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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
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-20220930_g1.jpg
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 each class Trading Symbol(s) Name of each exchange on which registered
Class A Common Stock,
par value $0.025 per share
QUAD The New York Stock Exchange
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes   No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 is a shell company (as defined in Rule 12b-2 of the Act).  Yes   No
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 October 28, 2022
Class A Common Stock 39,130,025
Class B Common Stock 13,556,858
Class C Common Stock



QUAD/GRAPHICS, INC.
FORM 10-Q INDEX
For the Quarter Ended September 30, 2022
Page No.
3
3
3
4
5
6
7
9



2

PART I — FINANCIAL INFORMATION

ITEM 1.    Condensed Consolidated Financial Statements (Unaudited)

QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net sales
Products $ 652.0  $ 540.6  $ 1,826.8  $ 1,578.2 
Services 177.9  165.5  505.0  527.6 
Total net sales 829.9  706.1  2,331.8  2,105.8 
Cost of sales
Products 556.5  453.3  1,563.4  1,295.3 
Services 117.0  120.8  347.8  392.8 
Total cost of sales 673.5  574.1  1,911.2  1,688.1 
Operating expenses
Selling, general and administrative expenses 90.8  68.7  256.8  229.3 
Gains from sale and leaseback —  (10.8) —  (24.5)
Depreciation and amortization 34.8  38.7  106.6  119.3 
Restructuring, impairment and transaction-related charges 5.6  7.4  12.4  (3.4)
Total operating expenses 804.7  678.1  2,287.0  2,008.8 
Operating income 25.2  28.0  44.8  97.0 
Interest expense 12.1  15.0  32.3  45.1 
Net pension income (3.2) (3.4) (9.5) (11.0)
Earnings before income taxes and equity in earnings of unconsolidated entity 16.3  16.4  22.0  62.9 
Income tax expense 2.6  2.3  4.0  4.1 
Earnings before equity in earnings of unconsolidated entity 13.7  14.1  18.0  58.8 
Equity in earnings of unconsolidated entity —  (0.2) —  (0.1)
Net earnings $ 13.7  $ 14.3  $ 18.0  $ 58.9 
Earnings per share
Basic $ 0.27  $ 0.28  $ 0.35  $ 1.15 
Diluted $ 0.27  $ 0.27  $ 0.34  $ 1.12 
Weighted average number of common shares outstanding
Basic 50.1  51.3  51.2  51.3 
Diluted 51.6  53.1  53.0  52.8 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


3

QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net earnings $ 13.7  $ 14.3  $ 18.0  $ 58.9 
Other comprehensive loss
Translation adjustments (7.0) (5.3) (12.2) (9.1)
Interest rate swap adjustments 0.7  1.7  2.8  5.3 
Pension benefit plan adjustments —  0.2  —  0.9 
Other comprehensive loss, before tax (6.3) (3.4) (9.4) (2.9)
Income tax impact related to items of other comprehensive loss (0.1) —  (0.5) — 
Other comprehensive loss, net of tax (6.4) (3.4) (9.9) (2.9)
Comprehensive income $ 7.3  $ 10.9  $ 8.1  $ 56.0 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).



4

QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
(UNAUDITED)
September 30,
2022
December 31,
2021
ASSETS
Cash and cash equivalents $ 14.0  $ 179.9 
Receivables, less allowance for credit losses of $28.6 million at September 30, 2022, and $28.2 million at December 31, 2021
399.2  362.0 
Inventories 323.2  226.2 
Prepaid expenses and other current assets 42.4  41.0 
Total current assets 778.8  809.1 
Property, plant and equipment—net 681.8  727.0 
Operating lease right-of-use assets—net 118.5  125.7 
Goodwill 86.4  86.4 
Other intangible assets—net 54.0  75.3 
Other long-term assets 74.2  66.5 
Total assets $ 1,793.7  $ 1,890.0 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable $ 446.5  $ 367.3 
Other current liabilities 237.8  314.3 
Short-term debt and current portion of long-term debt 52.7  245.6 
Current portion of finance lease obligations 0.9  1.8 
Current portion of operating lease obligations 28.7  28.1 
Total current liabilities 766.6  957.1 
Long-term debt 674.6  554.9 
Finance lease obligations 1.1  1.4 
Operating lease obligations 93.3  99.8 
Deferred income taxes 15.8  11.9 
Other long-term liabilities 104.6  128.1 
Total liabilities 1,656.0  1,753.2 
Commitments and contingencies (Note 6)
Shareholders’ equity
Preferred stock —  — 
Common stock, Class A 1.0  1.0 
Common stock, Class B 0.4  0.4 
Common stock, Class C —  — 
Additional paid-in capital 840.6  839.3 
Treasury stock, at cost (23.4) (14.9)
Accumulated deficit (509.8) (527.8)
Accumulated other comprehensive loss (171.1) (161.2)
Total shareholders’ equity 137.7  136.8 
Total liabilities and shareholders’ equity $ 1,793.7  $ 1,890.0 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


5

QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(UNAUDITED)
Nine Months Ended September 30,
2022 2021
OPERATING ACTIVITIES
Net earnings $ 18.0  $ 58.9 
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization 106.6  119.3 
Impairment charges 0.6  2.0 
Settlement charges on pension plans —  0.8 
Amortization of debt issuance costs and original issue discount 1.7  2.3 
Stock-based compensation 4.9  6.6 
Gain from a property insurance claim —  (13.3)
Gain on the sale of a business —  (20.9)
Gain on the sale or disposal of property, plant and equipment (1.7) (34.4)
Deferred income taxes 3.2  3.9 
Equity in earnings of unconsolidated entity —  (0.1)
Changes in operating assets and liabilities—net of acquisitions and divestitures (163.6) (103.0)
Net cash provided by (used in) operating activities (30.3) 22.1 
INVESTING ACTIVITIES
Purchases of property, plant and equipment (49.5) (41.6)
Cost investment in unconsolidated entities (2.9) (0.9)
Proceeds from the sale of property, plant and equipment 4.0  67.1 
Proceeds from the sale of a business —  39.0 
Proceeds from a property insurance claim —  4.0 
Other investing activities 1.8  (0.2)
Net cash provided by (used in) investing activities (46.6) 67.4 
FINANCING ACTIVITIES
Payments of current and long-term debt (228.1) (109.1)
Payments of finance lease obligations (1.8) (2.4)
Borrowings on revolving credit facilities 669.7  214.1 
Payments on revolving credit facilities (516.1) (207.2)
Proceeds from issuance of debt 2.1  — 
Changes in ownership of noncontrolling interests —  (1.9)
Purchases of treasury stock (10.0) — 
Equity awards redeemed to pay employees’ tax obligations (2.5) (1.1)
Payment of cash dividends (1.4) (1.4)
Other financing activities (0.5) (8.1)
Net cash used in financing activities (88.6) (117.1)
Effect of exchange rates on cash and cash equivalents (0.4) (0.2)
Net decrease in cash and cash equivalents (165.9) (27.8)
Cash and cash equivalents at beginning of period 179.9  55.2 
Cash and cash equivalents at end of period $ 14.0  $ 27.4 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


6

QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
AND NONCONTROLLING INTERESTS
(in millions)
(UNAUDITED)

Condensed Consolidated Statement of Shareholders’ Equity For the Nine Months Ended September 30, 2022
Common Stock Additional
Paid-in
Capital
Treasury Stock Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Quad’s
Shareholders’
Equity
Noncontrolling
Interests
Shares Amount Shares Amount
Balance at December 31, 2021 55.7  $ 1.4  $ 839.3  (1.4) $ (14.9) $ (527.8) $ (161.2) $ 136.8  $  
Net loss —  —  —  —  —  (1.0) —  (1.0) — 
Foreign currency translation adjustments —  —  —  —  —  —  0.8  0.8  — 
Interest rate swap adjustments, net of tax —  —  —  —  —  —  1.1  1.1  — 
Stock-based compensation —  —  1.7  —  —  —  —  1.7  — 
Issuance of share-based awards, net of other activity 0.9  —  (2.4) 0.8  2.8  —  —  0.4  — 
Awards redeemed to pay employees’ tax obligations —  —  —  (0.4) (2.5) —  —  (2.5) — 
Balance at March 31, 2022 56.6  $ 1.4  $ 838.6  (1.0) $ (14.6) $ (528.8) $ (159.3) $ 137.3  $  
Net earnings —  —  —  —  —  5.3  —  5.3  — 
Foreign currency translation adjustments —  —  —  —  —  —  (6.0) (6.0) — 
Interest rate swap adjustments, net of tax —  —  —  —  —  —  0.6  0.6  — 
Stock-based compensation —  —  1.9  —  —  —  —  1.9  — 
Purchases of treasury stock —  —  —  (0.3) (0.9) —  —  (0.9) — 
Issuance of share-based awards, net of other activity —  —  (0.9) 0.2  1.0  —  —  0.1  — 
Balance at June 30, 2022 56.6  $ 1.4  $ 839.6  (1.1) $ (14.5) $ (523.5) $ (164.7) $ 138.3  $  
Net earnings —  —  —  —  —  13.7  —  13.7  — 
Foreign currency translation adjustments —  —  —  —  —  —  (7.0) (7.0) — 
Interest rate swap adjustments, net of tax —  —  —  —  —  —  0.6  0.6  — 
Stock-based compensation —  —  1.1  —  —  —  —  1.1  — 
Purchases of treasury stock —  —  —  (2.8) (9.1) —  —  (9.1) — 
Issuance of share-based awards, net of other activity —  —  (0.1) —  0.2  —  —  0.1  — 
Balance at September 30, 2022 56.6  $ 1.4  $ 840.6  (3.9) $ (23.4) $ (509.8) $ (171.1) $ 137.7  $  



7

Condensed Consolidated Statement of Shareholders’ Equity For the Nine Months Ended September 30, 2021
Common Stock Additional
Paid-in
Capital
Treasury Stock Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Quad’s
Shareholders’
Equity
Noncontrolling
Interests
Shares Amount Shares Amount
Balance at December 31, 2020 54.4  $ 1.4  $ 833.1  (0.8) $ (13.1) $ (566.0) $ (171.3) $ 84.1  $ 0.7 
Net earnings —  —  —  —  —  10.2  —  10.2  — 
Foreign currency translation adjustments —  —  —  —  —  —  (6.0) (6.0) — 
Interest rate swap adjustments, net of tax —  —  —  —  —  —  1.8  1.8  — 
Stock-based compensation —  —  3.0  —  —  —  —  3.0  — 
Issuance of share-based awards, net of other activity 1.3  —  (0.6) —  1.0  —  —  0.4  — 
Awards redeemed to pay employees’ tax obligations —  —  —  (0.2) (1.1) —  —  (1.1) — 
Balance at March 31, 2021 55.7  $ 1.4  $ 835.5  (1.0) $ (13.2) $ (555.8) $ (175.5) $ 92.4  $ 0.7 
Net earnings —  —  —  —  —  34.4  —  34.4  — 
Change in ownership of noncontrolling interests —  —  (1.1) —  —  —  —  (1.1) (0.7)
Foreign currency translation adjustments —  —  —  —  —  —  2.2  2.2  — 
Interest rate swap adjustments, net of tax —  —  —  —  —  —  1.8  1.8  — 
Pension benefit plan adjustments, net of tax —  —  —  —  —  —  0.7  0.7  — 
Cash dividends declared —  —  —  —  —  0.1  —  0.1  — 
Stock-based compensation —  —  1.6  —  —  —  —  1.6  — 
Issuance of share-based awards, net of other activity —  —  0.4  (0.1) (0.4) —  —  —  — 
Balance at June 30, 2021 55.7  $ 1.4  $ 836.4  (1.1) $ (13.6) $ (521.3) $ (170.8) $ 132.1  $  
Net earnings —  —  —  —  —  14.3  —  14.3  — 
Foreign currency translation adjustments —  —  —  —  —  —  (5.3) (5.3) — 
Interest rate swap adjustments, net of tax —  —  —  —  —  —  1.7  1.7  — 
Pension benefit plan adjustments, net of tax —  —  —  —  —  —  0.2  0.2  — 
Stock-based compensation —  —  2.0  —  —  —  —  2.0  — 
Issuance of share-based awards, net of other activity —  —  (0.3) —  —  —  —  (0.3) — 
Balance at September 30, 2021 55.7  $ 1.4  $ 838.1  (1.1) $ (13.6) $ (507.0) $ (174.2) $ 144.7  $  

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


8



QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(In millions, except share and per share data and unless otherwise indicated)

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements for Quad/Graphics, Inc. and its subsidiaries (the “Company” or “Quad”) have been prepared by the Company pursuant to the rules and regulations for interim financial information of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such SEC rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated annual financial statements as of and for the year ended December 31, 2021, and notes thereto included in the Company’s latest Annual Report on Form 10-K filed with the SEC on February 23, 2022.

The Company is subject to seasonality in its quarterly results as net sales and operating income are typically 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 provided by 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. Due to the impacts from supply chain disruptions in 2022, the Company expects to reach higher than typical levels of working capital requirements during the first three quarters. The Company expects seasonality impacts to continue in future years.

The financial information contained herein reflects all adjustments, in the opinion of management, necessary for a fair presentation of the Company’s results of operations for the three and nine months ended September 30, 2022 and 2021. All of these adjustments are of a normal recurring nature, except as otherwise noted. All intercompany transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements include estimates and assumptions of management that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these estimates.

COVID-19 Pandemic Impacts and Response - The COVID-19 pandemic has had, and will continue to have, a negative impact on the Company’s business, financial condition, cash flows, results of operations, supply chain and raw materials availability, although the full extent is still uncertain. Throughout the pandemic, the Company implemented cost reduction and cash conservation initiatives in response to the pandemic’s impact on its business. With ongoing advancements against the COVID-19 pandemic, the effects on the Company have lessened from previous periods. The Company continues to evaluate the impact and may implement additional cost reduction measures as necessary. The pandemic has also disrupted the Company’s supply chain and contributed to rising inflationary cost pressures within the Company’s raw materials, distribution and labor. The ultimate impact of COVID-19 on the Company’s business, financial condition, cash flows, results of operations, supply chain and raw materials availability, will depend on future developments, including the continuing duration of the pandemic and the related length of its impact on the global economy, all of which are still uncertain.



9



QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(In millions, except share and per share data and unless otherwise indicated)
Note 2. Revenue Recognition

Revenue Disaggregation

The following tables provide information about disaggregated revenue by the Company’s operating segments and major products and services offerings for the three and nine months ended September 30, 2022 and 2021:

United States Print
and Related Services
International Total
Three months ended September 30, 2022
Catalog, publications, retail inserts, and directories $ 375.5  $ 77.3  $ 452.8 
Direct mail and other printed products 161.9  34.5  196.4 
Other 2.6  0.2  2.8 
Total products 540.0  112.0  652.0 
Logistics services 81.3  4.6  85.9 
Marketing services and medical services 91.8  0.2  92.0 
Total services 173.1  4.8  177.9 
Total net sales $ 713.1  $ 116.8  $ 829.9 
Three months ended September 30, 2021
Catalog, publications, retail inserts, and directories $ 321.3  $ 58.2  $ 379.5 
Direct mail and other printed products 140.8  18.3  159.1 
Other 1.8  0.2  2.0 
Total products 463.9  76.7  540.6 
Logistics services 71.4  4.9  76.3 
Marketing services and medical services 89.0  0.2  89.2 
Total services 160.4  5.1  165.5 
Total net sales $ 624.3  $ 81.8  $ 706.1 



10



QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(In millions, except share and per share data and unless otherwise indicated)
United States Print
and Related Services
International Total
Nine months ended September 30, 2022
Catalog, publications, retail inserts, and directories $ 1,049.0  $ 205.5  $ 1,254.5 
Direct mail and other printed products 467.6  96.7  564.3 
Other 7.3  0.7  8.0 
Total products 1,523.9  302.9  1,826.8 
Logistics services 224.2  14.7  238.9 
Marketing services and medical services 265.5  0.6  266.1 
Total services 489.7  15.3  505.0 
Total net sales $ 2,013.6  $ 318.2  $ 2,331.8 
Nine months ended September 30, 2021
Catalog, publications, retail inserts, and directories $ 950.8  $ 166.2  $ 1,117.0 
Direct mail and other printed products 401.2  54.1  455.3 
Other 5.1  0.8  5.9 
Total products 1,357.1  221.1  1,578.2 
Logistics services 257.7  14.3  272.0 
Marketing services and medical services 255.0  0.6  255.6 
Total services 512.7  14.9  527.6 
Total net sales $ 1,869.8  $ 236.0  $ 2,105.8 

Nature of Products and Services

The Company recognizes its products and services revenue based on when the transfer of control passes to the client or when the service is completed and accepted by the client.
The products offering is predominantly comprised of the Company’s print operations which includes retail inserts, publications, catalogs, special interest publications, journals, direct mail, directories, in-store marketing and promotion, packaging, newspapers, custom print products, other commercial and specialty printed products and global paper procurement.
The Company considers its logistics operations as services, which include the delivery of printed material. The services offering also includes revenues related to the Company’s marketing services operations, which include digital content management, photography, color services, page production, marketing strategy, creative solutions, media planning and placement and facilities management, as well as medical services.



11



QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(In millions, except share and per share data and unless otherwise indicated)
Costs to Obtain Contracts

In accordance with Accounting Standards Codification 606 — Revenue from Contracts with Customers, the Company capitalizes certain sales incentives of the sales compensation packages for costs that are directly attributed to being awarded a client contract or renewal and would not have been incurred had the contract not been obtained. The Company also defers certain contract acquisition costs paid to the client at contract inception. Costs to obtain contracts with a duration of less than one year are expensed as incurred. For all contract costs with contracts over one year, the Company amortizes the costs to obtain contracts on a straight-line basis over the estimated life of the contract and reviews quarterly for impairment. Activity impacting costs to obtain contracts for the nine months ended September 30, 2022, was as follows:
Costs to Obtain Contracts
Balance at December 31, 2021 $ 5.1 
Costs to obtain contracts 0.3 
Amortization of costs to obtain contracts (1.6)
Balance at September 30, 2022 $ 3.8 

Note 3. Restructuring, Impairment and Transaction-Related Charges

The Company recorded restructuring, impairment and transaction-related charges for the three and nine months ended September 30, 2022 and 2021, as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Employee termination charges $ 1.2  $ 1.0  $ 2.8  $ 8.5 
Impairment charges 0.5  0.3  0.6  2.0 
Transaction-related charges 0.3  —  0.8  0.4 
Integration costs 0.4  —  0.4  — 
Other restructuring charges (income) 3.2  6.1  7.8  (14.3)
Total $ 5.6  $ 7.4  $ 12.4  $ (3.4)

The costs related to these activities have been recorded in the condensed consolidated statements of operations as restructuring, impairment and transaction-related charges. See Note 15, “Segment Information,” for restructuring, impairment and transaction-related charges by segment.

Restructuring Charges

The Company has a restructuring program related to eliminating excess manufacturing capacity and properly aligning its cost structure. The Company classifies the following charges as restructuring:

Employee termination charges are incurred when the Company reduces its workforce through facility consolidations and separation programs.

Integration costs are incurred primarily for the integration of acquired companies.



12



QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(In millions, except share and per share data and unless otherwise indicated)
Other restructuring charges (income) are presented net of the gains on the sale of facilities and businesses, including a gain on the sale of the Riverside, California facility during the first quarter of 2021 and gains on the sale of other facilities during the second quarter of 2021. The Company also recognized a $20.9 million gain on the sale of a business during the second quarter of 2021, which is included within other restructuring activities below. The components of other restructuring charges (income) consisted of the following during the three and nine months ended September 30, 2022 and 2021:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Vacant facility carrying costs and lease exit charges $ 2.0  $ 4.9  $ 4.1  $ 15.1 
Equipment and infrastructure removal costs 0.1  0.5  0.1  1.5 
Gains on the sale of facilities —  —  —  (10.1)
Other restructuring activities 1.1  0.7  3.6  (20.8)
Other restructuring charges (income) $ 3.2  $ 6.1  $ 7.8  $ (14.3)

The restructuring charges recorded were based on plans that have been committed to by management and were, in part, based upon management’s best estimates of future events. Changes to the estimates may require future restructuring charges and adjustments to the restructuring liabilities. The Company expects to incur additional restructuring charges related to these and other initiatives.

Impairment Charges

The Company recognized impairment charges of $0.5 million and $0.6 million during the three and nine months ended September 30, 2022, and $0.3 million and $2.0 million during the three and nine months ended September 30, 2021, respectively. The impairment charges were primarily 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.

The fair values of the impaired assets were determined by the Company to be Level 3 under the fair value hierarchy (see Note 9, “Financial Instruments and Fair Value Measurements,” for the definition of Level 3 inputs) and were estimated based on broker quotes, internal expertise related to current marketplace conditions and estimated future discounted cash flows. These assets were adjusted to their estimated fair values at the time of impairment. If estimated fair values subsequently decline, the carrying values of the assets are adjusted accordingly.

Transaction-Related Charges

The Company incurs transaction-related charges primarily consisting of professional service fees related to business acquisition and divestiture activities. Transaction-related charges of $0.3 million and $0.8 million were recorded during the three and nine months ended September 30, 2022, respectively, and $0.4 million were recorded during the nine months ended September 30, 2021. There were no transaction-related charges recognized during the three months ended September 30, 2021.



13



QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(In millions, except share and per share data and unless otherwise indicated)
Restructuring Reserves

Activity impacting the Company’s restructuring reserves for the nine months ended September 30, 2022, was as follows:
Employee
Termination
Charges
Impairment
Charges
Transaction-Related
Charges
Integration
Costs
Other
Restructuring
Charges
Total
Balance at December 31, 2021 $ 4.7  $ —  $ 0.4  $ —  $ 50.2  $ 55.3 
Expense, net 2.8  0.6  0.8  0.4  7.8  12.4 
Cash payments, net (3.4) —  (0.6) (0.4) (14.0) (18.4)
Non-cash adjustments/reclassifications and translation (1.0) (0.6) —  —  (0.4) (2.0)
Balance at September 30, 2022 $ 3.1  $ —  $ 0.6  $ —  $ 43.6  $ 47.3 

The Company’s restructuring reserves at September 30, 2022, included a short-term and a long-term component. The short-term portion included $42.7 million in other current liabilities and $0.7 million in accounts payable in the condensed consolidated balance sheets as the Company expects these reserves to be settled within the next twelve months. The long-term portion of $3.9 million is included in other long-term liabilities in the condensed consolidated balance sheets.

Note 4. Receivables

Prior to granting credit, the Company evaluates each client in an underwriting process, taking into consideration the prospective client’s financial condition, past payment experience, credit bureau information and other financial and qualitative factors that may affect the client’s ability to pay. Specific credit reviews and standard industry credit scoring models are used in performing this evaluation. Clients’ financial condition is continuously monitored as part of the normal course of business. Some of the Company’s clients are highly leveraged or otherwise subject to their own operating and regulatory risks.

Specific client provisions are made when a review of significant outstanding amounts, utilizing information about client creditworthiness, as well as current and future economic trends based on reasonable forecasts, indicates that collection is doubtful. The Company also records a general provision based on the overall risk profile of the receivables and through the assessment of reasonable economic forecasts. The risk profile is assessed on a quarterly basis using various methods, including external resources and credit scoring models. Accounts that are deemed uncollectible are written off when all reasonable collection efforts have been exhausted.

The Company has recorded credit loss expense of $0.8 million and $2.3 million during the three and nine months ended September 30, 2022, respectively, and $0.2 million and $1.0 million during the three and nine months ended September 30, 2021, respectively, which is included in selling, general and administrative expenses in the condensed consolidated statements of operations.

Activity impacting the allowance for credit losses for the nine months ended September 30, 2022, was as follows:
Allowance for Credit Losses
Balance at December 31, 2021 $ 28.2 
Provisions 2.3 
Write-offs (1.5)
Translation (0.4)
Balance at September 30, 2022 $ 28.6 



14



QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(In millions, except share and per share data and unless otherwise indicated)
Note 5. Inventories

The components of inventories at September 30, 2022, and December 31, 2021, were as follows:
September 30,
2022
December 31,
2021
Raw materials and manufacturing supplies $ 218.1  $ 148.6 
Work in process 41.8  31.6 
Finished goods 63.3  46.0 
Total $ 323.2  $ 226.2 

Note 6. Commitments and Contingencies

Litigation

The Company is named as a defendant in various lawsuits in which claims are asserted against the Company in the normal course of business. The liabilities, if any, which ultimately result from such lawsuits are not expected by management to have a material impact on the condensed consolidated financial statements of the Company.

Environmental Reserves

The Company is subject to various laws, regulations and government policies relating to health and safety, to the generation, storage, transportation, and disposal of hazardous substances, and to environmental protection in general. The Company provides for expenses associated with environmental remediation obligations when such amounts are probable and can be reasonably estimated. Such reserves are adjusted as new information develops or as circumstances change. The environmental reserves are not discounted. The Company believes it is in compliance with such laws, regulations and government policies in all material respects. Furthermore, the Company does not anticipate that maintaining compliance with such environmental statutes will have a material impact upon the Company’s condensed consolidated financial position.

Note 7. Debt

Senior Unsecured Notes

During the first quarter of 2022, the Company repurchased $2.4 million of its outstanding unsecured 7.0% senior notes due May 1, 2022 (the “Senior Unsecured Notes”) in the open market. All repurchased Senior Unsecured Notes were canceled. The Company used cash flows from operating activities to fund the repurchases. These repurchases were completed primarily to reduce interest expense.

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

Note 8. Income Taxes

The Company records income tax expense on an interim basis. The estimated annual effective income tax rate is adjusted quarterly. For the nine months ended September 30, 2022 and 2021, the estimated annual effective income tax rate differs from the statutory tax rate primarily from decreases in valuation allowance reserves. The effective income tax rate for the interim period differs further from the statutory tax rate due to items discrete to the interim period, including changes in the liability for unrecognized tax benefits related to the establishment and settlement of income tax exposures and expenses related to share-based compensation.



15



QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(In millions, except share and per share data and unless otherwise indicated)
The Company currently has various open tax audits in multiple jurisdictions. From time to time, the Company will receive tax assessments as part of the process. Based on the information available as of September 30, 2022, the Company has recorded its best estimate of the potential settlements of these audits. Actual results could differ from the estimated amounts.

The Company’s liability for unrecognized tax benefits as of September 30, 2022 was $11.6 million, a decrease of $0.1 million from $11.7 million as of December 31, 2021. The Company anticipates a $0.6 million decrease to its liability for unrecognized tax benefits within the next twelve months due to the resolution of income tax audits or statute expirations.

Note 9. Financial Instruments and Fair Value Measurements

Certain assets and liabilities are required to be recorded at fair value on a recurring basis, while other assets and liabilities are recorded at fair value on a nonrecurring basis, generally as a result of acquisitions or impairment charges. Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. GAAP also classifies the inputs used to measure fair value into the following hierarchy:

Level 1:    Quoted prices in active markets for identical assets or liabilities.

Level 2:    Quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

Level 3:    Unobservable inputs for the asset or liability. There were no recurring Level 3 fair value measurements of assets or liabilities as of September 30, 2022.

Interest Rate Swaps

The Company currently holds one active interest rate swap contract. Another previously held interest rate swap, effective on February 28, 2017, terminated on February 28, 2022. The purpose of entering into the contracts was to reduce the variability of cash flows from interest payments related to a portion of Quad’s variable-rate debt. The interest rate swaps were previously designated as cash flow hedges as they effectively converted the notional value of the Company’s variable rate debt based on one-month London Interbank Offered Rate (“LIBOR”) to a fixed rate, including a spread on underlying debt, and a monthly reset in the variable interest rate. However, the Company amended its Senior Secured Credit Facility during the second quarter of 2020, which added a 0.75% LIBOR floor to the Company’s variable rate debt, changing the critical terms of the hedged instrument. Due to this change in critical terms, the Company had elected to de-designate the swaps as cash flow hedges, resulting in future changes in fair value being recognized in interest expense. The balance of the accumulated other comprehensive loss attributable to the interest rate swaps as of June 30, 2020 was then amortized to interest expense on a straight-line basis over the remaining lives of the swap contracts. The Company expects to reclassify $2.7 million of this balance, attributable to its active interest rate swap contract, to interest expense over the next twelve months.

The key terms of the active interest rate swap is as follows:
March 19, 2019
Interest Rate Swap
Effective date March 29, 2019
Termination date March 28, 2024
Term 5 years
Notional amount $130.0
Fixed swap rate 2.43%



16



QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(In millions, except share and per share data and unless otherwise indicated)
The Company classifies interest rate swaps as Level 2 because the inputs into the valuation model are observable or can be derived or corroborated utilizing observable market data at commonly quoted intervals. The fair value of the interest rate swaps classified as Level 2 as of September 30, 2022, and December 31, 2021, were as follows:
Balance Sheet Location September 30, 2022 December 31, 2021
Interest rate swap assets Prepaid expenses and other current assets $ 3.6  $ — 
Interest rate swap liabilities Other current liabilities $ —  $ (0.7)
Interest rate swap liabilities Other long-term liabilities $ —  $ (4.4)

Prior to the Company’s de-designation of the interest rate swaps as a cash flow hedge, the interest rate swaps were considered highly effective, with no amount of ineffectiveness recorded into earnings. The change in the fair value of the interest rate swaps are recorded as an adjustment to interest expense in the condensed consolidated statements of operations. The cash flows associated with the interest rate swaps have been recognized as an adjustment to interest expense in the condensed consolidated statements of operations:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Cash Flow Impacts
Net interest paid $ 0.1  $ 1.9  $ 2.1  $ 5.6 
Impacts with Swaps as Nonhedging Instruments
Income recognized in interest expense excluded from hedge effectiveness assessments (2.1) (1.8) (8.8) (6.2)
Amounts reclassified out of accumulated other comprehensive loss to interest expense 0.7  1.7  2.8  5.3 
Net interest expense 0.1  1.9  2.1  5.6 
Total impact of swaps to interest expense $ (1.3) $ 1.8  $ (3.9) $ 4.7 

Foreign Exchange Contracts

The Company has operations in countries that have transactions outside their functional currencies and periodically enters into foreign exchange contracts. These contracts are used to hedge the net exposures of changes in foreign currency exchange rates and are designated as either cash flow hedges or fair value hedges. Gains or losses on net foreign currency hedges are intended to offset losses or gains on the underlying net exposures in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates. As of September 30, 2022, there were six open foreign currency exchange contracts designated as cash flow hedges, with a total notional value of $7.6 million.

Natural Gas Forward Contracts

The Company periodically enters into natural gas forward purchase contracts to hedge against increases in commodity costs. The Company’s commodity contracts qualified for the exception related to normal purchases and sales during the nine months ended September 30, 2022 and 2021, as the Company takes delivery in the normal course of business.

Debt

The Company measures fair value on its debt instruments using interest rates available to the Company for borrowings with similar terms and maturities and is categorized as Level 2. Based upon the interest rates available to the Company for borrowings with similar terms and maturities, the fair value of the Company’s total debt was approximately $0.7 billion and $0.8 billion at September 30, 2022 and December 31, 2021, respectively.



17



QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(In millions, except share and per share data and unless otherwise indicated)
Nonrecurring Fair Value Measurements

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company is required to record certain assets and liabilities at fair value on a nonrecurring basis, generally as a result of acquisitions or the remeasurement of assets resulting in impairment charges, which are categorized as Level 3. See Note 3, “Restructuring, Impairment and Transaction-Related Charges” for further discussion on impairment charges recorded as a result of the remeasurement of certain long-lived assets.

Other Estimated Fair Value Measurements

The Company records the fair value of its forward contracts and pension plan assets on a recurring basis. The fair value of cash and cash equivalents, receivables, inventories, accounts payable and other current liabilities approximate their carrying values as of September 30, 2022, and December 31, 2021.

Note 10. Employee Retirement Plans

Defined Contribution Plans

The Quad/Graphics, Inc. Employee Stock Ownership Plan (“ESOP”) holds profit sharing contributions of Company stock, which are made at the discretion of the Company’s Board of Directors. There were no profit sharing contributions during the nine months ended September 30, 2022 and 2021.

Pension Plans

The Company assumed various funded and unfunded frozen pension plans for a portion of its full-time employees in the United States as part of the acquisition of World Color Press Inc. (“World Color Press”) in 2010. Benefits are generally based upon years of service and compensation. These plans are funded in conformity with the applicable government regulations. The Company funds at least the minimum amount required for all qualified plans using actuarial cost methods and assumptions acceptable under government regulations.

The components of net pension income for the three and nine months ended September 30, 2022 and 2021, were as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Interest cost $ (2.4) $ (2.3) $ (7.2) $ (6.5)
Expected return on plan assets 5.6  5.9  16.7  18.3 
Net periodic pension income 3.2  3.6  9.5  11.8 
Settlement charge —  (0.2) —  (0.8)
Net pension income $ 3.2  $ 3.4  $ 9.5  $ 11.0 

The Company made $0.5 million in benefit payments to its non-qualified defined benefit pension plans during the nine months ended September 30, 2022. There were no contributions to its qualified defined benefit pension plans during the nine months ended September 30, 2022.

The Company incurred non-cash settlement charges of $0.2 million and $0.8 million during the three and nine months ended September 30, 2021, respectively, due to the significance of lump sum payments made in that period. The non-cash settlement charge resulted in accelerated recognition of actuarial losses on the condensed consolidated statement of operations.



18



QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(In millions, except share and per share data and unless otherwise indicated)
Multiemployer Pension Plans (“MEPPs”)

The Company has withdrawn from all significant MEPPs and replaced these union sponsored “promise to pay in the future” defined benefit plans with a Company sponsored “pay as you go” defined contribution plan. The two MEPPs, the Graphic Communications International Union – Employer Retirement Fund (“GCIU”) and the Graphic Communications Conference of the International Brotherhood of Teamsters National Pension Fund (“GCC”), are significantly underfunded, and require the Company to pay a withdrawal liability to fund its pro rata share of the underfunding as of the plan year the full withdrawal was completed. As a result of the decision to withdraw, the Company accrued a withdrawal liability based on information provided by each plan’s trustee. The Company has reserved $29.4 million for the total MEPPs withdrawal liability as of September 30, 2022, of which $25.3 million was recorded in other long-term liabilities and $4.1 million was recorded in other current liabilities in the condensed consolidated balance sheets. The Company is scheduled to make payments to the GCIU and GCC until April 2032 and February 2024, respectively. The Company made payments totaling $4.6 million for the nine months ended September 30, 2022 and 2021.

Note 11. Earnings Per Share

Basic earnings per share is computed as net earnings divided by the basic weighted average common shares outstanding. The calculation of diluted earnings per share includes the effect of any dilutive equity incentive instruments. The Company uses the treasury stock method to calculate the effect of outstanding dilutive equity incentive instruments, which requires the Company to compute total proceeds as the sum of the amount the employee must pay upon exercise of the award and the amount of unearned stock-based compensation costs attributable to future services.

Equity incentive instruments for which the total employee proceeds from exercise exceed the average fair value of the same equity incentive instrument over the period have an anti-dilutive effect on earnings per share during periods with net earnings, and accordingly, the Company excludes them from the calculation. Anti-dilutive equity instruments excluded from the computation of diluted net earnings per share were 0.3 million for the nine months ended September 30, 2022 and 0.3 million and 0.8 million class A common shares for the three and nine months ended September 30, 2021, respectively. There were no anti-dilutive equity instruments excluded from the computation of diluted net earnings per share for the three months ended September 30, 2022.

Reconciliations of the numerator and the denominator of the basic and diluted per share computations for the Company’s common stock for the three and nine months ended September 30, 2022 and 2021, are summarized as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Numerator
Net earnings $ 13.7  $ 14.3  $ 18.0  $ 58.9 
Denominator
Basic weighted average number of common shares outstanding for all classes of common shares 50.1  51.3  51.2  51.3 
Plus: effect of dilutive equity incentive instruments 1.5  1.8  1.8  1.5 
Diluted weighted average number of common shares outstanding for all classes of common shares 51.6  53.1  53.0  52.8 
Earnings per share
Basic $ 0.27  $ 0.28  $ 0.35  $ 1.15 
Diluted $ 0.27  $ 0.27  $ 0.34  $ 1.12 



19



QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(In millions, except share and per share data and unless otherwise indicated)
Note 12. Equity Incentive Programs

Equity Incentive Compensation Expense

Equity incentive compensation expense was recorded primarily in selling, general and administrative expenses in the condensed consolidated statements of operations and includes expense recognized for liability awards that are remeasured on a quarterly basis. The total compensation expense recognized related to all equity incentive programs for the three and nine months ended September 30, 2022 and 2021, was as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Restricted Stock (“RS”) and Restricted Stock Units (“RSU”) equity awards expense $ 1.1  $ 2.0  $ 4.0  $ 5.7 
RSU liability awards expense —  —  0.2  0.1 
Deferred Stock Units (“DSU”) awards expense —  —  0.7  0.8 
Total equity incentive compensation expense $ 1.1  $ 2.0  $ 4.9  $ 6.6 

Total future compensation expense related to all equity incentive programs granted as of September 30, 2022, was estimated to be $7.2 million, which consists entirely of expense for RS and RSU awards. Estimated future compensation expense is $1.2 million for the remainder of 2022, $3.5 million for 2023, $2.2 million for 2024 and $0.3 million for 2025.

Restricted Stock and Restricted Stock Units

The following table is a summary of RS and RSU award activity for the nine months ended September 30, 2022:
Restricted Stock Restricted Stock Units
Shares Weighted-
Average
Grant Date
Fair Value
Per Share
Weighted-
Average
Remaining
Contractual
Term (years)
Units Weighted-
Average
Grant Date
Fair Value
Per Share
Weighted-
Average
Remaining
Contractual
Term (years)
Nonvested at December 31, 2021 3,053,019  $ 6.99  1.2 222,093  $ 10.41  0.5
Granted 1,693,743  3.97  54,014  4.00 
Vested (1,039,567) 12.31  (169,489) 12.33 
Forfeited (68,580) 4.24  (6) 12.33 
Nonvested at September 30, 2022 3,638,615  $ 4.11  1.6 106,612  $ 4.11  1.7



20



QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(In millions, except share and per share data and unless otherwise indicated)
Deferred Stock Units

The following table is a summary of DSU award activity for the nine months ended September 30, 2022:
Deferred Stock Units
Units Weighted-Average Grant Date Fair Value Per Share
Outstanding at December 31, 2021 687,391  $ 8.26 
Granted 187,632  3.89 
Dividend equivalents granted —  — 
Settled (101,829) 7.90 
Outstanding at September 30, 2022 773,194  $ 7.25 

Note 13. Shareholders’ Equity

The Company has three classes of common stock as follows (share data in millions):
Issued Common Stock
Authorized Shares Outstanding Treasury Total Issued Shares
Class A stock ($0.025 par value)
September 30, 2022 105.0  39.2  3.4  42.6 
December 31, 2021 105.0  40.8  0.9  41.7 
Class B stock ($0.025 par value)
September 30, 2022 80.0  13.5  —  13.5 
December 31, 2021 80.0  13.5  —  13.5 
Class C stock ($0.025 par value)
September 30, 2022 20.0  —  0.5  0.5 
December 31, 2021 20.0  —  0.5  0.5 

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

The Company also has 0.5 million shares of $0.01 par value preferred stock authorized, of which none were issued at September 30, 2022, and December 31, 2021. The Company has no present plans to issue any preferred stock.

On July 30, 2018, the Company’s Board of Directors authorized a share repurchase program of up to $100.0 million of the Company’s outstanding class A common stock. During the three months ended September 30, 2022, the Company repurchased 2,803,539 shares of its Class A common stock at a weighted average price of $3.23 per share for a total purchase price of $9.1 million. During the nine months ended September 30, 2022, the Company repurchased 3,093,662 shares of its Class A common stock at a weighted average price of $3.21 per share for a total purchase price of $10.0 million. There were no shares repurchased during the three and nine months ended September 30, 2021. As of September 30, 2022, there were $90.1 million of authorized repurchases remaining under the program.



21



QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(In millions, except share and per share data and unless otherwise indicated)
In accordance with the Articles of Incorporation, dividends are paid equally for all three classes of common shares. 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.

Note 14. Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss by component, net of tax, for the nine months ended September 30, 2022, were as follows:
Translation Adjustments Interest Rate Swap Adjustments Pension Benefit Plan Adjustments Total
Balance at December 31, 2021 $ (143.1) $ (6.7) $ (11.4) $ (161.2)
Other comprehensive income (loss) before reclassifications (12.2) —  —  (12.2)
Amounts reclassified from accumulated other comprehensive loss to net earnings —  2.3  —  2.3 
Net other comprehensive income (loss) (12.2) 2.3  —  (9.9)
Balance at September 30, 2022 $ (155.3) $ (4.4) $ (11.4) $ (171.1)

The changes in accumulated other comprehensive loss by component, net of tax, for the nine months ended September 30, 2021, were as follows:
Translation Adjustments Interest Rate Swap Adjustments Pension Benefit Plan Adjustments Total
Balance at December 31, 2020 $ (130.8) $ (12.3) $ (28.2) $ (171.3)
Other comprehensive income (loss) before reclassifications (9.1) —  0.1  (9.0)
Amounts reclassified from accumulated other comprehensive loss to net earnings —  5.3  0.8  6.1 
Net other comprehensive income (loss) (9.1) 5.3  0.9  (2.9)
Balance at September 30, 2021 $ (139.9) $ (7.0) $ (27.3) $ (174.2)



22



QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(In millions, except share and per share data and unless otherwise indicated)
The details of the reclassifications from accumulated other comprehensive loss to net earnings for the three and nine months ended September 30, 2022 and 2021, were as follows:
Details of Accumulated Other
Comprehensive Loss Components
Three Months Ended September 30, Nine Months Ended September 30, Condensed Consolidated Statements of Operations Presentation
2022 2021 2022 2021
Amortization of amounts accumulated for interest rate swaps de-designated as cash flow hedges $ 0.7  $ 1.7  $ 2.8  $ 5.3  Interest expense
Impact of income taxes (0.1) —  (0.5) —  Income tax expense
Amortization of amounts accumulated for interest rate swaps de-designated as cash flow hedges, net of tax $ 0.6  $ 1.7  $ 2.3  $ 5.3 
Non-cash settlement charge on pension benefit plan $ —  $ 0.2  $ —  $ 0.8  Net pension income
Impact of income taxes —  —  —  —  Income tax expense
Non-cash settlement charge on pension benefit plan, net of tax $ —  $ 0.2  $ —  $ 0.8 
Total reclassifications for the period $ 0.7  $ 1.9  $ 2.8  $ 6.1 
Impact of income taxes (0.1) —  (0.5) — 
Total reclassifications for the period, net of tax $ 0.6  $ 1.9  $ 2.3  $ 6.1 

Note 15. Segment Information

As a global marketing experience company, 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 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 as follows:

United States Print and Related Services
International
Corporate

United States Print and Related Services

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.



23



QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(In millions, except share and per share data and unless otherwise indicated)
International

The International segment consists of the Company’s printing operations in Europe and Latin America, including operations in England, France, Germany, Poland, Argentina, Colombia, Mexico and Peru, as well as investments in printing operations in India. This segment provides printed products and marketing and other complementary services consistent with the United States Print and Related Services segment.

Corporate

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.

The following is a summary of segment information for the three and nine months ended September 30, 2022 and 2021:
Net Sales Operating Income (Loss) Restructuring, Impairment and Transaction-
Related Charges
Products Services
Three months ended September 30, 2022
United States Print and Related Services $ 540.0  $ 173.1  $ 33.3  $ 3.8 
International 112.0  4.8  5.6  1.6 
Total operating segments 652.0  177.9  38.9  5.4 
Corporate —  —  (13.7) 0.2 
Total $ 652.0  $ 177.9  $ 25.2  $ 5.6 
Three months ended September 30, 2021
United States Print and Related Services $ 463.9  $ 160.4  $ 36.1  $ 7.3 
International 76.7  5.1  3.6  0.1 
Total operating segments 540.6  165.5  39.7  7.4 
Corporate —  —  (11.7) — 
Total $ 540.6  $ 165.5  $ 28.0  $ 7.4 
Nine months ended September 30, 2022
United States Print and Related Services $ 1,523.9  $ 489.7  $ 65.0  $ 7.1 
International 302.9  15.3  15.5  4.5 
Total operating segments 1,826.8  505.0  80.5  11.6 
Corporate —  —  (35.7) 0.8 
Total $ 1,826.8  $ 505.0  $ 44.8  $ 12.4 
Nine months ended September 30, 2021
United States Print and Related Services $ 1,357.1  $ 512.7  $ 124.4  $ (6.1)
International 221.1  14.9  8.1  1.8 
Total operating segments 1,578.2  527.6  132.5  (4.3)
Corporate —  —  (35.5) 0.9 
Total $ 1,578.2  $ 527.6  $ 97.0  $ (3.4)



24



QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
(In millions, except share and per share data and unless otherwise indicated)
Restructuring, impairment and transaction-related charges for the three and nine months ended September 30, 2022 and 2021, are further described in Note 3, “Restructuring, Impairment and Transaction-Related Charges,” and are included in the operating income (loss) results by segment above.

A reconciliation of operating income to earnings before income taxes and equity in earnings of unconsolidated entity as reported in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021, was as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Operating income $ 25.2  $ 28.0  $ 44.8  $ 97.0 
Less: interest expense 12.1  15.0  32.3  45.1 
Less: net pension income (3.2) (3.4) (9.5) (11.0)
Earnings before income taxes and equity in earnings of unconsolidated entity $ 16.3  $ 16.4  $ 22.0  $ 62.9 

Note 16. New Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform. Additionally, ASU 2020-04 permits entities to apply certain expedients and exceptions for contracts, hedging relationships, and other transactions impacted by the anticipated transition away from the use of LIBOR or other interbank offered rates to alternative reference rates. ASU 2020-04 was further updated by Accounting Standards Update 2021-01 “Reference Rate Reform (Topic 848)” (“ASU 2021-01”) which further clarified the scope of Topic 848. This optional guidance is effective as of March 12, 2020, through December 31, 2022. The Company expects to elect the practical expedient outlined in ASU 2020-04 and ASU 2021-01 which allows the Company to prospectively adjust the effective interest rate after a reference rate change. The Company expects that reference rate reform will not have a material impact on the condensed consolidated financial statements.



25

ITEM 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations of Quad should be read together with (1) the condensed consolidated financial statements for the three and nine months ended September 30, 2022 and 2021, including the notes thereto, included in Item 1, “Condensed Consolidated Financial Statements (Unaudited),” of this Quarterly Report on Form 10-Q; and (2) the audited consolidated annual financial statements as of and for the year ended December 31, 2021, and notes thereto included in the Company’s Annual Report on Form 10-K, filed with the SEC on February 23, 2022.

Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to the Company’s condensed 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:

Cautionary Statement Regarding Forward-Looking Statements.

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 (1) the three months ended September 30, 2022, to the three months ended September 30, 2021; and (2) the nine months ended September 30, 2022, to the nine months ended September 30, 2021. The comparability of the Company’s results of operations between periods was impacted by the divestiture of the Company’s third-party logistics business on June 30, 2021. The results of operations of the divestiture are included in the Company’s condensed consolidated results until the date of disposition. Forward-looking statements providing a general description of recent and projected industry and Company developments that are important to understanding the Company’s results of operations are included in this section. 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 GAAP.

Liquidity and Capital Resources. This section provides an analysis of the Company’s capitalization, cash flows and a discussion 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.




26

Cautionary Statement Regarding Forward-Looking Statements

To the extent any statements in this Quarterly Report on Form 10-Q 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 the Company, 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 the Company’s 2021 Annual Report on Form 10-K, filed with the SEC on February 23, 2022, 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 (including this report), 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, as well as rising interest rates;

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