innovative talent acquisition strategies to meet its labor and business needs; and provides training and reward programs to engage, develop and retain its employees. Employees are encouraged to take advantage of the Company’s continuous growth environment, which not only teaches critical on-the-job and leadership skills, but also helps them respond to rapid change, cultivate effective networks, and create high-quality relationships necessary for personal, professional and company growth. The Company believes its approach to continuous growth for each employee is advantageously distinct from other employers. With the Company’s encouragement to do things differently, to be something greater and to create a better way, employees are more fully engaged in their day-to-day activities, producing better results for clients and advancing the Company’s strategic priorities. Additionally, the Company engages employees and fosters corporate pride by supporting community activities, initiatives and organizations that improve the quality of life near Quad’s operations.

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Enhance Financial Strength and Create Shareholder Value

Quad follows a disciplined approach to maintaining and enhancing financial strength to create shareholder value, which is essential given ongoing media disruption, including printing industry challenges. This strategy is centered on the Company’s ability to drive profitable growth, and maximize net earnings, Free Cash Flow and operating margins; maintain consistent financial policies to ensure a strong balance sheet, liquidity level and access to capital; and retain the financial flexibility needed to strategically allocate and deploy capital as circumstances change. The priorities for capital allocation and deployment are balanced according to prevailing circumstances and what the Company thinks is best for shareholder value creation at any particular point in time. Those priorities currently include: deleveraging the Company’s balance sheet through debt and pension liability reductions; making compelling investments that drive profitable organic growth and productivity in the Company’s print manufacturing and distribution operations, as well as expansion into higher-growth marketing services; and paying dividends and stock buybacks over the long term.

To provide ongoing improvement in manufacturing productivity and, ultimately, maximize operating margins, the Company applies holistic Continuous Improvement and Lean Enterprise methodologies to simplify and streamline processes. These same methodologies are applied to its selling, general and administrative functions to create a truly Lean Enterprise. The Company continually works to lower its cost structure by consolidating its manufacturing operations 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. Quad believes that its focused efforts to be the high-quality, low-cost producer generates increased Free Cash Flow and allows the Company to maintain a strong balance sheet through debt and pension liability reduction. The Company’s disciplined financial approach also allows it to maintain sufficient liquidity and to reduce refinancing risk, with the nearest significant debt maturity of $211.5 million occurring in May 2022 and of which the Company is well-positioned to address at or before maturity due to its liquidity. The Company had total liquidity of $576.6 million as of December 31, 2021, which consisted of up to $396.7 million of unused capacity under its revolving credit arrangement, which was net of $35.8 million of issued letters of credit, and cash and cash equivalents of $179.9 million. In addition, the Company completed the amendment of its $1 billion bank debt agreement, extending the maturity to November 2026. Quad is proud of its strong and trusted banking relationships, which provide the Company with increased financial flexibility to continue to pay down debt and to make strategic investments to accelerate its position as a marketing solutions partner.

Competitive Advantages

Quad’s strategic priorities are powered by three key competitive advantages that the Company believes distinguish it from its competitors: a commitment to integrated marketing platform excellence, a commitment to ongoing innovation, and a commitment to its culture and social purpose.

Commitment to Integrated Marketing Platform Excellence

Through a 24/7 “always on” global platform featuring strategic consulting, creative talent, and production and implementation resources across North America, South America, Europe and Asia, Quad provides a better way to solve clients’ marketing and process challenges. The Company’s data-driven integrated marketing platform enables clients to strategically plan, produce, deploy, manage and measure their content across multiple media channels – rapidly, at scale and without handoffs that compromise quality, consistency and timeliness. Through this platform, Quad gives brands and marketers a more efficient, effective and frictionless way to go to market and reach consumers using its unmatched scale in client on-site services and expanded subject matter expertise in:

Marketing Strategy, including customer insights and analytics, campaign planning and media services, to understand and connect with a target audience;

Creative Solutions, including campaign development, photo and video production, adaptive design and cross-media production to produce quality content quickly and at scale;

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Media Deployment, including print, broadcast, all forms of digital, in-store, out-of-home and packaging, to reach multi-channel consumers while maximizing budgets; and

Marketing Management Services, including dedicated marketing services teams, sourcing and procurement, and print and paper management, to remove friction in the process so clients can focus on other critical aspects of their business.

A key aspect of Quad’s integrated marketing platform is dedicated client on-site and near-site teams, including a network of photography and video production studios. These teams serve as a natural extension of a client’s internal marketing department, fulfilling traditional agency executional roles while also providing production efficiencies at scale for content creation, creative production and marketing execution. These teams also offer seamless access to the Company’s other integrated services and subject matter experts, removing friction in the marketing process. The Company believes this model increases process efficiencies and enables clients to focus on what they do best: sell more products, services and content. Quad has more than 500 professionals embedded at more than 90 on-site locations covering grocery, sporting goods, mass merchandisers and publishers.

Over its more than 50 year heritage, the Company also has led the industry in its printing and print distribution capabilities – the most capital intensive part of Quad’s integrated marketing platform, but also a key point of differentiation with traditional creative agencies and agency holding companies. Unlike traditional agencies or agency holding companies that develop creative and then outsource production, or traditional consulting firms that provide strategy and then outsource implementation, Quad provides all campaign elements for seamless, expedited execution. As far as printing, Quad continually invests in its equipment, automation and leading-edge technology to enhance print product features, including personalization, while maximizing labor productivity, increasing throughput and reducing labor costs. For example, through ongoing investments in digital press technology, the Company provides marketers and publishers a full range of options to produce and deliver more relevant content faster, in smaller print-run quantities, and more cost-effectively versus conventional web offset press technology. Recent investments in digital press technology also have enabled Quad to enter markets in which it previously was not as competitive. These ongoing investments, along with innovative front-end toolsets and data workflows, and industry-best, back-end logistics and postal optimization, have enabled Quad to better serve the needs of today’s leading marketers who prize direct access to consumers’ home mailboxes. Quad carries over this commitment to print media to other forms of media, including all forms of digital, broadcast, in-store and out-of-home.

Another key aspect of the Company’s manufacturing capabilities is the operation of very large facilities (greater than one million square feet) that produce multiple different product lines under one roof to maximize utilization of equipment and labor resources, while also driving savings in certain product lines (such as publications and catalogs) due to economies of scale. The Company has continued to strengthen its manufacturing operations by:

Removing excess and/or under-utilized capacity, and by consolidating work into facilities where it can achieve the greatest manufacturing and distribution efficiencies.

Reconfiguring and re-equipping manufacturing facilities for growth segments, such as direct mail, in-store and packaging. This includes recent investments in advanced digital sheetfed press technology that is new to the North America continent.

Postal rates are a significant component of many clients’ cost structures, and Quad believes that postal costs influence the number of pieces that its clients print and mail. Therefore, the Company has invested significantly in its mailing and distribution platform to mitigate increasing postage costs, and to help clients successfully navigate the ever-changing postal environment. One of Quad’s postal optimization programs is co-mailing, which involves the sorting and bundling of multiple printed products to be mailed to consumers in order to facilitate better integration with the United States Postal Service (“USPS”). In return, the USPS offers significant work-sharing discounts for this sorting, bundling and drop-shipping. Quad’s co-mail program is the largest in the print industry (based on information published or otherwise made available from competitors). Due to the continuously increasing costs of utilizing the USPS and to help control costs for its clients, Quad continues to expand its alternate delivery service for clients that altogether bypasses the USPS to deliver products to consumers’ doorsteps.
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Commitment to Ongoing Innovation

At the forefront of innovation for more than 50 years, Quad believes its commitment to ongoing innovation drives its purpose to create a better way, which benefits all stakeholders.

Marketing Solutions

When it comes to marketing solutions, Quad takes a disciplined approach to (1) expand its existing product offerings; (2) develop and commercialize new products offerings; and (3) deliver integrated solutions that solve clients’ marketing and process challenges in the areas of Marketing Strategy, Creative Solutions, Media Deployment and Marketing Management.

The Company has hired talent with client-side marketing experience and consulting expertise to help advance conversations with clients to be more solutions-based. Quad’s Sales team is focused on understanding client pain points, and aims to expand relationships with higher-level executives responsible for corporate strategy, including Chief Executive Officers and Chief Marketing Officers, to create and implement solutions that incorporate a broad range of Quad’s products and services. Through these relationships, the Company is able to gain insights into additional client marketing needs, and then uses a disciplined process to develop and commercialize those solutions to expand and deepen Quad’s relationships. These solutions include media products, and innovative solutions for cost-effective mailing and distribution, as well as online and cloud-based solutions for effectively integrating multichannel campaigns.

Marketing Strategy: The Company has made recent investments in its data and analytics capabilities, including campaign planning and media services, to improve marketing execution and drive stronger results for clients and advertisers. The Company’s data-driven customer insights and analytics services not only help clients identify their optimal target audience based on behaviors and demographics, but also the best content and mix of channels to reach and engage that audience at the moment they are most receptive across all paid, owned and earned touchpoints. Proprietary and highly valuable household-level data and insights are derived from Quad’s unique data set, Profile Collective – a database of in-home resident media and mobile engagements, including QR code scans, that only Quad can compile. This unique information is augmented with existing third-party data and clients’ first-party information to create an unparalleled audience and household targeting tool.

Accordingly, the Company is able to outline the ideas, places, spaces and experiences that can deliver a communications strategy for maximizing end-customer value and behavior change (i.e., response). As far as measurement, the Company can provide a unified view of campaign, channel and individual tactic performance. Complementing these services are advanced testing capabilities, including a proprietary online testing platform that allows clients to rapidly test print alternatives to identify precisely what combination of format, offer, messaging and imagery will be most successful. The Company has innovated media buying by providing in-house media services for all channels, creating a single point of accountability for streamlined planning, execution, measurement and testing of all marketing efforts while reducing cycle time, leading to more opportunities to iterate, adjust and optimize spend across all channels and segments.

Creative Solutions: With its premier marketing, advertising and creative talent, Quad creates world-class campaigns that attract attention and activate audiences, and then implements those campaigns using processes that save money and time to get in market faster. Technology plays a key role in Quad’s Creative Solutions which include content workflow solutions that simplify and optimize the creative process, from concept through production; content production services that enable clients to generate high-volume, high-quality content with a noncompetitive, complementary partner; creative services that seamlessly connect strategy, concept and design; and mar-tech solutions centered on solving client challenges in the areas of marketing operations, content accessibility, content production (including but not limited to copywriting, videography and photography), content workflows, asset management, content deployment and data optimization. Clients credit the Company’s creative solutions for providing a more integrated, channel agnostic, content-first approach.

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Media Deployment: Unlike traditional creative agencies or agency holding companies, Quad has the ability to seamlessly activate through-the-line media – both online and offline – and create value by understanding how every touchpoint in a client’s marketing and media mix is performing at a particular moment in time and then guiding how to optimize that investment to provide the greatest return. The Company manages hundreds of millions of dollars of gross media billings annually on behalf of its clients. As the number of marketing channels expands, each with its own return-on-investment measurement, the Company continues to innovate mar-tech solutions that help marketers know where to allocate their marketing budget to achieve their business goals. For example, through Connex, its proprietary cross-channel media optimization platform, Quad helps digital marketers eliminate the noise of disparate data sets and helps marketers identify the specific value-driving actions they need to take in real time to drive revenue and grow their business.

Quad’s maintains its leadership in print by leveraging its expertise in every facet of print production and deployment. Quad’s own Smartools® proprietary enterprise resource planning system provides seamless, real-time information flow across print sales and estimating, production planning, scheduling, manufacturing, warehousing, logistics, invoicing, reporting and customer service. Quad also has applied robotic process automation to streamline data processing and report generation. Where appropriate, Quad also leverages artificial intelligence in areas such as labor management, scheduling and predictive machine maintenance.

Quad continues to make investments in the most advanced and efficient print manufacturing and distribution capabilities in the industry, averaging 2% of its annual net sales for capital expenditures over the past five years. These investments, which include automated guided vehicles, robotic palletizers and efficient digital and wide-web offset presses, have resulted in what the Company believes is the most advanced and efficient print manufacturing and distribution capabilities in the industry and have allowed the Company to reduce the amount invested in recent years without impacting its leading technological excellence. These investments also have enabled it to remain the print industry’s high-quality, low-cost producer.

Marketing Management: Quad leverages its deep expertise and expansive network to help clients manage their operations the way it runs its own – with diligence toward efficiency and cost-savings. Through this innovative approach, Quad removes friction in the process, offering clients its network of in-house experts and capabilities for marketing and production outsourcing; sourcing and procurement of goods and services; and print and paper management. As a result, clients can focus on other critical aspects of business while leveraging Quad’s expertise and purchasing power.

Vertically Integrated Capabilities

A commitment to innovation and creating a better way to do business has also helped to expand Quad’s vertically-integrated print and non-print capabilities. Through ongoing innovation in prepress/premedia services, paper procurement and ink manufacturing (through Quad’s Chemical ResearchTechnology subsidiary), the Company maintains a competitive advantage in delivering lower costs and enhanced customer service for its clients while providing the Company with substantial control over critical links in the overall print supply chain to help control the quality, cost and availability of key inputs in the printing process.

The Company created a health and wellness subsidiary, QuadMed, LLC (“QuadMed”) in 1990 to address its own employees’ needs for quality, cost-effective health care. Today, QuadMed provides worksite health care solutions nationally for approximately 60 employers of all sizes and across all industries, including private and public sector employers. These solutions include onsite, near-site and virtual health delivery of comprehensive primary and preventive care, condition management, wellness programs and coaching, physical therapy, behavioral health, pharmacy services, occupational health and more. During the COVID-19 pandemic, Quad, its employees and their dependents have benefited from guidance and best practices provided by QuadMed, which maintains relationships with leading health care organizations and research organizations across the country.
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Commitment to Culture and Social Purpose

Quad believes its ability to create value is not limited to generating economic value, but also social and environmental value, and that the Company can do good in the world while doing well as a business. Quad’s long-standing focus on “creating a better way” – a hallmark of the Company’s culture for more than 50 years – has inspired creativity in how it addresses environmental, social and business challenges and contributed to good corporate citizenship. Further, the Company believes that its distinct corporate culture, which evolved from a core set of values conceived by the Company’s late founder Harry V. Quadracci, drives thoughtful decision-making, especially with regard to its disciplined approach to managing operations, innovating solutions for clients, and better positioning the Company to prevail in a dynamic marketplace.

In this Annual Report on Form 10-K, the Company reports on its commitment to culture and social purpose through achievements in environmental, social (Human Capital Management) and governance matters as outlined below.

Environmental

Quad believes that doing what is good for the environment is good for business, and seeks to operate in an environmentally responsible manner by challenging itself to find new and better ways to conduct business that better serves the environment and reflect the values of its clients and their customers. This approach focuses on conserving raw materials, minimizing waste, recycling and reusing products and materials, and reducing environmental impacts wherever possible across Quad’s integrated marketing platform. Examples of Quad’s commitment to environmental responsibility and sustainability include:

Aligning the Company’s efforts and initiatives with environmentally focused United Nations Sustainable Development Goals (SDG) such as SDG 12: Responsible Consumption and Production and SDG 15: Life on Land.
Partnering with federal, state and local regulatory agencies; educational institutions; industry trade groups; and non-profit organizations to share information, best-management practices, development of new tools and metrics, and innovative technology that lead to the reduction or elimination of environmental impacts.
Benchmarking environmental performance to evaluate the effectiveness of current environmental management programs and to identify program areas that need improvement or need to be developed.
Reclaiming materials and diverting them from the landfill through industrial and office recycling programs.
Becoming a founding member of Forests in Focus, a sustainability verification tool that offers the first landscape-level assessment of U.S. timberlands, giving brands reliable data on sustainability risks that may be present in the forest where they source wood fiber, the raw material used to make paper and packaging.
Maintaining chain-of-custody certifications for sourcing materials from responsibly managed forests (Forest Stewardship Council®, Sustainable Forest Initiative, and Program for the Endorsement of Forest Certification).
Formulating its own brand of Envirotech™ inks that contain a high percentage of renewable resource (i.e., vegetable) content.
Developing a co-mailing program - now believed to be the largest in the printing industry - that helps consolidate loads of mail and, thereby, reduce greenhouse gas emissions impact by putting fewer trucks on the road.
Equipping the Company’s web offset presses with dryers that can collect volatile organic compounds and use them as a supplementary fuel source to natural gas.
Becoming a founding partner of the U.S. Department of Energy’s Better Plants Program, a voluntary program to save energy and money, and reduce the Company’s environmental footprint.
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Being an active participant in the State of Wisconsin’s Focus on Energy program, an energy efficiency and renewable resource program through which the Company has implemented multiple energy-saving upgrades to its facilities and operations.
Becoming ISO 50001 Ready through the U.S. Department of Energy in the Company’s Hartford and West Allis, Wis., facilities, recognizing that these plants have created sound energy policies, established objectives and built structured improvements to generate deep, sustained energy savings.
Helping clients meet their sustainability goals through sourcing sustainable materials and reporting how the Company’s performance affects their carbon footprint.
Putting the Company’s 300-acre plus “Camp Quad” recreational center into conservancy through non-profit Tall Pines Conservancy, ensuring the land will remain undeveloped and will always be managed as a private preserve for plant life and wildlife.
Proactively managing water consumption through a combination of best practices, capital investments, efficient platform and efforts.
Continually educating clients, employees and communities on environmental sustainability matters. These include providing access to internal experts for consultations; hosting symposiums and other educational events at which the clients, suppliers and employees learn about the latest challenges and trends in sustainability; and advancing community education initiatives through non-profits such as Pine View Wildlife Rehabilitation and Education Center in southeastern Wisconsin which creates awareness of sustainability’s importance in daily life.

As the owner, lessee or operator of various real properties and facilities, Quad is subject to various federal, state and local environmental laws and regulations, including those relating to air emissions; waste generation, handling, management and disposal; sanitary and storm water discharge; and remediation of contaminated sites. Historically, compliance with these laws and regulations has not had a material adverse effect on the Company’s results of operations, financial position or cash flows. Compliance with existing or new environmental laws and regulations may require the Company to make future expenditures.

Human Capital Management

The Company continually invests in and supports its employees. Its people-focused, values-driven culture is a key competitive advantage that the Company believes distinguishes itself from its competitors.

Attracting, Developing and Retaining Highly Qualified Talent

Quad relies on highly qualified, skilled and knowledgeable talent to advance its strategic priorities and maintain its competitive advantage. Accordingly, the Company heavily invests in efforts to attract, develop and retain employees, and in tools, technologies, processes, training and education to increase engagement, productivity and efficiency.

As of December 31, 2021, the Company had approximately 15,100 full-time equivalent (“FTE”) employees in the following geographies:
Geographic Region Number of FTE Employees
North America (Includes Mexico, Central America and the Caribbean) 12,700 
Europe, Middle East and Africa 1,500 
South America 800 
Asia 100 


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The ways in which Quad attracts, develops and retains highly qualified talent include, among others, the following:

Providing and maintaining a world-class culture and environment for health and safety. The Company strives for zero workplace injuries and illnesses through its Safety Accountability for All Employees (SAFE) policy which states that no department is considered properly managed – regardless of proficiency in other managerial areas – unless it maintains an acceptable level of safety performance. All employees, from entry-level through senior management, are held accountable for adhering to the Company’s safety policies. In 2020, the Company also implemented a Safe at Work program in response to the COVID-19 pandemic, which prioritizes the health and safety of employees through a variety of initiatives. (For additional information on this program, see “COVID-19” below).
Creating jobs with competitive pay and innovative benefits that support families, strengthen communities and provide long-term career growth opportunities. The Company regularly evaluates its pay practices and structures, including implementing a new wage structure over the past few years for hourly manufacturing employees in its most competitive labor markets.
Offering career development through a variety of programs, including Accelerated Career Training, which provides a fast-track for career advancement in manufacturing positions; People Leading People that focuses on best-in-class manager behaviors; Corporate Trainee Program, which develops skills and leadership abilities through a series of agency and corporate rotations; and hands-on, mentor-led manufacturing apprenticeship programs, including registered apprenticeships and youth apprenticeships.
Listening to employees through annual engagement surveys and open forums at department and company-wide meetings to help better understand what employees like about working for the Company, what it can improve, and what could drive greater job satisfaction, and acting on that employee feedback.
Fostering pride through employee recognition programs, including a new engagement and retention award for manufacturing locations that work to create an engaging workplace; employee and family events; and community outreach activities.
Offering a new flexible work model (aka The Future of Work @ Quad) for office-based employees who have been working remotely during the pandemic that provides benefits to both employees and the business by emphasizing flexibility based on roles, technology requirements and responsibilities.

Compensation and Benefits

The Company invests in its workforce by offering market competitive compensation, regularly conducting total compensation benchmarking as part of its basic operations, as well as offering a comprehensive benefits package as part of its Total Rewards program. Features of this program include:

Comprehensive medical, prescription, dental and vision coverage to employees, including access to 24/7 telemedicine and virtual care being piloted in certain regions.
On-site and near-site primary and specialty healthcare, pharmacy, dental, vision and physical therapy services and fitness centers at several large-scale employee locations, owned and operated by the Company’s health and wellness subsidiary, QuadMed.
Robust holistic wellness programming for physical, emotional, financial and social well-being through the company’s QLife Wellness Program.
401(k) retirement savings program with annual discretionary Company match as well as retirement planning and financial wellness resources and webinars.
Paid vacation time and holidays.
Short- and long-term disability insurance, and employer-paid life insurance.
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On-site affordable childcare and summer camps for school-aged children at some of the Company’s largest manufacturing locations.

Diversity, Equity and Inclusion

Diversity, Equity and Inclusion (DEI) is part of Quad’s overall business strategy and a key driver behind specific business outcomes, including attracting and retaining talent, strengthening and protecting its brand reputation, increasing employee productivity, and competing in growth verticals. Quad’s DEI strategy is focused on (1) achieving a workforce that reflects the communities where employees live and work, as well as the clients who trust Quad with their business; (2) ensuring that procedures, processes and distribution of resources create equal opportunities and fair and just outcomes; and (3) creating a safe and open environment where all Quad employees can bring their truest and best selves to work every day, consistent with the Company’s long-standing values.

The Company is focused on the following areas to ensure it achieves its stated DEI goals:

Launching a DEI task force to build and execute a more comprehensive and sustainable strategy that supports learning and development, intercultural awareness and growth, removes inhibitors to true inclusion in areas such as workforce policies and procedures, procurement and how the Company serves its clients, creates a consistent and common language throughout the organization to increase understanding, and establishes metric reporting.
Strengthening Quad’s commitment to DEI through partnerships with nationally recognized DEI experts, consultants and researchers that include tailored learning and development programs for employees.
Supporting employee-led Business Resource Groups (BRGs), which are designed to cultivate an open company culture for employees who share common interests and can easily and regularly connect to encourage the growth and development of each other. The Company currently has six BRGs supporting women, military veterans and their families, the LGBTQIA+ community, Black employees, Hispanic / Latinx employees and working parents.
Investing in programs to support underserved communities, such as Milwaukee-based Running Rebels’ Pipeline2Promise workforce development program where Quad connects people to jobs, and provides the tools, training and transportation to set them up for success.
Engaging employees in DEI-related topics through I am. We Are., an internal education and communication platform.
Supporting the education and advancement of talent from underrepresented communities in the creative industry through scholarships at institutions committed to diversifying the talent pipeline and talent development programs, such as The Brandlab, a non-profit that introduces young people who are racially or ethnically diverse or from lower-income households to viable creative careers.
Growing a more inclusive supplier base by developing mutually beneficial relationships with suppliers representing women-, minority-, LGBTQIA+, veteran- and disability-owned businesses.

Building Strong Communities

The Company continuously seeks to build strong relationships with the communities where employees live and work through volunteerism, outreach, philanthropy, pro bono and in-kind services, and charitable giving. Through its efforts, the Company has made a meaningful difference through support of:

Important community pillars, such as firefighters, schools, libraries and military veterans groups;
Organizations that help underserved communities, such as non-profits dedicated to improving educational or employment opportunities for individuals who are racially or ethnically diverse or from lower-income households; and
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Employees who are involved in local volunteer efforts and charitable events, from stocking food pantries to assembling care packages for military service members to participating in fundraisers and holiday toy and clothing drives.

Communication

The Company believes that timely, transparent communication with all employees is an important engagement tool, and uses a variety of channels to inform and educate employees about business operations and matters of personal importance (e.g., benefits). These channels include InsideQuad, the employee intranet; executive blogs and video logs (vlogs); executive town halls; department meetings; email; text messaging; in-plant electronic and print signage; and in-home mailings. Quad’s CEO hosts regular town halls for all employees, accessible online and also posts video and written messages.

Corporate Governance

Effective corporate governance has been a part of Quad since its founding and is informed by the Company’s values, especially Do the Right Thing, which strengthens partnerships, reduces risk and creates sustainable value for the long term. Key aspects of Quad’s approach to strong governance practices include:

Maintaining consistent, stable leadership that is focused on making decisions in the best long-term interest of the Company. It is able to do this because of the Quadracci family voting control, which enables the Company to manage its strategy and disciplined financial policy by being able to avoid the pitfalls of short-term decision making that could potentially jeopardize the stability and longevity of the Company.
Retaining an experienced management team with a proven track record that is committed to preserving the Company’s values-based culture. The senior management team includes entrepreneurially minded leaders with a long tenure at Quad combined with strategic new hires or leaders from recent acquisitions, further supplemented by managers and employees committed to advancing the Company as a marketing solutions partner. The Company believes the experience and stability of senior management, paired with next-generation talent, will contribute to its long-term success.
Sustaining a disciplined approach to managing operations and commitment to innovating solutions to drive growth for clients and the Company.
Reducing risk to the business and to clients through a formal enterprise risk management program that is guided by a team that takes a strategic role in risk identification and response planning, and is managed by an executive risk steering committee with overall program responsibility.
Maintaining a high standard for corporate compliance and ethical business practices to keep the business healthy and protect the Company and its stakeholders from risk. The Company’s values, especially Do the Right Thing, serve as the foundation for Quad’s ethical approach to decision-making and business practices. The Company’s Code of Conduct appears on the employee intranet and corporate website, and explicitly states that Quad is committed to a workplace where every employee, regardless of job title or position, is responsible for doing the right thing.
Training all employees annually on a suite of ethics and compliance topics, including Code of Conduct, anti-harassment, conflict of interest, C-TPAT, data privacy, HIPAA, information security and physical security, acceptable use policy for technology assets, and, where relevant, fraud, waste and abuse training, and anti-bribery and anti-corruption training.
Making it safe and easy for employees to report violations of the Code of Conduct through multiple channels, including a 24/7 Ethics and Compliance Hotline or web-based reporting tool with guidance in multiple languages.
Continually updating and strengthening the Company’s information and data security program to address the fast-changing threat landscape and ensure oversight. The program includes ongoing employee
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education to ensure physical and digital workspaces remain secure, valuable data remains private, spot potential phishing and malware threats, and avoid risky behaviors.
Creating a Supplier Code of Conduct to ensure suppliers, vendors, contractors, consultants, agents and other providers of goods and services follow the Company’s policies related to business integrity, ethical labor and human rights practices, associate health and safety, and environmental management. This Code also includes anti-corruption and anti-bribery policies.

COVID-19

Throughout the ongoing COVID-19 pandemic, Quad has prioritized protecting employees’ health and well-being while also protecting the financial health and long-term viability of the Company. The Company’s COVID-19 response is led by an internal Crisis Management Team consisting of leaders from Risk Management, Human Resources, Legal, Manufacturing, Agency Solutions and Communications, as well as medical professionals from QuadMed, the Company’s health and wellness subsidiary. The Company’s response is informed by guidance from the public health professionals, including the Centers for Disease Control and Prevention, local health authorities, and direction from federal and state governments, along with best practices and recommendations from QuadMed, which maintains relationships with leading health care organizations and research universities across the country.

Quad’s Safe at Work program, updated throughout the pandemic, provides for the health and safety of employees while we continue to meet the needs of clients. This program:

Strongly encourages all employees and family members to get the COVID-19 vaccine and booster, making it as easy as possible to do so through the Company’s own QuadMed health clinics and on-site vaccination events. Quad also offered incentives and a competition between manufacturing facilities to achieve higher vaccination rates.
Details policies and procedures for mask wearing, social distancing, good hygiene, daily disinfecting and more to protect against COVID-19.
Features an internal Rapid Response Team of HR and other professionals to assess each potential COVID-19 case, perform contact tracing, and support and track employees through their return to work at the appropriate time.
Includes a branded communication strategy built on transparent, frequent and consistent communication across multiple channels and regularly featuring QuadMed healthcare professionals.
Equips any employee able to perform their duties remotely to work from home to prevent the spread of the virus, especially during times of high transmission rates.

Clients

Quad enjoys long-standing relationships with a diverse base of clients, which includes both national and regional corporations in North America, South America, Europe and Asia. The Company’s clients include industry-leading blue chip companies that operate in a wide range of industries and serve both businesses and consumers, including retailers, publishers and direct marketers. The Company’s relationships with its largest clients average over 17 years in duration.

In 2021, Quad served approximately 4,600 clients, and its ten largest clients accounted for approximately 16% of consolidated sales, with none representing more than 5% individually. The Company believes that its large and diverse client base, broad geographic coverage and extensive range of marketing capabilities are competitive strengths.

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Patents, Trademarks and Trade Names

Quad operates research and development facilities that support the development of new equipment, process improvements, raw materials and content management, and distribution technologies to better meet client needs and improve operating efficiencies. The Company continues to innovate within the printing and print-related industry and, as a result, has developed what it believes to be one of the most powerful patent portfolios in the print industry.

Quad currently holds or has rights to commercialize a wide variety of worldwide patents and applications relating to its business. The Company intends to continue to file patent applications that it believes will help ensure the continued strength of the Company and its portfolio. Additionally, the Company markets products, services and capabilities under a number of trademarks and trade names. Quad aggressively defends its intellectual property rights and intends to continue to do so in the future.

Raw Materials

The primary raw materials that Quad uses in its print business are paper, ink and energy. At this time, the Company’s supply of raw materials are available from numerous vendors; however, based on market conditions, the current supply is under pressure due to supply chain shortages and higher than expected inflation. The Company generally buys these raw materials based upon market prices that are established with the vendor as part of the procurement process.

Approximately half of the paper used in the printing process is supplied directly by the Company’s clients. For those clients that do not directly supply their own paper, the Company makes use of its purchasing efficiencies to supply paper by negotiating with leading paper vendors, uses a wide variety of paper grades, weights and sizes, and does not rely on any one vendor. In addition, the Company generally includes price adjustment clauses in sales contracts for paper and other critical raw materials in the printing process. Although these clauses generally mitigate paper price risk, higher paper prices and tight paper supplies, as well as changes in the United States import or trade regulations, may have an impact on client demand for printed products. The Company’s working capital requirements, including the impact of seasonality, are partially mitigated through the direct purchasing of paper by its clients.

The Company produces the majority of ink used in its print production, allowing it to control the quality, cost and supply of key inputs. Raw materials for the ink manufacturing process are purchased externally from a variety of vendors.

The Company generally cannot pass on to clients the impact of higher electric and natural gas energy prices on its manufacturing costs, and increases in energy prices result in higher manufacturing costs for certain of its operations. The Company mitigates its risk through natural gas hedges when appropriate. In its logistic operations, however, the Company is able to pass a substantial portion of any increase in fuel prices directly to its clients.

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Strategic Investments

On June 15, 2020, the Company purchased units of equity in Rise Interactive Media & Analytics, LLC (“Rise”) from a previous holder in the form of a $15.9 million note payable paid in full on October 1, 2020, and $1.0 million cash paid on June 15, 2020. In addition, on June 15, 2020, Rise purchased and retired units of equity from previous holders of Rise for $5.4 million in cash. These transactions resulted in the Company’s ownership interest changing from 57% to 99%. On April 30, 2021, Rise purchased and retired units of equity from previous holders of Rise for $1.9 million in cash. This transaction resulted in the Company’s ownership interest changing from 99% to 100%. The Company began consolidating the results of Rise in the Company’s consolidated financial statements when its equity ownership increased to 57% on March 14, 2018. The portion of Rise’s operating results not owned by the Company of 43% through June 15, 2020 and of 1% from June 15, 2020 through April 30, 2021, was recorded as net earnings (loss) attributable to noncontrolling interests on the consolidated statement of operations. The portion of net assets not owned by the Company was recorded as noncontrolling interests as of the December 31, 2020 consolidated balance sheet.

For additional information related to the Company’s strategic investment activity, see Note 3, “Strategic Investments,” to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.

Information About Our Executive Officers

The following table sets forth the names, ages (as of January 31, 2022) and positions of Quad’s executive officers.
Name Age Position
J. Joel Quadracci 53 Chairman, President and Chief Executive Officer
Eric N. Ashworth 56 Executive Vice President of Product and Market Strategy, and President of Quad Agency Solutions
Julie A. Currie 59 Executive Vice President and Chief Revenue Officer
Joshua J. Golden 50 Chief Marketing Officer
David J. Honan 53 Executive Vice President and Chief Operating Officer
Jennifer J. Kent 50 Executive Vice President and Chief People & Legal Officer
Donald M. McKenna 49 Executive Vice President and Chief Administrative Officer
Anthony C. Staniak 49 Chief Financial Officer
Kelly A. Vanderboom 47 Executive Vice President, President of Logistics and Treasurer
Anne M. Bauer 57 Vice President and Chief Accounting Officer
Steven D. Jaeger 57 Vice President and Chief Information Officer

Mr. Quadracci has been a director of Quad since 2003, its President since January 2005, its President and Chief Executive Officer since July 2006 and its Chairman, President and Chief Executive Officer since January 2010. Mr. Quadracci joined Quad in 1991 and, prior to becoming President and Chief Executive Officer, served in various capacities, including Sales Manager, Regional Sales Strategy Director, Vice President of Print Sales, Senior Vice President of Sales and Administration, and President and Chief Operating Officer. He serves on the board of directors for Plexus Corp., Pixability, Inc., Road America, Inc., Children’s Hospital of Wisconsin, the National Association of Manufacturers, and the Metropolitan Milwaukee Association of Commerce. He also serves on the board of trustees for the Milwaukee Art Museum and on the advisory council of the Smithsonian National Postal Museum and is a member of the Greater Milwaukee Committee. Mr. Quadracci received a Bachelor of Arts in Philosophy from Skidmore College in 1991. Mr. Quadracci is the brother of Kathryn Quadracci Flores, M.D., a director of Quad, and the brother-in-law of Christopher B. Harned, a director of Quad. Quad believes that Mr. Quadracci’s experience in the printing industry and in leadership positions within Quad qualify him for service as a director of Quad.

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Mr. Ashworth has served as Executive Vice President of Product and Market Strategy since joining Quad in 2015, and President of Quad Agency Solutions since April 2016. Mr. Ashworth also serves on the board of directors of Ash+Ames, and is a board member of the Chicago Children’s Choir. Prior to joining Quad, Mr. Ashworth was President of SGK, Inc. (formerly Schawk, Inc.) from July 2012 to July 2015, Chief Growth and Strategy Officer of SGK from September 2009 to July 2012, and Global Chief Growth Officer of Anthem Worldwide (a division of SGK) from November 2003 to 2010. Prior thereto, Mr. Ashworth was Co-founder and President of BlueMint Associates from June 2002 through November 2003, after serving in various marketing roles at Fitch San Francisco, Addis Interaction, Levi Strauss & Co., Clorox, Colgate-Palmolive and National Semiconductor.

Ms. Currie has served as Executive Vice President and Chief Revenue Officer since November 2020. She previously served as Executive Consultant of FCM, LLC from 2019 to 2020. Prior thereto, Ms. Currie served as Senior VP of Global Retail Product Leadership from 2016 to 2019, as Senior VP, Global Loyalty Commercial Director from 2012 to 2016, as Senior VP, Global Business Services North America from 2008 to 2012, as VP, National Accounts Group Client Director from 2003 to 2007, and as VP, Group Client Director from 2001 to 2003 of The Nielsen Company. Ms. Currie also serves on the board of Boys & Girls Club of Lake County.

Mr. Golden has served as Chief Marketing Officer since joining Quad in July 2021. Prior to joining Quad, Mr. Golden was the President & Publisher of Ad Age from 2016 to 2021. Prior thereto, Mr. Golden served as VP, Global Digital Marketing & Communications of Xerox from March 2015 to June 2016; as Chief Marketing Officer of Story Worldwide from September 2011 to March 2015; as Chief Digital Officer of Grey Worldwide from September 2010 to September 2011; as Managing Director, Digital of Euro RSCG Worldwide from December 2007 to September 2010; as Group Director of Digital Marketing of NBC Universal from January 2006 to December 2007; and as Integrated Account Director, AT&T and Xerox at Young & Rubicam from November 2000 to January 2006.

Mr. Honan has served as Executive Vice President and Chief Operating Officer since January 2022. He previously served as Executive Vice President and Chief Financial Officer from January 2015 to December 2021; Vice President and Chief Financial Officer from March 2014 to January 2015; Vice President and Chief Accounting Officer from July 2010 to March 2014; Vice President and Corporate Controller from December 2009 to July 2010; and Corporate Controller from when he joined Quad in May 2009 until December 2009. Currently, he serves on the Advisory board of FM Global. Prior to joining Quad, Mr. Honan served as Vice President, General Manager and Chief Financial Officer of Journal Community Publishing Group, a subsidiary of media conglomerate Journal Communications Inc., for five years. Before joining Journal Community Publishing Group, Mr. Honan worked in executive-level roles in investor relations and corporate development at Newell Rubbermaid, a global marketer of consumer and commercial products. Prior thereto, Mr. Honan worked at the accounting firm Arthur Andersen LLP for 11 years.

Ms. Kent has served as Executive Vice President and Chief People & Legal Officer since January 2022 and has served in this role since June 2015 under its previous title of Executive Vice President of Administration and General Counsel. She previously served as Vice President and General Counsel from December 2013 to June 2015, and as Quad’s Assistant General Counsel from when she joined Quad in August 2010 until December 2013. Ms. Kent serves on the board of directors of Mayville Engineering Company, Inc. (NYSE: MEC), a manufacturer of tooling, production fabrication, coating, assembly and aftermarket components, and Building Brave, a non-profit virtual community for professional women. Prior to joining Quad, Ms. Kent held various positions in the legal department at Harley-Davidson Motor Company from March 2003 to July 2010. Prior thereto, Ms. Kent served as an Assistant United States Attorney for the Eastern District of Wisconsin and practiced law at Foley & Lardner LLP, a Milwaukee-based law firm.

Mr. McKenna has served as Executive Vice President and Chief Administrative Officer of Quad since January 2022, and Senior Vice President of Sales Administration of Quad since August 2018. He previously served as Vice President of Sales Administration from June 2013 to August 2018, and Product Planning Manager from March 2010 to June 2013. Prior to joining Quad, Mr. McKenna worked at J.S. Eliezer Associates, a print consulting firm in Stamford, Conn., beginning in 1998 and was named President of the firm in 2004.

Mr. Staniak has served as Chief Financial Officer of Quad since January 2022. Previously, he served as Vice President of Finance from March 2017 until January 2022. Joining the company in 2009 as Director of External Reporting, Mr. Staniak was subsequently named Director of Internal Audit in 2011; Executive Director – Financial
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Controller in 2013; Chief Accounting Officer in 2014; and Vice President and Chief Accounting Officer in 2015. Prior to joining Quad, Mr. Staniak was CFO of data consulting firm Sagence, Inc. He began his career at the accounting firm Arthur Andersen in 1995. Mr. Staniak is a member of the Wisconsin Institute of Certified Public Accountants and the Board of Directors for the Zoological Society of Milwaukee.

Mr. Vanderboom has served as Executive Vice President since 2018, and Treasurer and President of Logistics since March 2014. Mr. Vanderboom was put in charge of leading Quad’s EBITDA initiatives in October of 2019. Since joining Quad in 1993, he has served in various leadership capacities, including Controller of Quad’s Distribution and Facilities departments from 2004 until 2006; Director of Treasury, Risk & Planning, beginning in 2007, and Vice President, beginning in 2008.

Ms. Bauer has served as Vice President since January 2022 and Chief Accounting Officer since March 2017. She previously served as Director - Corporate Controller of Quad from May 2016 until March 2017 and then as Executive Director and Chief Accounting Officer until January 2022. She joined Quad in September 2011, serving as Director of Corporate Accounting until May 2016. Prior to joining Quad, Ms. Bauer held various accounting positions at Journal Communications, Inc. during her 18 years there, including Vice President and Controller from June 2000 until September 2011.

Mr. Jaeger has served as Vice President and Chief Information Officer since November 2015. He previously served as Executive Vice President, President of Direct Marketing and Chief Information Officer from November 2014 to November 2015; as Executive Vice President, President of Direct Marketing and Media Solutions and Chief Information Officer from March 2014 to November 2014; as Corporate Vice President of Information and Technology since 2013; as Vice President of Information Systems and Infrastructure from 2007 to 2012; and as President of Quad/Direct from August 2007 until 2013. Prior thereto, Mr. Jaeger served as Quad’s Vice President of Information Systems from 1998 to 2006 and worked in various other capacities since he joined Quad in 1994. Prior to joining Quad, Mr. Jaeger worked for Andersen Consulting for eight years.

Executive officers of Quad are elected by and serve at the discretion of Quad’s Board of Directors. Other than described above, there are no family relationships between any directors or executive officers of Quad.

Item 1A.    Risk Factors

You should carefully consider each of the risks described below, together with all of the other information contained in this Annual Report on Form 10-K, before making an investment decision with respect to Quad’s securities. If any of the following risks develop into actual events, the Company’s business, financial condition or results of operations could be materially and adversely affected, and you may lose all or part of your investment.

Risks Relating to Quad’s Business, Operations and Industry

The Company may be adversely affected by increases in its operating costs, including the cost and availability of paper, ink components and other raw materials, labor-related costs, fuel and other energy costs and freight rates.

The primary raw materials that the Company uses in its print business are paper, ink and energy. The price of such raw materials has fluctuated over time and has caused fluctuations in the Company’s net sales and cost of sales. This volatility may continue and the Company may experience increases in the costs of its raw materials in the future as prices in the overall paper, ink and energy markets are expected to remain beyond its control. The price and availability of paper may also 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. The price and availability of ink and ink components may be adversely affected by the availability of component raw materials, labor and transportation, all of which have been negatively impacted by the continuing COVID-19 pandemic.

Approximately half of the paper used by the Company is supplied directly by its clients. For those clients that do not directly supply their own paper, the Company generally includes price adjustment clauses in sales contracts for
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paper and other critical raw materials in the printing process. Although these clauses generally mitigate paper price risk, higher paper prices and tight paper supplies may have an impact on client demand for printed products. If the Company passes along increases in the cost of paper and the price of the Company’s products and services increases as a result, client demand could be adversely affected, and thereby, negatively impact the Company’s financial performance. If the Company is unable to continue to pass along increases in the cost of paper to its clients, future increases in paper costs would adversely affect its margins and profits.

Due to the significance of paper in the Company’s print business, it is dependent on the availability of paper. In periods of high demand, certain paper grades have been in short supply, including grades used in the Company’s business. In addition, during periods of tight supply, many paper producers allocate shipments of paper based upon historical purchase levels of clients. Additionally, the declining number of paper suppliers has resulted in a contraction in the overall paper manufacturing industry. This contraction of suppliers may cause overall supply issues, may cause certain paper grades to be in short supply or unavailable, and may cause paper prices to substantially increase.

Although historically the Company generally has not experienced significant difficulty in obtaining adequate quantities of paper, continued decline in suppliers, changes in United States import or trade regulations, or other developments in the overall paper markets (such as the continuing COVID-19 pandemic) could result in a decrease in the supply of paper and could adversely affect the Company’s revenues or profits. In addition, the Company may not be able to resell waste paper and other by-products or the prices received for their sale may decline substantially.

The Company is dependent upon the vendors within the Company’s supply chain to maintain a steady supply of inventory, parts and materials. Many of the Company’s products are dependent upon a limited number of vendors, and significant disruptions could adversely affect operations (including as a result of the continuing COVID-19 pandemic). Under current market conditions, and in light of the COVID-19 pandemic, it is possible that one or more of the Company’s vendors will be unable to fulfill their operating obligations due to financial hardships, liquidity issues or other reasons.

The Company generally cannot pass on to clients the impact of higher electric and natural gas energy prices on its manufacturing costs, and increases in energy prices result in higher manufacturing costs for certain of its operations.

Labor represents a significant component of the cost structure of the Company. Increases in wages, salaries and the cost of medical, dental, pension and other post-retirement benefits, including increases from the continuing COVID-19 pandemic, may impact the Company’s financial performance. Changes in interest rates, investment returns or the regulatory environment may impact the amounts the Company will be required to contribute to the pension plans that it sponsors and may affect the solvency of these pension plans. The Company may be unable to achieve labor productivity targets, to retain employees or labor may not be adequately available in locations in which the Company operates, which could negatively impact the Company’s financial performance.

Freight rates and fuel costs also represent a significant component of the Company’s cost structure and the COVID-19 pandemic has resulted in upward price pressure on freight, as the number of available drivers have been reduced. In general, the Company has been able to pass along increases in the cost of freight and fuel to many of its clients. If the Company is not able to pass along a substantial portion of increases in freight rates or in the price of fuel, future increases in these items would adversely impact the Company’s margin and profits. If the Company passes along increases in the cost of freight and fuel and the price of the Company’s products and services increases as a result, client demand could be adversely affected, and thereby, negatively impact the Company’s financial performance.
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Decreasing demand for printing services caused by factors outside of the Company’s control, including the substitution of printed products with digital content, the continuing COVID-19 pandemic and prior recessions, as well as significant downward pricing pressure, may continue to adversely affect the Company.

The Company and the overall printing industry continues to experience a reduction in demand for printed materials and overcapacity due to various factors including the sustained and increasing shift of digital substitution by marketers and advertisers (to both replace and augment campaigns that were historically focused on print), as well as the continuing COVID-19 pandemic and prior recessions (which have severely impacted print volumes and further accelerated the impact of media disruption). The impacts of overcapacity, as well as intense competition, have led to the Company experiencing significant downward pricing pressures for printing services in recent years and such pricing may continue to decline from current levels. Any future increases in the supply of printing services or decreases in demand could cause prices to continue to decline, and prolonged periods of low prices, weak demand and/or excess supply could have a material adverse effect on the Company’s business growth, results of operations and liquidity.

The media landscape is experiencing rapid change due to the impact of digital media and content on printed products. Improvements in the accessibility and quality of digital media through the online distribution and hosting of media content, mobile technologies, e-reader technologies, digital retailing and the digital distribution of documents and data has resulted and may continue to result in increased consumer substitution. Continued consumer acceptance of such digital media, as an alternative to print materials, is uncertain and difficult to predict and may decrease the demand for the Company’s printed products, result in reduced pricing for its printing services and additional excess capacity in the printing industry, and adversely affect the results of the Company’s operations.

The COVID-19 pandemic has had, and will continue to have, a negative impact on the Company’s business, financial condition, cash flows, results of operations and supply chain.

The COVID-19 pandemic resulted in national, state and local government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, border closings, restrictions on public gatherings, quarantining of people who may have been exposed to the virus, shelter-in-place restrictions, and limitations or shutdowns of business operations. These measures, some of which are continuing or being re-implemented in light of new variants of the virus, have impacted and may further impact the Company’s workforce and operations, the operations of its clients, and those of its suppliers. Quad has significant operations in the United States and printing operations or investments in printing operations in England, France, Germany, Poland, Argentina, Colombia, Mexico, Peru, Brazil and India, and each of these countries has been affected by the pandemic and taken measures to try to contain it, resulting in disruptions at some of the Company’s printing facilities and support operations. There is still uncertainty regarding the full impact and duration of such measures and potential future measures, and restrictions on the Company’s access to its facilities or on its support operations or workforce, or similar limitations for Quad’s suppliers.

The COVID-19 pandemic has weakened demand for the Company’s products and services, which has resulted in a decline in sales, and it remains uncertain what impact this weakened demand will have on future sales once conditions continue to further improve. The pandemic has also disrupted the Company’s supply chain and resulted in rising inflationary cost pressures within the Company’s raw materials, distribution and labor.

The COVID-19 pandemic has had, and will continue to have, a negative impact on the Company’s business, financial condition, cash flows, results of operations, supply chain and raw materials availability, although the full extent is still uncertain. As the pandemic continues to evolve and new variants continue to emerge, 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, including, but not limited to, the continued duration of the pandemic, government actions to contain the virus and/or treat its impact, restrictions on travel, the duration, timing and severity of the impact on client spending and consumer demand, and how quickly and to what extent normal economic and operating conditions can resume, all of which are still uncertain and cannot be predicted.

In addition to the COVID-19 pandemic, future natural disasters, epidemics, other public health crises, conflicts, wars, terrorist attacks, fires or other catastrophic events affecting the Company’s plants, distribution centers or other facilities, could also materially disrupt the Company’s operations and result in an adverse impact on its financial
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condition, results of operations and cash flows, which could force the Company to reassess its strategic alternatives involving certain of its operations.

The Company operates in a highly competitive environment.

The advertising and marketing services industries are highly competitive and are expected to remain so. Any failure on the part of the Company to compete effectively in the markets it serves could have a material adverse effect on its results of operations, financial condition or cash flows and could require changes to the way it conducts its business or require it to reassess strategic alternatives involving its operations.

The Company operates primarily in the commercial print portion of the printing industry, which is highly fragmented and competitive in both the United States and internationally. The Company competes for business not only with large and mid-sized printers, but also with smaller regional printers and the growing forms of digital alternatives to print. In certain circumstances, due primarily to factors such as freight rates and client preference for local services, printers with better access to certain regions of a given country may be preferred by clients in such regions.

Some of the industries that the Company services have been subject to consolidation efforts, leading to a smaller number of potential clients. Furthermore, if the smaller clients of the Company are consolidated with larger companies using other printing companies, the Company could lose its clients to competing printing companies.

Failure to attract and retain qualified talent across the enterprise could materially adversely affect the Company’s business, competitive position, financial condition and results of operations.

The Company continues to be substantially 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 the Company’s existing clients. The Company believes that there is significant competition for production personnel with the skills and technical knowledge that the Company requires, especially in light of the labor shortages resulting from the COVID-19 pandemic. The Company’s ability to continue efficient operations, reduce production costs, and consolidate operations will depend, in large part, on the Company’s success in recruiting, training, integrating and retaining sufficient numbers of production personnel to support the Company’s production, cost savings and consolidation targets. New hires require extensive training and it may take significant time before they achieve full productivity. In addition, an increase in the wages paid by competing employers, including as a result of the COVID-19 pandemic, could result in an increase in the wage rates that the Company must pay. As a result, the Company may incur additional costs to attract, train and retain employees, including expenditures related to salaries and benefits, and the Company may lose new, as well as existing, employees to competitors or other companies before the Company realizes the benefit of its investment in recruiting and training them. If the Company is unable to hire and train sufficient numbers of personnel, the Company’s business would be adversely affected.

The Company’s future success also depends on its continuing ability to identify, hire, develop, and retain its executive management team, including its Chief Executive Officer, and other personnel for all areas of the organization.

Approximately 1,300 of the Company’s United States and international employees are covered by an industry wide agreement, a collective bargaining agreement or through a works council or similar arrangement. While the Company believes its employee relations are good and that the Company maintains an employee-centric culture, and there has not been any material disruption in operations resulting from labor disputes, a strike or other forms of labor protest affecting the Company’s United States or international plants, distribution centers or other facilities in the future could materially disrupt the Company’s operations and result in an adverse impact on its financial condition, results of operations and cash flows, which could force the Company to reassess its strategic alternatives involving certain of its operations.


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The Company’s transformation to a marketing solutions partner increases the complexity of the Company’s business, and if the Company is unable to successfully adapt its business processes as required by these new markets, the Company will be at a competitive disadvantage and its ability to grow will be adversely affected.

As the Company expands its integrated marketing platform, the overall complexity of the Company’s business increases at an accelerated rate and the Company becomes subject to different market dynamics. The new markets into which the Company is expanding, or may expand, may have different characteristics from the markets in which the Company historically competed. These different characteristics may include, among other things, demand volume requirements, demand seasonality, product generation development rates, client concentrations and performance and compatibility requirements. The Company’s failure to make the necessary adaptations to its business model to address these different characteristics, complexities and new market dynamics could adversely affect the Company’s operating results.

The Company may not be able to reduce costs and improve its operating efficiency rapidly enough to meet market conditions.

Because the markets in which the Company competes are highly competitive, the Company will need to continue to improve its operating efficiency in order to maintain or improve its profitability. There can be no assurance that the Company’s continuing cost reduction efforts will continue to be beneficial to the extent anticipated, or that the estimated productivity, cost savings or cash flow improvements will be realized as anticipated or at all. If the Company’s efforts are not successful, it could have an adverse effect on the Company’s operations and competitive position. In addition, the need to reduce ongoing operating costs have and, in the future, may continue to result in significant up-front costs to reduce workforce, close or consolidate facilities, or upgrade equipment and technology.

Changes in postal rates, postal regulations and postal services may adversely impact clients’ demand for print products and services.

Postal costs are a significant component of the cost structures of many of the Company’s clients and potential clients. Postal rate changes and USPS regulations that result in higher overall costs can influence the volume that these clients will be willing to print and ultimately send through the USPS.

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 decreased operational costs 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.

The USPS offers “work-share” discounts that provide incentives to co-mail and place product as far down the mail-stream as possible. Discounts are earned as a result of less handling of the mail, and therefore, lower costs for the USPS. As a result, the Company has made substantial investments in co-mailing technology and equipment to ensure clients benefit from these discounts. As the USPS reacts to its financial difficulties, it often revises design standards for mail entering its system. These design standards often increase costs for clients and, in turn, decrease the value of the cost reductions that the Company’s co-mailing services provide. If the incentives to co-mail are decreased by USPS regulations, the overall cost to mail printed products will increase and may result in print volumes declining.

Federal statute requires the Postal Regulatory Commission (“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 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
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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 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.

The Company may suffer a data-breach of sensitive information, ransomware attack or other cyber incident. If the Company’s efforts to protect the security of information or systems are unsuccessful, any such failure may result in costly government enforcement actions and/or private litigation, and the Company’s business and reputation could suffer.

The Company and its clients are subject to various United States and foreign cyber-security laws, which require the Company to maintain adequate protections for electronically held information. The Company may not be able to anticipate techniques used to gain access to the Company’s systems or facilities, the systems of the Company’s clients or vendors, or implement adequate prevention measures. Moreover, unauthorized parties may attempt to access the Company’s systems or facilities, or the systems of the Company’s clients or vendors, through fraud or deception. In the event and to the extent that a data breach, ransomware attack or other cyber incident occurs, such breach could have an adverse effect on the Company’s business and results of operations. Complying with these various laws could cause the Company to incur substantial costs or require changes to the Company’s business practices in a manner adverse to the Company’s business.

Negative publicity could have an adverse impact on the Company’s business.

Unfavorable publicity, whether accurate or not, related to the Company or the Company’s executive management team, employees, board of directors, operations, business or prospects, or to the Quadracci family shareholders of the Company, could negatively affect the Company’s reputation, stock price, ability to attract new clients from growth vertical industries, ability to attract and retain high-quality talent, or the performance of the Company’s business.

In addition, there has been a substantial increase in the use of social media platforms, including blogs, social media websites, and other forms of internet-based and mobile communications, which allow individuals access to a broad audience of consumers and other interested persons. Many social media platforms immediately publish the content their subscribers’ and participants’ post, often without filters or checks on accuracy of the content posted. Information or commentary posted on such platforms at any time may be adverse to the Company’s interests or may be inaccurate, each of which may harm the Company’s reputation, business or prospects. The harm may be immediate without affording the Company an opportunity for redress or correction.

Future declines in economic conditions may adversely affect the Company’s results of operations.

In general, demand for the Company’s products and services is highly related to general economic conditions in the markets the Company’s clients serve. Declines in economic conditions in the United States or in other countries in which the Company operates, including as a result of the continuing COVID-19 pandemic, may adversely impact the Company’s financial results, and these impacts may be material. Because such declines in demand are difficult to predict, the Company or the industry may have increased excess capacity as a result. An increase in excess capacity has resulted, and may continue to result, in declines in prices for the Company’s products and services. In addition, a prolonged decline in the global economy and an uncertain economic outlook, including as a result of the COVID-19 pandemic, has and could further reduce the demand in the printing industry. Economic weakness and constrained advertising spending have resulted, and may in the future result, in decreased revenue, operating margin, earnings and growth rates and difficulty in managing inventory levels and collecting accounts receivable. The Company has experienced, and expects to experience in the future, excess capacity and lower demand due to economic factors affecting consumers’ and businesses’ spending behavior, including as a result of the continuing COVID-19 pandemic. Uncertainty about future economic conditions makes it difficult for the Company to predict results of operations, financial position and cash flows and to make strategic decisions regarding the allocation and deployment of capital.
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The Company’s business depends substantially on client contract renewals and/or client retention. Any contract non-renewals, renewals on different terms and conditions or decline in the Company’s client retention or expansion could materially adversely affect the Company’s results of operations, financial condition and cash flows.

The Company has historically derived a significant portion of its revenue from long-term contracts with significant clients. If the Company loses significant clients (including as a result of reduced demand for a client’s products or services), is unable to renew such contracts on similar terms and conditions, or at all, or is not awarded new long-term contracts with important clients in the future, its results of operations, financial condition and cash flows may be adversely affected.

The Company is exposed to risks of loss in the event of nonperformance by its clients. Some of the Company’s clients are highly leveraged or otherwise subject to their own operating and regulatory risks. Even if the Company’s credit review and analysis mechanisms work properly, the Company may experience financial losses and loss of future business if its clients become bankrupt, insolvent or otherwise are unable to pay the Company for its work performed, including as a result of the continuing COVID-19 pandemic. Any increase in the nonpayment or nonperformance by clients could adversely affect the Company’s results of operations and financial condition.

Certain industries in which the Company’s clients operate are experiencing consolidation. When client consolidation occurs, it is possible that the volume of work performed by the Company for a client after the consolidation will be less than it was before the consolidation or that the client’s work will be completely moved to competitors. In addition, new and enhanced technologies, including search, web and infrastructure computing services, digital content, and electronic devices, may affect clients. The internet facilitates competitive entry and comparison shopping, and the reliance on digital retailing may reduce clients’ volume. Any such reduction or loss of work could adversely affect the Company’s results of operations and financial condition.

The fragility of and decline in overall distribution channels may adversely impact clients’ access to cost effective distribution of their advertising materials, and therefore may adversely impact the Company’s business.

The distribution channels of print products and services, including the newspaper industry, face significant competition from other sources of news, information and entertainment content delivery. If overall distribution channels, including newspaper distribution channels, continue to decline, the Company’s clients may be adversely impacted by the lack of access to cost effective distribution of their advertising materials. In turn, this decline in cost effective distribution channels may force clients to use other avenues of distribution that may be at significantly higher cost, which may decrease demand for the Company’s products and services, and thus adversely affect the Company’s financial condition, results of operations and cash flows.

If the Company fails to identify, manage, complete and integrate acquisitions, investment opportunities or other significant transactions, as well as identify and execute strategic divestitures, it may adversely affect the Company’s future results and ability to implement its business strategy.

The Company may pursue acquisitions of, investment opportunities in, or other significant transactions with, companies that are complementary to the Company’s business, as well as divestitures of businesses, product lines or other assets. In order to pursue this strategy successfully, the Company must identify attractive acquisition or investment opportunities, successfully complete the transaction, some of which may be large and complex, and manage post-closing issues such as integration of the acquired company or employees. The Company may not be able to identify or complete appealing acquisition or investment opportunities given the intense competition for these transactions. Even if the Company identifies and completes suitable corporate transactions, the Company may not be able to successfully address inherent risks in a timely manner, or at all. These inherent risks include, among other things: failure to achieve all or any projected synergies, performance targets or other anticipated benefits of the acquisition, investment or divestiture; failure to successfully integrate the purchased operations, technologies, products or services and maintain uniform standard controls, policies and procedures; substantial unanticipated integration costs; loss of key employees, including those of an acquired business; diversion of management’s attention from other business concerns; failure to retain the clients of the acquired business; additional debt and/or assumption of known or unknown liabilities; potential dilutive issuances of equity securities; and a write-off of goodwill, client lists, other intangibles and amortization of expenses. If the Company
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fails to successfully integrate an acquisition, the Company may not realize all or any of the anticipated benefits of the acquisition, and the Company’s future results of operations could be adversely affected.

In addition, the acceleration of the Company’s transformation to a marketing solutions partner is partially dependent upon the Company’s continued ability to identify and execute strategic divestiture opportunities to generate cash and related benefits. There can be no assurance whether the strategic benefits and expected financial impact of any divestitures will be achieved.

There are additional risks associated with the Company’s operations outside of the United States.

Net sales from the Company’s wholly-owned subsidiaries outside of the United States accounted for approximately 11% and 10% of its consolidated net sales for the years ended December 31, 2021 and 2020, respectively.

As a result, the Company is subject to the risks inherent in conducting business outside of the United States, including, but not limited to: the impact of economic and political instability; fluctuations in currency values, foreign-currency exchange rates, devaluation and conversion restrictions; exchange control regulations and other limits on the Company’s ability to import raw materials or finished product; tariffs and other trade barriers; trade restrictions and economic embargoes by the United States or other countries; health concerns regarding infectious diseases (such as COVID-19), adverse weather or natural disasters; social unrest, acts of terrorism, force majeure, war or other armed conflicts; inflation and fluctuations in interest rates; language barriers; difficulties in staffing, training, employee retention and managing international operations; logistical and communications challenges; differing local business practices and cultural consideration; restrictions on the ability to repatriate funds; foreign ownership restrictions and the potential for nationalization or expropriation of property or other resources; longer accounts receivable payment cycles; potential adverse tax consequences and being subject to different legal and regulatory regimes that may preclude or make more costly certain initiatives or the implementation of certain elements of its business strategy.

Financial Risks

The Company may be required to make investments, including capital expenditures and in the development and implementation of new systems, client technology, product technology and marketing to sustain and grow its platforms and processes, in part to keep pace with industry developments and client expectations, and to remain technologically and economically competitive, which may increase its costs, reduce its profits, disrupt its operations or adversely affect its ability to implement its business strategy.

The printing and marketing services industries are experiencing rapid change as new digital technologies are developed that offer clients an array of choices for their marketing and publication needs. In order to remain competitive, the Company will need to adapt to future changes, especially with regard to technology, to enhance the Company’s existing offerings and introduce new offerings to address the changing demands of clients. In order to remain technologically and economically competitive, the Company may need to make significant capital expenditures and other investments as it develops and continues to maintain its platforms and processes, and to develop and integrate new technologies. In order to accomplish this effectively, the Company will need to deploy its resources efficiently, maintain effective cost controls and bear potentially significant market and raw material risks. If the Company’s revenues decline, it may impact the Company’s ability to expend the capital necessary to develop and implement new technology and be economically competitive. Debt or equity financing, or cash generated from operations, may not be available or sufficient for these requirements or for other corporate purposes or, if debt or equity financing is available, it may not be on terms favorable to the Company. In addition, even if capital is available to the Company, there is risk that the Company’s vendors will have discontinued the production of parts needed for repairs, replacements or improvements to the Company’s existing platforms, leading the Company to expend more capital than expected to perform such repairs, replacements or improvements. The Company’s business and operating results may be adversely affected if the Company is unable to keep pace with relevant technological and industry changes or if the technologies or business strategies that the Company adopts or services it promotes do not receive widespread market acceptance.

If the Company is unable to make the capital expenditures and other investments necessary to adapt to industry and technological developments, the Company may experience a decline in demand for its services, be unable to
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implement its business strategy and its business operating results may be adversely affected. Additionally, if the Company is unable to meet future challenges from competing technologies on a timely basis or at an acceptable cost, the Company could lose clients to competitors. In general, the development of new communication channels inside and outside the printing and media solutions industry requires the Company to anticipate and respond to the varied and continually changing demands of clients. The Company may not be able to accurately predict technological trends or the success of new services in the market.

The Company’s debt facilities include various covenants imposing restrictions that may affect the Company’s ability to operate its business.

On September 1, 1995, and as last amended on November 24, 2014, the Company entered into a senior secured note agreement (the “Master Note and Security Agreement”) pursuant to which the Company has issued over time senior notes in an aggregate principal amount of $1.1 billion in various tranches. As of December 31, 2021, the borrowings outstanding under the Master Note and Security Agreement were $7.2 million. On April 28, 2014, and as last amended on November 2, 2021, the Company entered into a senior secured credit facility (the “Senior Secured Credit Facility,”) which includes two different loan facilities: a $825.0 million Term Loan A and a $432.5 million revolving credit facility. As a result of the November 2, 2021 amendment to the Senior Secured Credit Facility, the Term Loan A and revolving credit facility were both broken into two separate maturity dates. Borrowing from lenders who elected to not extend the maturity date will mature on January 31, 2024, whereas borrowing from lenders who elected to extend the maturity date will now mature on November 2, 2026. As of December 31, 2021, the borrowings outstanding under the Senior Secured Credit Facility were $575.4 million. On April 28, 2014, the Company issued $300.0 million aggregate principal amount of its unsecured 7.0% senior notes due May 1, 2022 (“Senior Unsecured Notes,”), of which $211.5 million remained outstanding as of December 31, 2021.

The Company’s various lending arrangements include certain financial covenants. In addition to the financial covenants, the debt facilities also include certain limitations on acquisitions, indebtedness, liens, dividends and repurchases of capital stock. As of December 31, 2021, the Company was in compliance with all financial covenants in its debt agreements. 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. The Company’s failure to maintain compliance with the covenants could prevent the Company from borrowing additional amounts and could result in a default under any of the debt agreements. Such default could cause the outstanding indebtedness to become immediately due and payable, by virtue of cross-acceleration or cross-default provisions.

The Company may be adversely affected by interest rates, particularly floating interest rates, and foreign exchange rates.

As of December 31, 2021, 24% of the Company’s borrowings were subject to variable interest rates. As a result, the Company is exposed to market risks associated with fluctuations in interest rates, and increases in interest rates could adversely affect the Company.

The Company currently holds two interest rate swap contracts. The purpose of entering into these contracts is to reduce the variability of cash flows from interest payments related to a portion of the Company’s variable-rate debt. The swaps convert the notional value of the Company’s variable rate debt based on one-month London Interbank Offered Rate (“LIBOR”) to a fixed rate, including a spread on underlying debt, and a monthly reset in the variable interest rate.

Because a portion of the Company’s operations are outside of the United States, significant revenues and expenses are denominated in local currencies. Although operating in local currencies may limit the impact of currency rate fluctuations on the results of operations of the Company’s non-United States subsidiaries and business units, fluctuations in such rates may affect the translation of these results into the Company’s consolidated financial statements. To the extent revenues and expenses are not in the applicable local currency, the Company may enter into foreign exchange forward contracts to hedge the currency risk. There can be no assurance, however, that the Company’s efforts at hedging will be successful. There is always a possibility that attempts to hedge currency risks will lead to greater losses than predicted.
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The Company’s revenue, operating income from continuing operations and cash flows are subject to cyclical and seasonal variations.

The Company’s business is seasonal, with the Company recognizing the majority of its operating income from continuing operations in the third and fourth quarters of the financial year, primarily as a result of the increased magazine advertising page counts and retail inserts and catalogs from back-to-school and holiday-related advertising and promotions. The fourth quarter is typically the highest seasonal quarter for cash flows from operating activities and Free Cash Flow due to the reduction of working capital requirements that reach peak levels during the third quarter. If the Company does not successfully manage the increased workflow, necessary increases in paper and ink inventory, production capacity flows and other business elements during these high seasons of activity, this seasonality could adversely affect the Company’s cash flows and results of operations.

An other than temporary decline in operating results and enterprise value could lead to non-cash impairment charges due to the impairment of property, plant and equipment, goodwill and other intangible assets.

The Company has a material amount of property, plant, equipment, goodwill and other intangible assets on its balance sheet, due in part to acquisitions. As of December 31, 2021, the Company had the following long-lived assets on its consolidated balance sheet included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K: (a) property, plant and equipment of $727.0 million; (b) goodwill of $86.4 million; and (c) other intangible assets, primarily representing the value of customer relationships acquired, of $75.3 million.

As of December 31, 2021, these assets represented approximately 47% of the Company’s total assets. The Company assesses impairment of property, plant and equipment, goodwill and other intangible assets based upon the expected future cash flows of the respective assets. These valuations include management’s estimates of sales, profitability, cash flow generation, capital structure, cost of debt, interest rates, capital expenditures and other assumptions. A decline in expected profitability, significant negative industry or economic trends (including the negative impacts of the continuing COVID-19 pandemic), inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets or in entity structure, divestitures and discontinued operations may adversely impact the assumptions used in the valuations. As a result, the recoverability of these assets could be called into question, and the Company could be required to write down or write off these assets. Such an occurrence could have a material adverse effect on the Company’s results of operations and financial position.

The Company has significant liabilities with respect to defined benefit pension plans that could cause the Company to incur additional costs.

As a result of the 2010 acquisition of World Color Press, the Company assumed frozen single employer defined benefit pension plans for certain of its employees in the United States. The majority of the plans’ assets are held in North American and global equity securities and debt securities. The asset allocation as of December 31, 2021, was approximately 26% equity securities and 74% debt securities.

As of December 31, 2021, the Company had underfunded pension liabilities of $19.2 million for single employer defined benefit plans in the United States. Under current United States pension law, pension funding deficits are generally required to be funded over a seven-year period. These pension deficits may increase or decrease depending on changes in the levels of interest rates, pension plan investment performance, pension legislation and other factors. Declines in global debt and equity markets would increase the Company’s potential pension funding obligations. Any significant increase in the Company’s required contributions could have a material adverse impact on its business, financial condition, results of operations and cash flows.

In addition to the single employer defined benefit plans described above, the Company has previously participated in multiemployer pension plans (“MEPPs”) in the United States, including the Graphic Communications International Union - Employer Retirement Fund (“GCIU”) and the Graphic Communications Conference of the International Brotherhood of Teamsters National Pension Fund (“GCC”). Prior to the acquisition of World Color Press by the Company, World Color Press received notice that certain plans in which it participated were in critical status, as defined in Section 432 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). As a result,
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the Company could have been subject to increased contribution rates associated with these plans or other MEPPs suffering from declines in their funding levels. Due to the significantly underfunded status of the United States multiemployer plans and the potential increased contribution rates, the Company withdrew from participation in these multiemployer plans and has replaced these pension benefits with a Company-sponsored “pay as you go” defined contribution plan, which is historically the form of retirement benefit provided to the Company’s employees. As of December 31, 2021, the Company estimates and has recorded in its financial statements a pre-tax withdrawal liability for all United States MEPPs of $32.2 million in the aggregate. The Company is scheduled to make payments to the GCIU and GCC until April 2032 and February 2024, respectively.

The Company may not be able to utilize deferred tax assets to offset future taxable income.

As of December 31, 2021, the Company had deferred tax assets, net of valuation allowances, of $105.0 million. The Company expects to utilize the deferred tax assets to reduce consolidated income tax liabilities in future taxable years. However, the Company may not be able to fully utilize the deferred tax assets if its future taxable income and related income tax liability is insufficient to permit their use. In addition, in the future, the Company may be required to record a valuation allowance against the deferred tax assets if the Company believes it is unable to utilize them, which would have an adverse effect on the Company’s results of operations and financial position.

Legal and Regulatory Risks

The Company and its facilities are subject to various consumer protection and privacy laws and regulations, and will become subject to additional laws and regulations in the future. If the Company’s efforts to comply with such laws or protect the security of information are unsuccessful, any failure may subject the Company to material liability, require it to incur material costs or otherwise adversely affect its results of operations as a result of compliance with such laws, costly enforcement actions and private litigation.

The nature of the Company’s business includes the receipt and storage of information about the Company’s clients, vendors and the end-users of the Company’s products and services. The Company and its clients are subject to various United States and foreign consumer protection, information security, data privacy and “do not mail” requirements at the federal, states, provincial and local levels. The Company is subject to many legislative and regulatory laws and regulations around the world concerning data protection and privacy. In addition, the interpretation and application of consumer and data protection laws in the United States and elsewhere are often fluid and uncertain. To the extent that the Company or its clients become subject to additional or more stringent requirements or that the Company is not successful in its efforts to comply with existing requirements or protect the security of information, demand for the Company’s services may decrease and the Company’s reputation may suffer, which could adversely affect the Company’s results of operations. In addition, such laws may be interpreted and applied in a manner inconsistent with the Company’s internal policies. If so, the Company could suffer costly enforcement actions (including an order requiring changes to the Company’s data practices) and private litigation, which could have an adverse effect on the Company’s business and results of operations. Complying with these various laws could cause the Company to incur substantial costs or require changes to the Company’s business practices in a manner adverse to the Company’s business.

Unfavorable outcomes in legal proceedings could result in substantial costs and may harm the Company’s financial condition.

The Company’s financial condition may be affected by the outcome of pending and future litigation, claims, investigations, legal and administrative cases and proceedings, whether civil or criminal, or lawsuits by governmental agencies or private parties. Defending against any such claims, or any legal proceedings to which the Company is subject, can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on the Company’s liquidity and financial condition and/or cause significant reputational harm to the Company’s business.
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The Company may incur costs or suffer reputational damage due to improper conduct of its employees, contractors or agents under laws governing business practices, including the United States Foreign Corrupt Practices Act.

The Company could be adversely affected by engaging in business practices that are in violation of United States or foreign anti-corruption laws, including the United States Foreign Corrupt Practices Act. The Company operates in parts of the world with developing economies that have experienced governmental corruption to some degree, and in certain circumstances, strict compliance with anti-corruption laws may conflict with local customs and practices. In certain countries, the Company does substantial business with government entities or instrumentalities, which creates increased risk of a violation of the Foreign Corrupt Practices Act and international laws. There can be no assurance that all of the Company’s employees, contractors or agents, including those representing the Company in countries where practices which violate anti-corruption laws may be customary, will not take actions that violate the Company’s policies and procedures. The failure to comply with the laws governing international business practices may result in substantial penalties and fines.

Changes in the legal and regulatory environment could limit the Company’s business activities, increase its operating costs, reduce demand for its products or result in litigation.

The conduct of the Company’s businesses is subject to various laws and regulations administered by federal, state and local government agencies in the United States, as well as to foreign laws and regulations administered by government entities and agencies in markets in which the Company operates. These laws and regulations and interpretations thereof may change, sometimes dramatically, as a result of political, economic or social events, such as the election of the new administration. Such regulatory environment changes may include changes in taxation requirements, accounting and disclosure standards, immigration laws and policy, environmental laws, and requirements of United States and foreign occupational health and safety laws. Changes in laws, regulations or governmental policy and the related interpretations may alter the environment in which the Company does business, and therefore, may impact its results or increase its costs or liabilities.

In addition, the Company and its subsidiaries are party to a variety of legal and environmental remediation obligations arising in the normal course of business, as well as environmental remediation and related indemnification proceedings in connection with certain historical activities, former facilities and contractual obligations of acquired businesses. Permits are required for the operation of certain parts of the Company’s business, and these permits are subject to renewal, modification and, in some circumstances, revocation. Due to regulatory complexities, uncertainties inherent in litigation and the risk of unidentified contaminants on current and former properties, the potential exists for remediation, liability and indemnification costs to differ materially from the costs the Company has estimated. The Company cannot assure you that the Company’s costs in relation to these matters will not exceed its established liabilities or otherwise have an adverse effect on its results of operations.

Various laws and regulations addressing climate change are being considered at the federal and state levels. Proposals under consideration include limitations on the amount of greenhouse gas that can be emitted (so-called “caps”) together with systems of trading allowed emissions capacities. The impacts of such proposals could have a material adverse impact on the Company’s financial condition and results of operations.


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If QuadMed, a wholly-owned subsidiary of the Company, fails to comply with applicable healthcare laws and regulations, the Company could face substantial penalties, and its business, reputation, operations, prospects and financial condition of the Company’s subsidiary could be adversely affected.

QuadMed provides employer-sponsored healthcare solutions in the United States to employers of all sizes, including the Company and other private and public-sector companies. These solutions include, but are not limited to, on-site and near-site healthcare clinics, occupational health services, telemedicine, and health and wellness programs. The healthcare industry is heavily regulated, constantly evolving and subject to significant change and fluctuation. The United States federal and state healthcare laws and regulations that impact the QuadMed subsidiary business include, among others, those: (a) regarding privacy, security and transmission of individually identifiable health information; (b) prohibiting, among other things, soliciting, receiving or providing remuneration to induce the referral of an individual for an item or service or the purchasing or ordering of an item or service for which payment may be made under healthcare programs; (c) prohibiting, among other things, knowingly presenting or causing to be presented claims for payment from third-party payors that are false or fraudulent; and (d) prohibiting the corporate practice of medicine.

Risks Relating to Quad’s Common Stock

Holders of class A common stock are not able to independently elect directors of the Company or control any of the Company’s management policies or business decisions because the holders of class A common stock have substantially less voting power than the holders of the Company’s class B common stock, all of which is owned by certain members of the Quadracci family, trusts for their benefit or other affiliates of the Company, whose interests may be different from the holders of class A common stock.

The Company’s outstanding stock is divided into two classes of common stock: class A common stock (“class A stock”) and class B common stock (“class B stock”). The class B stock has ten votes per share on all matters and the class A stock is entitled to one vote per share. As of January 31, 2022, the class B stock constitutes approximately 76% of the Company’s total voting power. As a result, holders of class B stock are able to exercise a controlling influence over the Company’s business, have the power to elect its directors and indirectly control decisions such as whether to issue additional shares, declare and pay dividends or enter into corporate transactions. All of the class B stock is owned by certain members of the Quadracci family or trusts for their benefit, whose interests may differ from the interests of the holders of class A stock.

As of January 31, 2022, approximately 93% of the outstanding class B stock was held of record by the Quad Voting Trust, and that constitutes approximately 71% of the Company’s total voting power. The trustees of the Quad Voting Trust have the authority to vote the stock held by the Quad Voting Trust. Accordingly, the trustees of the Quad Voting Trust are able to exercise a controlling influence over the Company’s business, have the power to elect its directors and indirectly control decisions such as whether to issue additional shares, declare and pay dividends or enter into corporate transactions.

Furthermore, in response to recent public focus on dual class capital structures, certain stock index providers are implementing limitations on the inclusion of dual class share structures in their indices and certain institutional shareholder advisory firms are updating their voting guidelines to generally withhold support for directors of companies with dual class voting rights. If these restrictions increase or these guidelines are followed, they may impact who buys and holds the Company’s stock.

The Company is a controlled company within the meaning of the rules of the New York Stock Exchange (“NYSE”) and, as a result, it relies on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.

Since the Quad Voting Trust owns more than 50% of the total voting power of the Company’s stock, the Company is considered a controlled company under the corporate governance listing standards of the NYSE. As a controlled company, an exception under the NYSE listing standards exempts the Company from the obligation to comply with certain of the NYSE’s corporate governance requirements, including the requirements that (a) the Company have a corporate governance and nominating committee that is composed entirely of independent directors with a written
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charter addressing the committee’s purpose and responsibilities; and (b) the Company have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

Accordingly, for so long as the Company is a controlled company, holders of class A stock may not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the NYSE.

Currently, there is a limited active market for Quad’s class A common stock and, as a result, shareholders may be unable to sell their class A common stock without losing a significant portion of their investment.

The Company’s class A stock has been traded on the NYSE under the symbol “QUAD” since July 6, 2010. However, there is currently a limited active market for the class A common shares. The Company cannot predict the extent to which investor interest in the Company will lead to the development of a more active trading market for its class A common stock on the NYSE or how liquid that market will become. If a more active trading market does not develop, shareholders may have difficulty selling any class A stock without negatively affecting the stock price, and thereby, losing a significant portion of their investment.

Item 1B.    Unresolved Staff Comments

The Company has no unresolved staff comments to report pursuant to this item.

Item 2.    Properties

Quad’s corporate office is located in Sussex, Wisconsin. The Company owned or leased 110 facilities located in 14 countries including manufacturing operations, warehouses and office space totaling approximately 19,320,000 square feet, of which approximately 13,419,000 is owned space and approximately 5,901,000 is leased space as of December 31, 2021. In addition to these owned and leased facilities, the Company has more than 90 client-based marketing on-site locations, as well as investments in printing operations located in India and Brazil.

Within the United States Print and Related Services segment, the Company operated 37 owned or leased manufacturing facilities, encompassing approximately 15,241,000 square feet as of December 31, 2021. Within the International segment, the Company operated 8 owned or leased manufacturing facilities, encompassing approximately 1,829,000 square feet as of December 31, 2021. The following table lists the Company’s operating locations with manufacturing facilities totaling over 500,000 square feet as of December 31, 2021:

Locations Square Feet Property Type Segment
Lomira, Wisconsin, United States 2,174,000  Owned United States Print and Related Services
Sussex, Wisconsin, United States 1,971,000  Owned United States Print and Related Services
Martinsburg, West Virginia, United States 1,740,000  Owned United States Print and Related Services
Hartford, Wisconsin, United States 1,682,000  Owned United States Print and Related Services
Saratoga Springs, New York, United States 1,034,000  Owned United States Print and Related Services
West Allis, Wisconsin, United States 913,000  Leased United States Print and Related Services
The Rock, Georgia, United States 797,000  Owned United States Print and Related Services
Wyszkow, Poland 709,000  Owned International
Effingham, Illinois, United States 564,000  Owned United States Print and Related Services
Merced, California, United States 539,000  Owned United States Print and Related Services

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Item 3.    Legal Proceedings

The Company is subject to various legal actions, administrative proceedings and claims arising out of the ordinary course of business. The Company believes that such unresolved legal actions, proceedings and claims will not materially adversely affect its results of operations, financial condition or cash flows. For additional information, see Note 11, “Commitments and Contingencies — Litigation,” to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.

Item 4.    Mine Safety Disclosures

Not applicable.

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PART II

Item 5.    Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Capital Stock and Dividends

Quad’s authorized capital stock consists of 105.0 million shares of class A stock, 80.0 million shares of class B stock, 20.0 million shares of class C common stock and 0.5 million shares of preferred stock. The Company’s outstanding capital stock as of December 31, 2021, consisted of 40.8 million shares of class A stock, 13.5 million shares of class B stock and no shares of class C common stock or preferred stock. As of January 31, 2022, there were 2,226 record holders of the class A stock and 21 record holders of the class B stock.

The Company’s class A stock is listed on the NYSE under the symbol “QUAD”. The class A stock is entitled to one vote per share. The Company’s class B stock is held by certain members of the Quadracci family or trusts for their benefit (and can only be voluntarily transferred to the Company or to a member of the Quadracci “family group” as defined in the Company’s Articles of Incorporation; and any transfer in violation of the Company’s Articles of Incorporation results in the automatic conversion of such class B stock into class A stock). The class B stock is entitled to ten votes per share. Each share of class B stock may, at the option of the holder, be converted at any time into one share of class A stock. There is no public trading market for the class B stock.

The Company paid a dividend for each class of common stock then outstanding during the first quarter of 2020. Due to uncertainty in client demand as a result of the COVID-19 pandemic, the Company’s Board of Directors proactively suspended the Company’s quarterly dividends beginning in the second quarter of 2020. However, the Company remains committed to paying a dividend over the long term and will seek to resume a dividend following the stabilization of its operating environment.

Pursuant to the Company’s Articles of Incorporation, each outstanding class of common stock has equal rights with respect to cash dividends. Pursuant to the Company’s debt facilities, the Company is subject to limitations on dividends and repurchases of capital stock. If the Company’s Total Leverage Ratio is greater than 2.75 to 1.00, as defined in the Company’s Senior Secured Credit Facility, last amended on November 2, 2021, (see Note 12. “Debt,” for more details on the amendment), 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.

Securities Authorized For Issuance Under Equity Compensation Plans

See Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” of this Annual Report on Form 10-K for certain information regarding the Company’s equity compensation plans.

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Information about the Company’s repurchases of its class A common stock during the three months ended December 31, 2021, was as follows:
Issuer Purchases of Equity Securities
Period
Total Number of Shares Purchased(1)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)
Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(2)
October 1, 2021 to October 31, 2021 —  —  —  $ 100,000,000 
November 1, 2021 to November 30, 2021 —  —  —  100,000,000 
December 1, 2021 to December 31, 2021 — 

—  —  100,000,000 
Total —  — 
______________________________
(1)Represents shares of the Company’s class A common stock.
(2)On July 30, 2018, the Company’s Board of Directors authorized a share repurchase program of up to $100.0 million of the Company’s outstanding class A common stock. Under the authorization, share repurchases may be made at the Company’s discretion, from time to time, in the open market and/or in privately negotiated transactions as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchase will depend on economic and market conditions, share price, trading volume, applicable legal requirements and other factors. The program may be suspended or discontinued at any time. There were no shares of the Company’s class A stock repurchased during the years December 31, 2021 and 2020. As of December 31, 2021, there were $100.0 million of authorized repurchases remaining under the program.

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Item 7.    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 three years in the period ended December 31, 2021, 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.

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. This discussion and analysis is organized as follows:

Overview. This section includes a general description of the Company’s business and segments, an overview of key performance metrics the Company’s management measures and utilizes to evaluate business performance, and an overview of trends affecting the Company, including management’s actions related to the trends.

Results of Operations. This section contains an analysis of the Company’s results of operations by comparing the results for the 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 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. This section also provides a discussion of EBITDA and EBITDA margin, financial measures that the Company uses to assess the performance of its business that are not prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Liquidity and Capital Resources. This section provides an analysis of the Company’s capitalization, cash flows and a discussion and table of outstanding debt and commitments. Forward-looking statements important to understanding the Company’s financial condition are included in this section. This section also provides a discussion of Free Cash Flow and Debt Leverage Ratio, non-GAAP financial measures that the Company uses to assess liquidity and capital allocation and deployment.

Critical Accounting Policies and Estimates. This section contains a discussion of the accounting policies that the Company’s management believes are important to the Company’s financial condition and results of operations, as well as allowances and reserves that require significant judgment and estimates on the part of the Company’s management. 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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Overview

Business Overview

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. With
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.

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 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 retail inserts, publications, catalogs, special interest publications, journals, direct mail, directories, in-store marketing and promotion, packaging, newspapers, custom print products, other commercial and specialty printed products and global paper procurement, together with marketing and other complementary services, including consumer insights, audience targeting, personalization, media planning and placement, process optimization, campaign planning and creation, pre-media production, videography, photography, digital execution, print execution and logistics. This segment also includes the manufacture of ink. 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 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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Key Performance Metrics Overview

The Company’s management believes the ability to generate net sales growth, profit increases and positive cash flow, while maintaining the appropriate level of debt, are key indicators of the successful execution of the Company’s business strategy and will increase shareholder value. 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 (loss) attributable to Quad common shareholders 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. The Company uses period-over-period net sales growth as a key performance metric. The Company’s management assesses net sales growth based on the ability to generate increased net sales through increased sales to existing clients, sales to new clients, sales of new or expanded solutions to existing and new clients, and opportunities to expand sales through strategic investments, including acquisitions.

EBITDA and EBITDA margin. The Company uses EBITDA and EBITDA margin as metrics to assess operating performance. The Company’s management assesses EBITDA and EBITDA margin based on the ability to increase revenues while controlling variable expense growth.

Net cash provided by operating activities. The Company uses net cash provided by operating activities as a metric to assess liquidity. The Company’s management assesses net cash provided by operating activities based on the ability to meet recurring cash obligations while increasing available cash to fund debt service requirements, capital expenditures, cash restructuring requirements related to cost reduction activities, World Color Press single employer pension plan contributions, World Color Press MEPPs withdrawal liabilities, acquisitions and other investments in future growth, shareholder dividends and share repurchases. Net cash provided by operating activities can be significantly impacted by the timing of non-recurring or infrequent receipts or expenditures.

Free Cash Flow. The Company uses Free Cash Flow as a metric to assess liquidity and capital deployment. The Company’s management assesses Free Cash Flow as a measure to quantify cash available for strengthening the balance sheet (debt and pension liability reduction), for strategic capital allocation and deployment through investments in the business (acquisitions and strategic investments) and for returning capital to the shareholders (dividends and share repurchases). The Company’s priorities for capital allocation and deployment will change as circumstances dictate for the business, and Free Cash Flow can be significantly impacted by the Company’s restructuring activities and other unusual items.

Debt Leverage Ratio. The Company uses the Debt Leverage Ratio as a metric to assess liquidity and the flexibility of its balance sheet. Consistent with other liquidity metrics, the Company monitors the Debt Leverage Ratio as a measure to determine the appropriate level of debt the Company believes is optimal to operate its business, and accordingly, to quantify debt capacity available for strengthening the balance sheet (debt and pension liability reduction), for strategic capital allocation and deployment through investments in the business (capital expenditures, acquisitions and strategic investments), and for returning capital to the shareholders (dividends and share repurchases). The Company’s priorities for capital allocation and deployment will change as circumstances dictate for the business, and the Debt Leverage Ratio can be significantly impacted by the amount and timing of large expenditures requiring debt financing, as well as changes in profitability.

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The Company remains disciplined with its debt leverage. 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.

Overview of Trends Affecting Quad

As consumer media consumption habits change, marketing services providers face increased demand to offer end-to-end marketing services, from strategy and creative through execution, across all channels, traditional and digital. As new marketing and advertising channels emerge, marketing services providers must expand their services beyond traditional channels, such as for television, newspapers, print publications and radio, to digital channels, such as mobile, internet search, internet display and video, to create effective multichannel campaigns for their clients. This trend greatly influences Quad’s ongoing efforts to redefine the future of integrated marketing and create greater value for its clients who are looking for less complexity, greater transparency and accountability from their business partners.

The Company leverages its data-driven print expertise as part of an integrated marketing platform that helps its clients not only plan and produce marketing programs, but also deploy, manage and measure them across all media channels. Competition in the printing industry remains highly fragmented and intense, and the Company believes that there are indicators of heightened competitive pressures. The industry has excess manufacturing capacity created by continued declines in industry volumes, compounded by the COVID-19 pandemic, which, in turn, have created accelerated downward pricing pressures. The Company faces competition due to the increased accessibility and quality of digital alternatives to traditional delivery of printed documents through the online distribution and hosting of media content, and the digital distribution of documents and data. The Company faces competition from print management and marketing consulting firms that look to streamline processes and reduce the overall print spend of the Company’s clients.

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

The Company believes that a disciplined approach for capital management and a strong balance sheet are critical to be able to invest in profitable growth opportunities and technological advances, thereby providing the highest return for shareholders. Management balances the use of cash between deleveraging the Company’s balance sheet (through reduction in debt and pension obligations), compelling investment opportunities (through capital expenditures, acquisitions and strategic investments) and returns to shareholders (through 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. The Company has continued to evolve its manufacturing platform, equipping facilities to be product line agnostic, which enables the Company to maximize equipment utilization. Quad believes that the large plant size of certain of its key printing facilities allows the Company to drive savings in certain product lines (such as publications and catalogs) due to economies of scale and from investments in automation and technology. 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.

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.
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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 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 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 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 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.

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. 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. 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
41



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.
42



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 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)
105.2  3.6  % 78.9  1.58 
Interest expense (3)
N/A N/A 6.9  0.18 
Net pension income (4)
N/A N/A 3.0  0.05 
Loss on debt extinguishment (5)
N/A N/A 0.8  0.02 
Income taxes (6)
N/A N/A 29.1  0.55 
Loss from discontinued operations, net of tax (7)
N/A N/A 21.9  0.43 
Investments in unconsolidated entity and noncontrolling interests, net of tax (8)
N/A N/A 0.3  0.01 
Operating income (loss) from continuing operations (9)
9.1  0.3  % 6.8  0.07 
For the year ended December 31, 2021 $ 92.8  3.1  % $ 37.8  $ 0.71 
______________________________
(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.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;

b.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;

c.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;

d.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; and

e.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.

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(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 $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 $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
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 expense (benefit) at normalized tax rate 11.7  (26.6) 38.3 
Less: 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 

(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.


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Operating Results From Continuing Operations

The following table sets forth certain information from the Company’s consolidated statements of operations on an absolute dollar basis and as a relative percentage of total net sales for each noted period, together with the relative percentage change in such information between the periods set forth below:
Year Ended December 31,
2021 2020
(dollars in millions)
Amount % of Net
Sales
Amount % of Net
Sales
$ Change %
Change
Net sales:
Products $ 2,247.1  75.9  % $ 2,228.7  76.1  % $ 18.4  0.8  %
Services 713.3  24.1  % 700.9  23.9  % 12.4  1.8  %
Total net sales 2,960.4  100.0  % 2,929.6  100.0  % 30.8  1.1  %
Cost of sales:
Products 1,861.0  62.9  % 1,831.5  62.5  % 29.5  1.6  %
Services 528.9  17.9  % 503.3  17.2  % 25.6  5.1  %
Total cost of sales 2,389.9  80.8  % 2,334.8  79.7  % 55.1  2.4  %
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) %
Restructuring, impairment and transaction-related charges 18.9  0.6  % 124.1  4.2  % (105.2) (84.8) %
Total operating expenses 2,867.6  96.9  % 2,975.6  101.5  % (108.0) (3.6) %
Operating income (loss) from continuing operations $ 92.8  3.1  % $ (46.0) (1.6) % $ 138.8  nm

Net Sales

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 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.

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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 $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 $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.
46



Restructuring, Impairment and Transaction-Related Charges

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,
2021 2020 $ Change
Employee termination charges $ 9.9  $ 34.7  $ (24.8)
Impairment charges (a)
34.9  64.1  (29.2)
Transaction-related charges 0.6  1.4  (0.8)
Integration costs —  1.9  (1.9)
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 (b)
(24.8) (1.6) (23.2)
Other restructuring activities (c)
(23.1) 11.0  (34.1)
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 $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. $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.

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EBITDA and EBITDA Margin—Consolidated

EBITDA is defined as net earnings (loss) attributable to Quad common shareholders, excluding (1) interest expense, (2) income tax expense (benefit) and (3) depreciation and amortization. EBITDA margin represents EBITDA as a percentage of net sales. EBITDA and EBITDA margin are presented to provide additional information regarding Quad’s performance. Both are important measures by which Quad gauges the profitability and assesses the performance of its business. EBITDA and EBITDA margin are non-GAAP financial measures and should not be considered alternatives to net earnings (loss) as a measure of operating performance, or to cash flows provided by operating activities as a measure of liquidity. Quad’s calculation of EBITDA and EBITDA margin may be different from the calculations used by other companies, and therefore, comparability may be limited.

EBITDA and EBITDA margin for the year ended December 31, 2021, compared to the year ended December 31, 2020, were as follows:
Year Ended December 31,
2021 2020
Amount % of Net Sales Amount % of Net Sales
(dollars in millions)
EBITDA and EBITDA margin (non-GAAP) $ 264.2  8.9  % $ 122.4  4.2  %

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; 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) $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.

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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,
2021 2020
(dollars in millions)
Net earnings (loss) attributable to Quad common shareholders(1)
$ 37.8  $ (128.3)
Interest expense 59.6  68.8 
Income tax expense 9.5  0.3 
Depreciation and amortization 157.3  181.6 
EBITDA (non-GAAP) $ 264.2  $ 122.4 
______________________________
(1)Net earnings (loss) attributable to Quad common shareholders included the following:
a.Restructuring, impairment and transaction-related charges of $18.9 million and $124.1 million for the years ended December 31, 2021 and 2020, respectively;
b.Gains from sale and leaseback of $24.5 million for the year ended December 31, 2021;
c.Net pension income of $14.5 million and $10.5 million for the years ended December 31, 2021 and 2020, respectively;
d.Loss on debt extinguishment of $0.7 million and $1.8 million for the years ended December 31, 2021 and 2020, respectively;
e.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;
f.Loss from discontinued operations, net of tax, of $21.9 million for the year ended December 31, 2020; and
g.Net loss attributable to noncontrolling interests of $0.2 million for the year ended December 31, 2020.

United States Print and Related Services

The following table summarizes net sales, operating income from continuing operations, operating margin and certain items impacting comparability within the United States Print and Related Services segment:
Year Ended December 31,
2021 2020
(dollars in millions)
Amount Amount $ Change % Change
Net sales:
Products $ 1,935.8  $ 1,944.0  $ (8.2) (0.4) %
Services 692.8  683.6  9.2  1.3  %
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) %

Net Sales

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 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. 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 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,
2021 2020 $ Change
Employee termination charges $ 8.2  $ 30.0  $ (21.8)
Impairment charges (a)
2.8  64.0  (61.2)
Transaction-related charges —  0.1  (0.1)
Integration costs —  1.9  (1.9)
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 (b)
(24.8) (1.6) (23.2)
Other restructuring activities (c)
(22.1) 3.1  (25.2)
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 $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 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 $2.9 million loss on the sale of a business during the years ended December 31, 2021 and 2020, respectively.

International

The following table summarizes net sales, operating income from continuing operations, operating margin, certain items impacting comparability and equity in loss of unconsolidated entities within the International segment:
Year Ended December 31,
2021 2020
(dollars in millions)
Amount Amount $ Change % Change
Net sales:
Products $ 311.3  $ 284.7  $ 26.6  9.3  %
Services 20.5  17.3  3.2  18.5  %
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 (earnings) loss of unconsolidated entity (0.3) 0.2  (0.5) 250.0  %

Net Sales

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

Restructuring, impairment and transaction-related charges for the International segment increased $19.1 million, or 156.6%, for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the following:
Year Ended December 31,
2021 2020 $ Change
Employee termination charges $ 1.2  $ 4.5  $ (3.3)
Impairment charges (a)
32.1  0.1  32.0 
Other restructuring charges (income) (b)
(2.0) 7.6  (9.6)
Total restructuring, impairment and transaction-related charges $ 31.3  $ 12.2  $ 19.1 
______________________________
(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. 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

As of December 31, 2021, the Company has no unrestricted subsidiaries as defined in the Senior Unsecured Notes indenture.

Corporate

The following table summarizes unallocated operating expenses presented as Corporate:
Year Ended December 31,
2021 2020
(dollars in millions)
Amount Amount $ Change % Change
Operating expenses (including restructuring, impairment and transaction-related charges) $ 54.2  $ 46.9  $ 7.3  15.6  %
Restructuring, impairment and transaction-related charges 2.1  1.8  0.3  16.7  %

Operating Expenses

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 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,
2021 2020 $ Change
Employee termination charges $ 0.5  $ 0.2  $ 0.3 
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 

Liquidity and Capital Resources

The Company utilizes cash flows from operating activities and borrowings under its credit facilities to satisfy its liquidity and capital requirements. The Company had total liquidity of $576.6 million as of December 31, 2021, which consisted of up to $396.7 million of unused capacity under its revolving credit arrangement, which was net of $35.8 million of issued letters of credit, and cash and cash equivalents of $179.9 million. Total liquidity is reduced to $314.6 million under the Company’s most restrictive debt covenants, and consists of $179.9 million in cash and cash equivalents and $134.7 million available under its revolving credit arrangement. 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 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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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 $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 $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 $118.9 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; (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 $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.

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

Free Cash Flow is a non-GAAP financial measure and should not be considered an alternative to cash flows provided by operating activities as a measure of liquidity. Quad’s calculation of Free Cash Flow may be different from similar calculations used by other companies, and therefore, comparability may be limited.

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Free Cash Flow for the years ended December 31, 2021 and 2020, was as follows:
Year Ended December 31,
2021 2020
(dollars in millions)
Net cash provided by operating activities $ 136.5  $ 190.2 
Less: purchases of property, plant and equipment (50.0) (61.0)
Free Cash Flow (non-GAAP) $ 86.5  $ 129.2 

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

The Debt Leverage Ratio is defined as total debt and finance lease obligations less cash and cash equivalents (Net Debt) divided by the trailing twelve months Adjusted EBITDA, comprised of the sum of the following: (1) the last twelve months of EBITDA (see the definition of EBITDA and the reconciliation of net earnings (loss) attributable to Quad common shareholders to EBITDA in the “Results of Operations” section above); (2) restructuring, impairment and transaction-related charges; (3) earnings (loss) from discontinued operations, net of tax; (4) net pension income; (5) gain from sale and leaseback; (6) (gain) loss on debt extinguishment; (7) equity in (earnings) loss of unconsolidated entity; (8) Adjusted EBITDA for unconsolidated equity method investments (calculated in a consistent manner with the calculation for Quad); and (9) net earnings (loss) attributable to noncontrolling interests.

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 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.

The Debt Leverage Ratio is a non-GAAP measure, and should not be considered an alternative to cash flows provided by operating activities as a measure of liquidity. Quad’s calculation of the Debt Leverage Ratio may be different from similar calculations used by other companies and, therefore, comparability may be limited.

The Debt Leverage Ratio calculated below differs from the Total Leverage Ratio, the Total Net Leverage Ratio and Senior Secured Leverage Ratio included in the Company’s debt covenant calculations (see Note 12, “Debt,” to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K for further information on debt covenants). The Total Leverage Ratio included in the Company’s debt covenants includes interest rate swap liabilities, letters of credit and surety bonds as debt, excludes non-cash stock-based compensation expense from EBITDA and includes net income (loss) attributable to noncontrolling interests in EBITDA. The Total Net Leverage Ratio includes and excludes the same adjustments as the Total Leverage Ratio, in addition to netting domestic unrestricted cash with debt. Similarly, the Senior Secured Leverage Ratio includes and excludes the same adjustments as the Total Leverage Ratio, in addition to the exclusion of the outstanding balance of the Senior Unsecured Notes and surety bonds from debt and netting domestic unrestricted cash with debt.
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The Debt Leverage Ratio as of December 31, 2021 and 2020, was as follows:
December 31, 2021 December 31, 2020
(dollars in millions)
Total debt and finance lease obligations on the consolidated balance sheets $ 803.7  $ 928.2 
Less: Cash and cash equivalents 179.9  55.2 
Net Debt (non-GAAP) $ 623.8  $ 873.0 
Divided by: Adjusted EBITDA for the year ended (non-GAAP) $ 246.0  $ 260.4 
Debt Leverage Ratio (non-GAAP) 2.54  x 3.35  x

The calculation of Adjusted EBITDA for the years ended December 31, 2021 and 2020, was as follows:
Year Ended December 31,
2021 2020
(dollars in millions)
Net earnings (loss) attributable to Quad common shareholders $ 37.8  $ (128.3)
Interest expense 59.6  68.8 
Income tax expense 9.5  0.3 
Depreciation and amortization 157.3  181.6 
EBITDA (non-GAAP) $ 264.2  $ 122.4 
Restructuring, impairment and transaction-related charges 18.9  124.1 
Loss from discontinued operations, net of tax —  21.9 
Net pension income (14.5) (10.5)
Gains from sale and leaseback (24.5) — 
Loss on debt extinguishment 0.7  1.8 
Other (1)
1.2  0.7 
Adjusted EBITDA (non-GAAP) $ 246.0  $ 260.4 
______________________________
(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 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.

Description of Significant Outstanding Debt Obligations as of December 31, 2021

As of December 31, 2021, the Company utilized a combination of debt instruments to fund cash requirements, including the following:

Senior Secured Credit Facility:

$432.5 million revolving credit facility (no outstanding balance as of December 31, 2021); and

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$825.0 million Term Loan A ($575.4 million outstanding as of December 31, 2021);

Senior Unsecured Notes ($211.5 million outstanding as of December 31, 2021); and

Master Note and Security Agreement ($7.2 million outstanding as of December 31, 2021).

Senior Secured Credit Facility

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 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 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; (c) make certain adjustments to pricing such as the addition of a 0.75% LIBOR floor; 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. The Senior Secured Credit Facility also requires the Company to provide additional collateral to the lenders in certain limited circumstances.

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, of which $211.5 million is outstanding as of December 31, 2021. The Senior Unsecured Notes bear interest at 7.0%, and interest is payable semi-annually. 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.

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 completed primarily to reduce interest expense.

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Each of the Company’s existing and future domestic subsidiaries that is a borrower or guarantees indebtedness under the Company’s Senior Secured Credit Facility or that guarantees certain of the Company’s other indebtedness or indebtedness of the Company’s restricted subsidiaries (other than intercompany indebtedness) fully and unconditionally guarantee or, in the case of future subsidiaries, will guarantee, on a joint and several basis, the Senior Unsecured Notes (the “Guarantor Subsidiaries”). All of the Guarantor Subsidiaries are 100% owned by the Company. Guarantor Subsidiaries will be automatically released from these guarantees upon the occurrence of certain events.

Master Note and Security Agreement

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. Principal payments commenced September 1997 and extend through April 2026 in various tranches. The notes are collateralized by certain United States press equipment under the terms of the Master Note and Security Agreement.

The Company redeemed $37.6 million of its senior notes under the Master Note and Security Agreement, at par (the outstanding principal balance as of the date of payment), during the year ended December 31, 2020. There was no direct gain or loss recognized as a result of the tender as all notes were redeemed at par; however, $0.2 million of unamortized debt issuance costs related to the tendered notes were recognized as a loss on debt extinguishment during the year ended December 31, 2020. All tendered senior notes under the Master Note and Security Agreement were canceled. The Company used cash flows from operating activities and borrowings under its revolving credit facility to fund the tender. The tender was primarily completed to reallocate debt to the lower interest rate revolving credit facility and thereby reduce interest expense based on the then current LIBOR rates.

Covenants and Compliance

The Company’s various lending arrangements include certain financial covenants (all financial terms, numbers and ratios are as defined in the Company’s debt agreements). Among these covenants, the Company was required to maintain the following as of December 31, 2021:

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 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).
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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, 2021, the Company’s Interest Coverage Ratio was 5.35 to 1.00).

The indenture underlying the Senior Unsecured Notes contains various covenants, including, but not limited to, covenants that, subject to certain exceptions, limit the Company’s and its restricted subsidiaries’ ability to incur and/or guarantee additional debt; pay dividends, repurchase stock or make certain other restricted payments; enter into agreements limiting dividends and certain other restricted payments; prepay, redeem or repurchase subordinated debt; grant liens on assets; enter into sale and leaseback transactions; merge, consolidate, transfer or dispose of substantially all of the Company’s consolidated assets; sell, transfer or otherwise dispose of property and assets; and engage in transactions with affiliates.

The Company was in compliance with all financial covenants in its debt agreements as of December 31, 2021. 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. The Company’s failure to maintain compliance with the covenants could prevent the Company from borrowing additional amounts and could result in a default under any of the debt agreements. Such default could cause the outstanding indebtedness to become immediately due and payable, by virtue of cross-acceleration or cross-default provisions.

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

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. The limitations described above are currently not applicable, as the Company’s Senior Secured Leverage Ratio was 1.68 to 1.00 and Total Net Leverage Ratio was 2.53 to 1.00, as of December 31, 2021.

Net Pension Obligations

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

Share Repurchase Program

On July 30, 2018, the Company’s Board of Directors authorized a share repurchase program of up to $100.0 million of the Company’s outstanding class A common stock. Under the authorization, share repurchases may be made at the Company’s discretion, from time to time, in the open market and/or in privately negotiated transactions as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchase will depend on economic and market conditions, share price, trading volume, applicable legal requirements and other factors. The program may be suspended or discontinued at any time.

There were no shares of the Company’s class A stock repurchased during the years December 31, 2021 and 2020. As of December 31, 2021, there were $100.0 million of authorized repurchases remaining under the program.

Risk Management

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, 2021, were as follows (in millions):
Payments Due by Period
Total 2022 2023 2024 2025 2026 Thereafter
Debt obligations(1)
$ 907.0  $ 277.4  $ 73.4  $ 164.2  $ 85.3  $ 306.7  $ — 
Operating lease obligations(2)
148.2  34.4  29.5  21.9  17.8  14.5  30.1 
MEPPs withdrawal obligations(3)
45.0  6.1  6.1  4.1  3.9  3.9  20.9 
Pension benefit obligations(4)
4.2  1.7  0.7  0.6  0.6  0.6  — 
Finance lease obligations(5)
3.4  1.9  0.8  0.4  0.3  —  — 
Purchase obligations(6)
21.4  14.9  2.9  2.1  1.3  0.2  — 
Total(7)(8)
$ 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 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.

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

(3)MEPPs withdrawal obligations include $12.8 million for anticipated future interest payments. See Note 16, “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 2026, the Company believes that an estimate beyond this period is unreasonable.

(5)Finance lease obligations include $0.2 million for anticipated future interest payments.

(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)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 $11.7 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. 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

The Company’s consolidated financial statements are prepared in accordance with GAAP. The Company’s most critical accounting policies are those that are most important to the portrayal of its financial condition and results of operations, and which require the Company to make its most difficult and subjective estimates. Management is required to make judgments and estimates that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the statements, and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The Company’s management believes that such judgments and estimates are made with consistent and appropriate methods based on information available at the time, and that any reasonable deviation from those judgments and estimates would not have a material impact on the Company’s consolidated financial position or results of operations. Actual results may differ from these estimates under different assumptions or conditions. To the extent that the estimates used differ from actual results, adjustments to the consolidated statements of operations and corresponding consolidated balance sheets would be necessary. These adjustments would be made in future statements.

The Company has identified the following as its critical accounting policies and estimates.

Revenue Recognition

Performance Obligations

At contract inception, the Company assesses the products and services promised in its contracts with customers and identifies performance obligations for each promise to transfer to the customer a product or service that is distinct. To identify the performance obligations, the Company considers the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. The Company determined that the following distinct products and services represent separate performance obligations:

Pre-Press Services
Print
Other Services

For Pre-Press and Other Services, the Company recognizes revenue at point-in-time upon completion of the performed service and acceptance by the customer. The Company considers transfer of control to occur once the service is performed as the Company has right to payment and the customer has legal title and risk and reward of ownership.

The Company recognizes its Print revenues upon transfer of title and the passage of risk of loss, which is point-in-time upon shipment to the customer, and when there is a reasonable assurance as to collectability. Revenues related to the Company’s logistics operations, which includes the delivery of printed material, are included in the Print performance obligation and are also recognized at point-in-time as services are completed. Revenues related to the Company’s imaging operations, which include digital content management, photography, color services and page production, are recognized in accordance with the terms of the contract, typically upon completion of the performed service and acceptance by the customer. Under agreements with certain customers, products may be stored by the Company for future delivery. In these situations, the Company may receive warehouse management fees for the services it provides.

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. No revenue is recognized for customer-supplied paper. Revenues for the Company-supplied paper are recognized on a gross basis. In some instances, the Company will
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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.

Significant Payment Terms

Payment terms and conditions for contracts with customers vary. The Company typically offers standard terms of net 30 days.  It is not the Company’s standard business practice to offer extended payment terms longer than one year. The Company may offer cash discounts or prepayment and extended terms depending on certain facts and circumstances. As such, when the timing of the Company’s delivery of products and services differs from the timing of payment, the Company will record either a contract asset or a contract liability.

Variable Consideration

When evaluating the transaction price, the Company analyzes on a contract by contract basis all applicable variable considerations and non-cash consideration and also performs a constraint analysis. The nature of the Company’s contracts give rise to variable consideration, including, volume rebates, credits, discounts, and other similar items that generally decrease the transaction price. These variable amounts generally are credited to the customer, based on achieving certain levels of sales activity, when contracts are signed, or making payments within specific terms.

Product returns are not significant because the products are customized; however, the Company accrues for the estimated amount of customer allowances at the time of sale based on historical experience and known trends.

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

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. 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. Considerable judgment is also applied in incorporating the potential impact of the current economic climate on customer demand and selling prices, the cost of production and the limited activity on secondary markets for the assets and on the cost of capital. When the estimated future undiscounted cash flows to be generated by the assets are less than the carrying value of the long-lived assets, the assets are written down to fair value and a charge is recorded to current operations. The Company uses internal discounted cash flow estimates, quoted market prices when available and independent appraisals, as appropriate, to determine fair value. 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 Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K for the definition of Level 3 inputs).

The Company classifies long-lived assets to be sold as held for sale in the period in which: (i) there is an approved plan to sell the asset and the Company is committed to that plan, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable, (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Assets held for sale are initially measured at the lower of the carrying value or the fair value less cost to sell. 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. 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.
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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.

The Company continues to monitor groups of assets to identify any new events or changes in circumstances that could indicate that their carrying values are not recoverable, particularly in light of potential declines in profitability that may result from the highly competitive industry landscape and continued uncertainty in the global economy. 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.

New Accounting Pronouncements

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

Summarized Financial Information of Subsidiary Guarantors Indebtedness

On April 28, 2014, Quad completed an offering of the Senior Unsecured Notes (see Note 12, “Debt,” for further details on the Senior Unsecured Notes). Each of the Company’s Guarantor Subsidiaries fully and unconditionally guarantee or, in the case of future subsidiaries, will guarantee, on a joint and several basis, the Senior Unsecured Notes. All of the current Guarantor Subsidiaries are 100% owned by the Company. Guarantor Subsidiaries will be automatically released from these guarantees upon the occurrence of certain events, including the following:

the designation of any of the Guarantor Subsidiaries as an unrestricted subsidiary;

the release or discharge of any guarantee or indebtedness that resulted in the creation of the guarantee of the Senior Unsecured Notes by any of the Guarantor Subsidiaries; or

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

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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.
Year Ended
Statement of Operations Financial Information December 31, 2021 December 31, 2020
Net sales $ 2,673.0  $ 2,660.6 
Cost of sales 2,156.2  2,114.4 
Gross Profit 516.8  546.2 
Net earnings (loss) from continuing operations 54.5  (106.5)
Loss from discontinued operations, net of tax —  (21.9)
Net earnings (loss) 54.5  (128.4)
Less: net earnings (loss) attributable to noncontrolling interests —  (0.2)
Net earnings (loss) attributable to Quad common shareholders $ 54.5  $ (128.2)
Balance Sheet Financial Information December 31, 2021 December 31, 2020
Total current assets $ 703.1  $ 580.0 
Total long-term assets 1,402.4  1,555.5 
Total current liabilities 843.6  598.1 
Total long-term liabilities 783.1  1,143.3 
Noncontrolling interests —  0.7 

Included in long-term assets in the table above are $0.9 million and $11.6 million of current intercompany loan receivables due to Quad from the Non-Guarantor Subsidiaries as of December 31, 2021 and 2020, respectively. Also included in long-term assets are $435.1 million and $428.8 million of intercompany investments by Quad and the Guarantor Subsidiaries in the Non-Guarantor Subsidiaries. Included in current liabilities are $3.3 million and $2.9 million of current intercompany payables due to the Non-Guarantor Subsidiaries from Quad and the Guarantor Subsidiaries as of December 31, 2021 and 2020, respectively.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to a variety of market risks which may adversely impact the Company’s results of operations and financial condition, including changes in interest and foreign currency exchange rates, changes in the economic environment that would impact credit positions and changes in the prices of certain commodities. The Company’s management takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in the identification, assessment and control of various risks. These risk management strategies may not fully insulate the Company from adverse impacts due to market risks.

Interest Rate Risk

The Company is exposed to interest rate risk on variable rate debt obligations and price risk on fixed rate debt and finance leases. The variable rate debt outstanding at December 31, 2021, was primarily comprised of $575.4 million outstanding on the Term Loan A. As of December 31, 2021, there was no outstanding balance on the revolving credit facility. In order to reduce the variability of cash flows from interest payments related to a portion of Quad’s variable-rate debt, the Company entered into a $250.0 million interest rate swap in February 2017 and a $130.0 million interest rate swap in March 2019, and has classified $380.0 million of the Company’s variable rate debt as fixed rate debt. Including the impact of the $380.0 million interest rate swap of variable rate to fixed rate debt, Quad had variable rate debt outstanding of $196.5 million at a current weighted average interest rate of 3.2% and fixed rate debt and finance
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leases outstanding of $607.2 million at a current weighted average interest rate of 5.4% as of December 31, 2021. A hypothetical 10% increase in the market interest rates impacting the Company’s current weighted average interest rate on variable rate debt obligations would not have a material impact on the Company’s interest expense. In addition, a hypothetical 10% change in market interest rates would not have a material impact on the fair value of fixed rate debt at December 31, 2021.

Foreign Currency Risk and Translation Exposure

The Company is exposed to the impact of foreign currency fluctuations in certain countries in which it operates. The exposure to foreign currency movements is limited in most countries because the operating revenues and expenses of its various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent revenues and expenses are not in the applicable local currency, the Company may enter into foreign exchange forward contracts to hedge the currency risk.

Although operating in local currencies may limit the impact of currency rate fluctuations on the results of operations of the Company’s non-United States subsidiaries and business units, rate fluctuations may impact the consolidated financial position as the assets and liabilities of its foreign operations are translated into U.S. dollars in preparing the Company’s consolidated balance sheets. As of December 31, 2021, the Company’s foreign subsidiaries (excluding Argentina due to the economy’s status as highly inflationary) had net current assets (defined as current assets less current liabilities) subject to foreign currency translation risk of $34.6 million. The potential decrease in net current assets as of December 31, 2021, from a hypothetical 10% adverse change in quoted foreign currency exchange rates would be approximately $3.5 million. This sensitivity analysis assumes a parallel shift in all major foreign currency exchange rates versus the U.S. dollar. Exchange rates rarely move in the same direction relative to the U.S. dollar due to positive and negative correlations of the various global currencies. This assumption may overstate or understate the impact of changing exchange rates on individual assets and liabilities denominated in a foreign currency.

The Company’s hedging operations have historically not been material, and gains or losses from these operations have not been material to the Company’s results of operations, financial position or cash flows. The Company does not use derivative financial instruments for trading or speculative purposes.

These international operations are subject to risks typical of international operations, including, but not limited to, differing economic conditions, changes in political climate, potential restrictions on the movement of funds, differing tax structures, and other regulations and restrictions. Accordingly, future results could be adversely impacted by changes in these or other factors.

The Company has considered the economy in Argentina to be highly inflationary, effective June 30, 2018. In accordance with Accounting Standards Codification 830 - Foreign Currency Matters, a highly inflationary economy is one that has experienced cumulative inflation of approximately 100 percent or more over a three-year period. An entity is required to apply the revised accounting guidance in the reporting period following when the economy was deemed to be highly inflationary. As a result of this classification, the functional currency of the Company's Argentina subsidiaries was changed from the local currency to the U.S. Dollar, beginning July 1, 2018, and impacts from the change in the value of the local currency for monetary assets and liabilities is now reflected in the consolidated statements of operations. Due to the Argentina economy classification as highly inflationary, the impact from foreign currency losses was $0.6 million and $5.9 million during the years ended December 31, 2021 and 2020, respectively, and was recorded in restructuring, impairment and transaction-related charges in the consolidated statements of operations. The Company’s operations in Argentina represented less than 1.0% of total consolidated assets as of December 31, 2021, and less than 1.0% of total consolidated net sales for the year ended December 31, 2021.

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Credit Risk

Credit risk is the possibility of loss from a client’s failure to make payments according to contract terms. Prior to granting credit, each client is evaluated in an underwriting process, taking into consideration the prospective client’s financial condition, past payment experience, credit bureau information and other financial and qualitative factors that may affect the client’s ability to pay. Specific credit reviews and standard industry credit scoring models are used in performing this evaluation. Clients’ financial condition is continuously monitored as part of the normal course of business. Some of the Company’s clients are highly leveraged or otherwise subject to their own operating and regulatory risks. Based on those client account reviews and the continued uncertainty of the global economy, the Company has established an allowance for credit losses of $28.2 million as of December 31, 2021.

The Company has a large, diverse client base and does not have a high degree of concentration with any single client account. During the year ended December 31, 2021, the Company’s largest client accounted for less than 5% of the Company’s net sales. Even if the Company’s credit review and analysis mechanisms work properly, the Company may experience financial losses in its dealings with clients and other parties. Any increase in nonpayment or nonperformance by clients could adversely impact the Company’s results of operations and financial condition. Economic disruptions, including the impacts from the COVID-19 pandemic, could result in significant future charges. The Company is continuing to actively monitor the situation and related risks around the COVID-19 pandemic.

Commodity Risk

The primary raw materials that the Company uses in its print business are paper, ink and energy. At this time, the Company’s supply of raw materials are available from numerous vendors; however, based on market conditions, the current supply is under pressure due to supply chain shortages and higher than expected inflation. The Company generally buys these raw materials based upon market prices that are established with the vendor as part of the procurement process. The price of such raw materials has fluctuated over time and has caused fluctuations in the Company’s net sales and cost of sales. This volatility may continue and the Company may experience increases in the costs of its raw materials in the future as prices in the overall paper, ink and energy markets are expected to remain beyond its control. The price and availability of paper may also 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.

Approximately half of the paper used by the Company is supplied directly by its clients. For those clients that do not directly supply their own paper, the Company makes use of its purchasing efficiencies to supply paper by negotiating with leading paper vendors, uses a wide variety of paper grades, weights and sizes, and does not rely on any one vendor. In addition, the Company generally includes price adjustment clauses in sales contracts for paper and other critical raw materials in the printing process. Although these clauses generally mitigate paper price risk, higher paper prices and tight paper supplies, as well as changes in the United States import or trade regulations may have an impact on client demand for printed products. The Company’s working capital requirements, including the impact of seasonality, are partially mitigated through the direct purchasing of paper by its clients.

The Company produces the majority of ink used in its print production, allowing it to control the quality, cost and supply of key inputs. Raw materials for the ink manufacturing process are purchased externally from a variety of vendors. The price and availability of ink and ink components may be adversely affected by the availability of component raw materials, labor and transportation.

The Company generally cannot pass on to clients the impact of higher electric and natural gas energy prices on its manufacturing costs, and increases in energy prices result in higher manufacturing costs for certain of its operations. The Company mitigates its risk through natural gas hedges when appropriate. In its logistics operations, however, the Company is able to pass a substantial portion of any increase in fuel prices directly to its clients.

To the extent the cost of other raw materials increase and the Company is not able to increase selling prices of its products, then the Company may experience margin declines.

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As a result, management believes a hypothetical 10% change in the price of paper and other raw materials would not have a significant direct impact on the Company’s consolidated annual results of operations or cash flows; however, significant increases in commodity pricing or tight supply could influence future client demand for printed products.

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Item 8.    Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Quad/Graphics, Inc.

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Quad/Graphics, Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Revenues - Refer to Notes 1 and 2 to the consolidated financial statements
Critical Audit Matter Description
The Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company has various products and service lines which have differing levels of involvement of management judgment and timing of revenue recognition.
We identified revenues as a critical audit matter because of the diversity in products and service lines and diversity in audit evidence obtained as each billing arrangement is individually unique which requires a higher degree of auditor judgment and an increased extent of effort when designing and performing audit procedures to evaluate the appropriateness of management’s estimates and audit evidence related to the recognition of revenues.

How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to revenues included the following:

We tested the effectiveness of controls related to the revenue recognition process.

We evaluated management’s significant accounting policies related to revenue recognition for reasonableness.

We selected a sample of recorded revenue transactions and performed the following procedures:

Obtained customer source documents and the contract for each selection, including master agreements and related amendments to evaluate if relevant contractual terms have been appropriately considered by management.

Evaluated management’s application of their accounting policy and tested revenue recognition for specific performance obligations by comparing management’s conclusions to the underlying master agreement and any related amendments.

Tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the financial statements.

/s/ Deloitte & Touche LLP

Milwaukee, Wisconsin
February 23, 2022

We have served as the Company's auditor since 2002.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Quad/Graphics, Inc.

Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Quad/Graphics, Inc. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 23, 2022, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Milwaukee, Wisconsin
February 23, 2022
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QUAD/GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Year Ended December 31,
2021 2020
Net sales
Products $ 2,247.1  $ 2,228.7 
Services 713.3  700.9 
Total net sales 2,960.4  2,929.6 
Cost of sales
Products 1,861.0  1,831.5 
Services 528.9  503.3 
Total cost of sales 2,389.9  2,334.8 
Operating expenses
Selling, general and administrative expenses 326.0  335.1 
Gains from sale and leaseback (24.5) — 
Depreciation and amortization 157.3  181.6 
Restructuring, impairment and transaction-related charges 18.9  124.1 
Total operating expenses 2,867.6  2,975.6 
Operating income (loss) from continuing operations 92.8  (46.0)
Interest expense 59.6  68.8 
Net pension income (14.5) (10.5)
Loss on debt extinguishment 0.7  1.8 
Earnings (loss) from continuing operations before income taxes and equity in (earnings) loss of unconsolidated entity 47.0  (106.1)
Income tax expense 9.5  0.3 
Earnings (loss) from continuing operations before equity in (earnings) loss of unconsolidated entity 37.5  (106.4)
Equity in (earnings) loss of unconsolidated entity (0.3) 0.2 
Net earnings (loss) from continuing operations 37.8  (106.6)
Loss from discontinued operations, net of tax —  (21.9)
Net earnings (loss) 37.8  (128.5)
Less: net loss attributable to noncontrolling interests —  (0.2)
Net earnings (loss) attributable to Quad common shareholders $ 37.8  $ (128.3)
Earnings (loss) per share attributable to Quad common shareholders
Basic:
Continuing operations $ 0.74  $ (2.10)
Discontinued operations —  (0.43)
Basic earnings (loss) per share attributable to Quad common shareholders $ 0.74  $ (2.53)
Diluted:
Continuing operations $ 0.71  $ (2.10)
Discontinued operations —  (0.43)
Diluted earnings (loss) per share attributable to Quad common shareholders $ 0.71  $ (2.53)
Weighted average number of common shares outstanding
Basic 51.3  50.6 
Diluted 53.0  50.6 
See accompanying Notes to Consolidated Financial Statements.
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QUAD/GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
Year Ended December 31,
2021 2020
Net earnings (loss) $ 37.8  $ (128.5)
Other comprehensive income (loss)
Translation adjustments
Foreign currency translation adjustments (8.2) 0.9 
Translation of long-term loans to foreign subsidiaries (1.1) (0.7)
Total translation adjustments (9.3) 0.2 
Reclassification of foreign currency translation adjustments (2.7) — 
Interest rate swap adjustments 7.1  (7.5)
Pension benefit plan adjustments
Net gain arising during period 20.4  3.2 
Settlement charge on pension benefit plans included in net earnings (loss) 0.9  0.1 
Total pension benefit plan adjustments 21.3  3.3 
Other comprehensive income (loss), before tax 16.4  (4.0)
Income tax impact related to items of other comprehensive income (loss) (6.3) (0.1)
Other comprehensive income (loss), net of tax 10.1  (4.1)
Total comprehensive income (loss) 47.9  (132.6)
Less: comprehensive loss attributable to noncontrolling interests —  (0.2)
Comprehensive income (loss) attributable to Quad common shareholders $ 47.9  $ (132.4)
See accompanying Notes to Consolidated Financial Statements.
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QUAD/GRAPHICS, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
December 31,
2021
December 31,
2020
ASSETS
Cash and cash equivalents $ 179.9  $ 55.2 
Receivables, less allowances for credit losses of $28.2 million at December 31, 2021, and $33.8 million at December 31, 2020
362.0  399.1 
Inventories 226.2  170.2 
Prepaid expenses and other current assets 41.0  54.7 
Total current assets 809.1  679.2 
Property, plant and equipment—net 727.0  884.2 
Operating lease right-of-use assets—net 125.7  81.0 
Goodwill 86.4  103.0 
Other intangible assets—net 75.3  104.3 
Equity method investment in unconsolidated entity —  2.6 
Other long-term assets 66.5  73.4 
Total assets $ 1,890.0  $ 1,927.7 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable $ 367.3  $ 320.0 
Other current liabilities 314.3  310.8 
Short-term debt and current portion of long-term debt 245.6  20.7 
Current portion of finance lease obligations 1.8  2.8 
Current portion of operating lease obligations 28.1  28.4 
Total current liabilities 957.1  682.7 
Long-term debt 554.9  902.7 
Finance lease obligations 1.4  2.0 
Operating lease obligations 99.8  54.5 
Deferred income taxes 11.9  4.2 
Other long-term liabilities 128.1  196.8 
Total liabilities 1,753.2  1,842.9 
Commitments and contingencies (Note 11)