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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Quad Graphics Inc | NYSE:QUAD | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.12 | 2.61% | 4.72 | 4.76 | 4.58 | 4.72 | 131,536 | 01:00:00 |
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Wisconsin
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39-1152983
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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N61 W23044 Harry's Way, Sussex, Wisconsin 53089-3995
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(414) 566-6000
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(Address of principal executive offices) (Zip Code)
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(Registrant's telephone number, including area code)
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Large accelerated filer
x
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Emerging growth company
o
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Class
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Outstanding as of October 26, 2018
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Class A Common Stock
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38,115,225
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Class B Common Stock
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13,556,858
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Class C Common Stock
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—
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Page No.
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ITEM 1.
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Condensed Consolidated Financial Statements (Unaudited)
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Three Months Ended September 30,
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Nine Months Ended September 30,
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||||||||||||
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2018
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2017
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2018
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2017
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||||||||
Net sales
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||||||||
Products
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$
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826.7
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$
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856.9
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$
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2,431.2
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$
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2,530.6
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Services
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202.4
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148.5
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580.9
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436.6
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Total net sales
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1,029.1
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1,005.4
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3,012.1
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2,967.2
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Cost of sales
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||||||||
Products
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683.6
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679.1
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2,013.2
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2,024.9
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Services
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148.1
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105.7
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437.6
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306.0
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Total cost of sales
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831.7
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784.8
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2,450.8
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2,330.9
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||||
Operating expenses
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||||||||
Selling, general and administrative expenses
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92.4
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107.5
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278.5
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310.4
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Depreciation and amortization
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59.1
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58.3
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173.6
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175.5
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Restructuring, impairment and transaction-related charges
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5.3
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8.0
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40.6
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22.5
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Total operating expenses
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988.5
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958.6
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2,943.5
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2,839.3
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Operating income
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40.6
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46.8
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68.6
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127.9
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Interest expense
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18.3
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17.8
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54.0
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53.6
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Net pension income
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(3.1
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)
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(2.6
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)
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(9.3
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)
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(7.8
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)
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Loss on debt extinguishment
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—
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—
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—
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2.6
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Earnings before income taxes and equity in (earnings) loss of unconsolidated entity
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25.4
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31.6
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23.9
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79.5
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Income tax expense (benefit)
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3.1
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11.8
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(3.9
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)
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26.8
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Earnings before equity in (earnings) loss of unconsolidated entity
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22.3
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19.8
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27.8
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52.7
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Equity in (earnings) loss of unconsolidated entity
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(0.2
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)
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—
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(0.7
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)
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0.8
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Net earnings
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22.5
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19.8
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28.5
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51.9
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Less: net loss attributable to noncontrolling interests
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(0.9
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)
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—
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(0.8
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—
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Net earnings attributable to Quad/Graphics common shareholders
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$
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23.4
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$
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19.8
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$
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29.3
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$
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51.9
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Earnings per share attributable to Quad/Graphics common shareholders
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Basic
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$
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0.47
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$
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0.40
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$
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0.59
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$
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1.05
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Diluted
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$
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0.46
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$
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0.38
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$
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0.57
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$
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1.01
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Dividends declared per share
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$
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0.30
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$
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0.30
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$
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0.90
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$
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0.90
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Weighted average number of common shares outstanding
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||||||||
Basic
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49.3
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49.5
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50.0
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49.4
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Diluted
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51.1
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51.5
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51.8
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51.6
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Three Months Ended September 30,
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Nine Months Ended September 30,
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||||||||||||
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2018
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2017
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2018
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2017
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Net earnings
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$
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22.5
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$
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19.8
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$
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28.5
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$
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51.9
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||||||||
Other comprehensive income (loss)
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||||||||
Translation adjustments
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0.7
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3.5
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(9.3
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)
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14.9
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Interest rate swap adjustments
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1.0
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0.3
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6.1
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(0.4
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)
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Other comprehensive income (loss), before tax
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1.7
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3.8
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(3.2
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)
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14.5
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Income tax impact related to items of other comprehensive income (loss)
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(0.3
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)
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(0.2
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(1.5
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)
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0.1
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||||
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||||||||
Other comprehensive income (loss), net of tax
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1.4
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3.6
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(4.7
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)
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14.6
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||||
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||||||||
Total comprehensive income
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23.9
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|
23.4
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23.8
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66.5
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||||
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||||||||
Less: comprehensive loss attributable to noncontrolling interests
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(0.9
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)
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—
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(0.8
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)
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—
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||||
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||||||||
Comprehensive income attributable to Quad/Graphics common shareholders
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$
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24.8
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$
|
23.4
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$
|
24.6
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$
|
66.5
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|
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September 30,
2018 |
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December 31,
2017 |
||||
ASSETS
|
|
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|
||||
Cash and cash equivalents
|
$
|
6.3
|
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$
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64.4
|
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Receivables, less allowances for doubtful accounts of $27.7 million at September 30, 2018, and $28.9 million at December 31, 2017
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553.0
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552.5
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Inventories
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354.5
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246.5
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|
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Prepaid expenses and other current assets
|
57.6
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45.1
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|
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Total current assets
|
971.4
|
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908.5
|
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||
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|
||||
Property, plant and equipment—net
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1,284.5
|
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|
1,377.6
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|
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Goodwill
|
55.5
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|
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—
|
|
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Other intangible assets—net
|
121.7
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|
43.4
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|
||
Equity method investment in unconsolidated entity
|
3.6
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|
|
3.6
|
|
||
Other long-term assets
|
97.1
|
|
|
119.3
|
|
||
Total assets
|
$
|
2,533.8
|
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$
|
2,452.4
|
|
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|
||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
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|
||||
Accounts payable
|
$
|
432.0
|
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$
|
381.6
|
|
Accrued liabilities
|
282.7
|
|
|
316.7
|
|
||
Short-term debt and current portion of long-term debt
|
42.3
|
|
|
42.0
|
|
||
Current portion of capital lease obligations
|
5.1
|
|
|
5.6
|
|
||
Total current liabilities
|
762.1
|
|
|
745.9
|
|
||
|
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|
||||
Long-term debt
|
1,015.9
|
|
|
903.5
|
|
||
Capital lease obligations
|
11.1
|
|
|
13.7
|
|
||
Deferred income taxes
|
44.0
|
|
|
41.9
|
|
||
Other long-term liabilities
|
187.4
|
|
|
225.0
|
|
||
Total liabilities
|
2,020.5
|
|
|
1,930.0
|
|
||
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|
||||
Commitments and contingencies (Note 8)
|
|
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|
||||
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
|
857.9
|
|
|
861.1
|
|
||
Treasury stock, at cost
|
(56.6
|
)
|
|
(52.8
|
)
|
||
Accumulated deficit
|
(175.0
|
)
|
|
(162.9
|
)
|
||
Accumulated other comprehensive loss
|
(132.0
|
)
|
|
(124.4
|
)
|
||
Quad/Graphics' shareholders' equity
|
495.7
|
|
|
522.4
|
|
||
Noncontrolling interests
|
17.6
|
|
|
—
|
|
||
Total shareholders' equity and noncontrolling interests
|
513.3
|
|
|
522.4
|
|
||
Total liabilities and shareholders' equity
|
$
|
2,533.8
|
|
|
$
|
2,452.4
|
|
|
Nine Months Ended September 30,
|
||||||
|
2018
|
|
2017
|
||||
OPERATING ACTIVITIES
|
|
|
|
||||
Net earnings
|
$
|
28.5
|
|
|
$
|
51.9
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
173.6
|
|
|
175.5
|
|
||
Employee stock ownership plan contribution
|
22.3
|
|
|
—
|
|
||
Impairment charges
|
16.0
|
|
|
1.0
|
|
||
Amortization of debt issuance costs and original issue discount
|
2.6
|
|
|
2.7
|
|
||
Loss on debt extinguishment
|
—
|
|
|
2.6
|
|
||
Stock-based compensation
|
12.3
|
|
|
13.0
|
|
||
Gain from property insurance claims
|
(18.3
|
)
|
|
(5.0
|
)
|
||
Gain on the sale or disposal of property, plant and equipment
|
(10.7
|
)
|
|
(7.3
|
)
|
||
Deferred income taxes
|
(0.5
|
)
|
|
15.5
|
|
||
Equity in (earnings) loss of unconsolidated entity
|
(0.7
|
)
|
|
0.8
|
|
||
Changes in operating assets and liabilities—net of acquisitions
|
(178.5
|
)
|
|
(71.0
|
)
|
||
Net cash provided by operating activities
|
46.6
|
|
|
179.7
|
|
||
|
|
|
|
||||
INVESTING ACTIVITIES
|
|
|
|
||||
Purchases of property, plant and equipment
|
(85.0
|
)
|
|
(61.6
|
)
|
||
Proceeds from the sale of property, plant and equipment
|
22.3
|
|
|
22.9
|
|
||
Proceeds from property insurance claims
|
14.5
|
|
|
5.0
|
|
||
Loan to an unconsolidated entity
|
—
|
|
|
(5.0
|
)
|
||
Acquisition of businesses—net of cash acquired
|
(71.4
|
)
|
|
—
|
|
||
Net cash used in investing activities
|
(119.6
|
)
|
|
(38.7
|
)
|
||
|
|
|
|
||||
FINANCING ACTIVITIES
|
|
|
|
||||
Proceeds from issuance of long-term debt
|
0.3
|
|
|
375.0
|
|
||
Payments of long-term debt
|
(27.8
|
)
|
|
(424.3
|
)
|
||
Payments of capital lease obligations
|
(4.9
|
)
|
|
(5.9
|
)
|
||
Borrowings on revolving credit facilities
|
1,830.0
|
|
|
525.7
|
|
||
Payments on revolving credit facilities
|
(1,691.9
|
)
|
|
(550.4
|
)
|
||
Payments of debt issuance costs and financing fees
|
—
|
|
|
(4.7
|
)
|
||
Purchases of treasury stock
|
(36.7
|
)
|
|
(3.8
|
)
|
||
Proceeds from stock options exercised
|
4.1
|
|
|
2.4
|
|
||
Equity awards redeemed to pay employees' tax obligations
|
(9.0
|
)
|
|
(5.9
|
)
|
||
Payment of cash dividends
|
(47.5
|
)
|
|
(46.5
|
)
|
||
Other financing activities
|
—
|
|
|
(4.1
|
)
|
||
Net cash provided by (used in) financing activities
|
16.6
|
|
|
(142.5
|
)
|
||
|
|
|
|
||||
Effect of exchange rates on cash and cash equivalents
|
(1.7
|
)
|
|
(0.3
|
)
|
||
Net decrease in cash and cash equivalents
|
(58.1
|
)
|
|
(1.8
|
)
|
||
Cash and cash equivalents at beginning of period
|
64.4
|
|
|
19.2
|
|
||
Cash and cash equivalents at end of period
|
$
|
6.3
|
|
|
$
|
17.4
|
|
|
Three Months Ended September 30, 2017
|
|
Nine Months Ended September 30, 2017
|
||||||||||||||||||||
|
As Previously Reported
|
|
Adjusted for ASU 2017-07
|
|
As Adjusted
|
|
As Previously Reported
|
|
Adjusted for ASU 2017-07
|
|
As Adjusted
|
||||||||||||
Net sales
|
$
|
1,005.4
|
|
|
$
|
—
|
|
|
$
|
1,005.4
|
|
|
$
|
2,967.2
|
|
|
$
|
—
|
|
|
$
|
2,967.2
|
|
Cost of sales
|
784.8
|
|
|
—
|
|
|
784.8
|
|
|
2,330.9
|
|
|
—
|
|
|
2,330.9
|
|
||||||
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Selling, general and administrative expenses
|
104.9
|
|
|
2.6
|
|
|
107.5
|
|
|
302.6
|
|
|
7.8
|
|
|
310.4
|
|
||||||
Depreciation and amortization
|
58.3
|
|
|
—
|
|
|
58.3
|
|
|
175.5
|
|
|
—
|
|
|
175.5
|
|
||||||
Restructuring, impairment and transaction-related charges
|
8.0
|
|
|
—
|
|
|
8.0
|
|
|
22.5
|
|
|
—
|
|
|
22.5
|
|
||||||
Total operating expenses
|
956.0
|
|
|
2.6
|
|
|
958.6
|
|
|
2,831.5
|
|
|
7.8
|
|
|
2,839.3
|
|
||||||
Operating income
|
49.4
|
|
|
(2.6
|
)
|
|
46.8
|
|
|
135.7
|
|
|
(7.8
|
)
|
|
127.9
|
|
||||||
Interest expense
|
17.8
|
|
|
—
|
|
|
17.8
|
|
|
53.6
|
|
|
—
|
|
|
53.6
|
|
||||||
Net pension income
|
—
|
|
|
(2.6
|
)
|
|
(2.6
|
)
|
|
—
|
|
|
(7.8
|
)
|
|
(7.8
|
)
|
||||||
Loss on debt extinguishment
|
—
|
|
|
—
|
|
|
—
|
|
|
2.6
|
|
|
—
|
|
|
2.6
|
|
||||||
Earnings before income taxes and equity in (earnings) loss of unconsolidated entity
|
$
|
31.6
|
|
|
$
|
—
|
|
|
$
|
31.6
|
|
|
$
|
79.5
|
|
|
$
|
—
|
|
|
$
|
79.5
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
||||||||||||||||||||
|
As Previously Reported
|
|
Adjusted for ASU 2017-07
|
|
As Adjusted
|
|
As Previously Reported
|
|
Adjusted for ASU 2017-07
|
|
As Adjusted
|
||||||||||||
Net sales
|
$
|
4,131.4
|
|
|
$
|
—
|
|
|
$
|
4,131.4
|
|
|
$
|
4,329.5
|
|
|
$
|
—
|
|
|
$
|
4,329.5
|
|
Cost of sales
|
3,259.4
|
|
|
—
|
|
|
3,259.4
|
|
|
3,394.8
|
|
|
—
|
|
|
3,394.8
|
|
||||||
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Selling, general and administrative expenses
|
413.4
|
|
|
10.4
|
|
|
423.8
|
|
|
454.6
|
|
|
12.1
|
|
|
466.7
|
|
||||||
Depreciation and amortization
|
232.5
|
|
|
—
|
|
|
232.5
|
|
|
277.1
|
|
|
—
|
|
|
277.1
|
|
||||||
Restructuring, impairment and transaction-related charges
|
61.2
|
|
|
(0.8
|
)
|
|
60.4
|
|
|
80.6
|
|
|
(7.0
|
)
|
|
73.6
|
|
||||||
Total operating expenses
|
3,966.5
|
|
|
9.6
|
|
|
3,976.1
|
|
|
4,207.1
|
|
|
5.1
|
|
|
4,212.2
|
|
||||||
Operating income
|
164.9
|
|
|
(9.6
|
)
|
|
155.3
|
|
|
122.4
|
|
|
(5.1
|
)
|
|
117.3
|
|
||||||
Interest expense
|
71.1
|
|
|
—
|
|
|
71.1
|
|
|
77.2
|
|
|
—
|
|
|
77.2
|
|
||||||
Net pension income
|
—
|
|
|
(9.6
|
)
|
|
(9.6
|
)
|
|
—
|
|
|
(5.1
|
)
|
|
(5.1
|
)
|
||||||
Loss (gain) on debt extinguishment
|
2.6
|
|
|
—
|
|
|
2.6
|
|
|
(14.1
|
)
|
|
—
|
|
|
(14.1
|
)
|
||||||
Earnings before income taxes and equity in (earnings) loss of unconsolidated entity
|
$
|
91.2
|
|
|
$
|
—
|
|
|
$
|
91.2
|
|
|
$
|
59.3
|
|
|
$
|
—
|
|
|
$
|
59.3
|
|
|
December 31, 2017
As Reported |
|
Topic 606 Adjustments
|
|
Opening Balance at
January 1, 2018
|
||||||
Prepaid expenses and other current assets
|
$
|
45.1
|
|
|
$
|
2.3
|
|
|
$
|
47.4
|
|
Other long-term assets
|
119.3
|
|
|
2.0
|
|
|
121.3
|
|
|||
Deferred income taxes
|
41.9
|
|
|
1.1
|
|
|
43.0
|
|
|||
Accumulated deficit
|
(162.9
|
)
|
|
3.2
|
|
|
(159.7
|
)
|
|
United States Print
and Related Services
|
|
International
|
|
Total
|
||||||
Three months ended September 30, 2018
|
|
|
|
|
|
||||||
Catalog, publications, retail inserts, books and directories
|
$
|
577.1
|
|
|
$
|
76.6
|
|
|
$
|
653.7
|
|
Direct mail and other printed products
|
159.2
|
|
|
7.7
|
|
|
166.9
|
|
|||
Other
|
6.0
|
|
|
0.1
|
|
|
6.1
|
|
|||
Total Products
|
742.3
|
|
|
84.4
|
|
|
826.7
|
|
|||
Logistics services
|
106.8
|
|
|
4.4
|
|
|
111.2
|
|
|||
Imaging, marketing services and other services
|
91.2
|
|
|
—
|
|
|
91.2
|
|
|||
Total Services
|
198.0
|
|
|
4.4
|
|
|
202.4
|
|
|||
Total Net Sales
|
$
|
940.3
|
|
|
$
|
88.8
|
|
|
$
|
1,029.1
|
|
|
|
|
|
|
|
||||||
Three months ended September 30, 2017
|
|
|
|
|
|
||||||
Catalog, publications, retail inserts, books and directories
|
$
|
598.1
|
|
|
$
|
87.3
|
|
|
$
|
685.4
|
|
Direct mail and other printed products
|
149.8
|
|
|
6.8
|
|
|
156.6
|
|
|||
Other
|
14.6
|
|
|
0.3
|
|
|
14.9
|
|
|||
Total Products
|
762.5
|
|
|
94.4
|
|
|
856.9
|
|
|||
Logistics services
|
96.7
|
|
|
4.7
|
|
|
101.4
|
|
|||
Imaging, marketing services and other services
|
47.1
|
|
|
—
|
|
|
47.1
|
|
|||
Total Services
|
143.8
|
|
|
4.7
|
|
|
148.5
|
|
|||
Total Net Sales
|
$
|
906.3
|
|
|
$
|
99.1
|
|
|
$
|
1,005.4
|
|
|
United States Print
and Related Services |
|
International
|
|
Total
|
||||||
Nine months ended September 30, 2018
|
|
|
|
|
|
||||||
Catalog, publications, retail inserts, books and directories
|
$
|
1,697.1
|
|
|
$
|
246.4
|
|
|
$
|
1,943.5
|
|
Direct mail and other printed products
|
443.9
|
|
|
23.7
|
|
|
467.6
|
|
|||
Other
|
19.7
|
|
|
0.4
|
|
|
20.1
|
|
|||
Total Products
|
2,160.7
|
|
|
270.5
|
|
|
2,431.2
|
|
|||
Logistics services
|
308.2
|
|
|
14.0
|
|
|
322.2
|
|
|||
Imaging, marketing services and other services
|
258.7
|
|
|
—
|
|
|
258.7
|
|
|||
Total Services
|
566.9
|
|
|
14.0
|
|
|
580.9
|
|
|||
Total Net Sales
|
$
|
2,727.6
|
|
|
$
|
284.5
|
|
|
$
|
3,012.1
|
|
|
|
|
|
|
|
||||||
Nine months ended September 30, 2017
|
|
|
|
|
|
||||||
Catalog, publications, retail inserts, books and directories
|
$
|
1,768.7
|
|
|
$
|
251.5
|
|
|
$
|
2,020.2
|
|
Direct mail and other printed products
|
446.7
|
|
|
19.7
|
|
|
466.4
|
|
|||
Other
|
43.3
|
|
|
0.7
|
|
|
44.0
|
|
|||
Total Products
|
2,258.7
|
|
|
271.9
|
|
|
2,530.6
|
|
|||
Logistics services
|
283.3
|
|
|
14.5
|
|
|
297.8
|
|
|||
Imaging, marketing services and other services
|
138.8
|
|
|
—
|
|
|
138.8
|
|
|||
Total Services
|
422.1
|
|
|
14.5
|
|
|
436.6
|
|
|||
Total Net Sales
|
$
|
2,680.8
|
|
|
$
|
286.4
|
|
|
$
|
2,967.2
|
|
•
|
For certain performance obligations related to print contracts, the Company has elected not to disclose the value of unsatisfied performance obligations for the following: (1) contracts that have an original expected length of one year or less; (2) contracts where revenue is recognized as invoiced; or (3) contracts with variable consideration related to unsatisfied performance obligations. The Company had approximately
$529.4 million
in volume commitments in contracts that extend beyond one year as of
September 30, 2018
. The Company expects to recognize approximately
8%
of these volume commitments in contracts as revenue by the end of 2018, an additional
56%
by the end of 2020, and the balance thereafter.
|
•
|
The Company expenses costs to obtain contracts as incurred when the contract duration is less than one year.
|
•
|
The transaction amount is not adjusted for a significant financing component as the period between transfer of the products or services and payment is less than one year.
|
•
|
The Company accounts for shipping and handling activities, which includes postage, that occur after control of the related products or services transfers to the customer as fulfillment activities and are therefore recognized at time of shipping.
|
•
|
The Company excludes from its transaction price any amounts collected from customers for sales taxes.
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Employee termination charges
|
$
|
4.1
|
|
|
$
|
7.3
|
|
|
$
|
17.2
|
|
|
$
|
13.2
|
|
Impairment charges
|
4.5
|
|
|
0.3
|
|
|
16.0
|
|
|
1.0
|
|
||||
Transaction-related charges
|
0.3
|
|
|
0.6
|
|
|
1.1
|
|
|
1.8
|
|
||||
Integration costs
|
0.5
|
|
|
—
|
|
|
0.7
|
|
|
—
|
|
||||
Other restructuring (income) charges
|
(4.1
|
)
|
|
(0.2
|
)
|
|
5.6
|
|
|
6.5
|
|
||||
Total
|
$
|
5.3
|
|
|
$
|
8.0
|
|
|
$
|
40.6
|
|
|
$
|
22.5
|
|
•
|
Employee termination charges of
$4.1 million
and
$17.2 million
were recorded during the
three and nine months ended
September 30, 2018
, respectively, and
$7.3 million
and
$13.2 million
were recorded during the
three and nine months ended
September 30, 2017
, respectively. The Company reduced its workforce through facility consolidations and separation programs.
|
•
|
Integration costs of
$0.5 million
and
$0.7 million
were recorded during the
three and nine months ended
September 30, 2018
, respectively, which related to costs primarily for the integration of acquired companies. There were
no
integration costs recorded during the
three and nine months ended
September 30, 2017
.
|
•
|
Other restructuring income of
$4.1 million
and restructuring charges of
$5.6 million
were recorded during the
three and nine months ended
September 30, 2018
, respectively, which consisted of the following: (1)
$0.3 million
and
$2.9 million
, respectively, of lease exit charges; (2)
$0.3 million
and
$1.3 million
, respectively, of equipment and infrastructure removal costs from closed plants; (3)
$5.3 million
of restructuring income and
$0.3 million
of expense, respectively, of vacant facility carrying costs, net of a
$7.5 million
gain from the sale of the Taunton, Massachusetts Book facility during the
three and nine months ended
September 30, 2018
, and net of a
$2.2 million
gain from the sale of the San Ixhuatepec, Mexico facility during the
nine months ended
September 30, 2018
; (4)
$1.4 million
in charges from foreign currency losses during the
three and nine months ended
September 30, 2018
, as a result of the economy in Argentina being classified as highly inflationary; and (5)
$0.8 million
and
$0.3 million
, respectively, of other restructuring income.
|
|
Employee
Termination
Charges
|
|
Impairment
Charges
|
|
Transaction-Related
Charges
|
|
Integration
Costs
|
|
Other
Restructuring
Charges
|
|
Total
|
||||||||||||
Balance at December 31, 2017
|
$
|
17.6
|
|
|
$
|
—
|
|
|
$
|
0.4
|
|
|
$
|
0.2
|
|
|
$
|
11.3
|
|
|
$
|
29.5
|
|
Expense, net
|
17.2
|
|
|
16.0
|
|
|
1.1
|
|
|
0.7
|
|
|
5.6
|
|
|
40.6
|
|
||||||
Cash payments, net
|
(24.7
|
)
|
|
—
|
|
|
(1.2
|
)
|
|
(0.7
|
)
|
|
(9.5
|
)
|
|
(36.1
|
)
|
||||||
Non-cash adjustments/reclassifications
|
(2.8
|
)
|
|
(16.0
|
)
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
(19.0
|
)
|
||||||
Balance at September 30, 2018
|
$
|
7.3
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
7.4
|
|
|
$
|
15.0
|
|
|
United States Print and Related
Services
|
|
International
|
|
Total
|
||||||
Balance at December 31, 2017
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Ivie acquisition (see Note 3)
|
28.3
|
|
|
—
|
|
|
28.3
|
|
|||
Rise acquisition (see Note 3)
|
27.2
|
|
|
—
|
|
|
27.2
|
|
|||
Balance at September 30, 2018
|
$
|
55.5
|
|
|
$
|
—
|
|
|
$
|
55.5
|
|
|
September 30, 2018
|
|
December 31, 2017
|
||||||||||||||||||||
|
United States Print and Related Services
|
|
International
|
|
Total
|
|
United States Print and Related Services
|
|
International
|
|
Total
|
||||||||||||
Goodwill
|
$
|
833.8
|
|
|
$
|
30.0
|
|
|
$
|
863.8
|
|
|
$
|
778.3
|
|
|
$
|
30.0
|
|
|
$
|
808.3
|
|
Accumulated goodwill impairment loss
|
(778.3
|
)
|
|
(30.0
|
)
|
|
(808.3
|
)
|
|
(778.3
|
)
|
|
(30.0
|
)
|
|
(808.3
|
)
|
||||||
Ending Balance
|
$
|
55.5
|
|
|
$
|
—
|
|
|
$
|
55.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
September 30, 2018
|
|
December 31, 2017
|
||||||||||||||||||||||||
|
Weighted
Average
Amortization
Period
(Years)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
Weighted
Average Amortization Period (Years) |
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
||||||||||||
Trademarks, patents, licenses and agreements
|
6
|
|
$
|
59.9
|
|
|
$
|
(20.0
|
)
|
|
$
|
39.9
|
|
|
7
|
|
$
|
24.0
|
|
|
$
|
(13.5
|
)
|
|
$
|
10.5
|
|
Capitalized software
|
5
|
|
17.0
|
|
|
(6.1
|
)
|
|
10.9
|
|
|
5
|
|
4.8
|
|
|
(4.3
|
)
|
|
0.5
|
|
||||||
Customer relationships
|
6
|
|
515.1
|
|
|
(444.2
|
)
|
|
70.9
|
|
|
6
|
|
460.8
|
|
|
(428.4
|
)
|
|
32.4
|
|
||||||
Total
|
|
|
$
|
592.0
|
|
|
$
|
(470.3
|
)
|
|
$
|
121.7
|
|
|
|
|
$
|
489.6
|
|
|
$
|
(446.2
|
)
|
|
$
|
43.4
|
|
|
Amortization Expense
|
||
Remainder of 2018
|
$
|
9.1
|
|
2019
|
32.5
|
|
|
2020
|
27.1
|
|
|
2021
|
18.8
|
|
|
2022
|
16.3
|
|
|
2023 and thereafter
|
17.9
|
|
|
Total
|
$
|
121.7
|
|
|
September 30,
2018 |
|
December 31,
2017 |
||||
Raw materials and manufacturing supplies
|
$
|
197.7
|
|
|
$
|
128.7
|
|
Work in process
|
64.7
|
|
|
43.6
|
|
||
Finished goods
|
92.1
|
|
|
74.2
|
|
||
Total
|
$
|
354.5
|
|
|
$
|
246.5
|
|
|
September 30,
2018 |
|
December 31,
2017 |
||||
Land
|
$
|
116.7
|
|
|
$
|
122.5
|
|
Buildings
|
910.6
|
|
|
924.5
|
|
||
Machinery and equipment
|
3,566.6
|
|
|
3,617.1
|
|
||
Other
(1)
|
188.6
|
|
|
197.5
|
|
||
Construction in progress
|
64.7
|
|
|
33.0
|
|
||
Property, plant and equipment—gross
|
$
|
4,847.2
|
|
|
$
|
4,894.6
|
|
Less: accumulated depreciation
|
(3,562.7
|
)
|
|
(3,517.0
|
)
|
||
Property, plant and equipment—net
|
$
|
1,284.5
|
|
|
$
|
1,377.6
|
|
(1)
|
Other consists of computer equipment, vehicles, furniture and fixtures, leasehold improvements and communication-related equipment.
|
|
September 30,
2018 |
|
December 31,
2017 |
||||
Master note and security agreement
|
$
|
101.1
|
|
|
$
|
123.6
|
|
Term loan A—$375.0 million maturing January 2021
|
281.3
|
|
|
281.3
|
|
||
Term loan B—$300.0 million maturing April 2021
|
279.4
|
|
|
279.1
|
|
||
Revolving credit facility—$725.0 million maturing January 2021
|
136.1
|
|
|
—
|
|
||
Senior unsecured notes—$300.0 million maturing May 2022
|
243.5
|
|
|
243.5
|
|
||
International term loan—$20.6 million
|
10.3
|
|
|
14.9
|
|
||
International revolving credit facility—$16.3 million
|
11.5
|
|
|
9.8
|
|
||
Equipment term loans
|
2.0
|
|
|
2.4
|
|
||
Other
|
1.0
|
|
|
1.2
|
|
||
Debt issuance costs
|
(8.0
|
)
|
|
(10.3
|
)
|
||
Total debt
|
$
|
1,058.2
|
|
|
$
|
945.5
|
|
Less: short-term debt and current portion of long-term debt
|
(42.3
|
)
|
|
(42.0
|
)
|
||
Long-term debt
|
$
|
1,015.9
|
|
|
$
|
903.5
|
|
|
Capitalized Debt
Issuance Costs
|
||
Balance at December 31, 2017
|
$
|
10.3
|
|
Amortization of debt issuance costs
|
(2.3
|
)
|
|
Balance at September 30, 2018
|
$
|
8.0
|
|
|
Loss on Debt Extinguishment
|
||
Debt issuance costs from April 28, 2014 debt financing arrangement
|
$
|
1.1
|
|
Debt issuance costs from February 10, 2017 debt financing arrangement
|
1.5
|
|
|
Total
|
$
|
2.6
|
|
•
|
Total Leverage Ratio.
On a rolling twelve-month basis, the total leverage ratio, defined as total consolidated debt to consolidated EBITDA, shall not exceed
3.75
to 1.00 (for the twelve months ended
September 30, 2018
, the Company's total leverage ratio was
2.39
to 1.00).
|
•
|
Senior Secured Leverage Ratio.
On a rolling twelve-month basis, the senior secured leverage ratio, defined as senior secured debt to consolidated EBITDA, shall not exceed
3.50
to 1.00 (for the twelve months ended
September 30, 2018
, the Company's senior secured leverage ratio was
1.85
to 1.00).
|
•
|
Minimum Interest Coverage Ratio.
On a rolling twelve-month basis, the minimum interest coverage ratio, defined as consolidated EBITDA to consolidated cash interest expense, shall not be less than
3.50
to 1.00 (for the twelve months ended
September 30, 2018
, the Company's minimum interest coverage ratio was
6.67
to 1.00).
|
•
|
If the Company's total leverage ratio is greater than
3.00
to 1.00 (as defined in the Senior Secured Credit Facility), the Company is prohibited from making greater than
$120.0 million
of annual dividend payments, capital stock repurchases and certain other payments. If the total leverage ratio is less than
3.00
to 1.00, there are no such restrictions.
|
•
|
If the Company's senior secured leverage ratio is greater than
3.00
to 1.00 or the Company's total leverage ratio is greater than
3.50
to 1.00 (these ratios as defined in the Senior Secured Credit Facility), 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 leverage ratio is less than
3.50
to 1.00, there are no such restrictions.
|
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 Level 3 recurring measurements of assets or liabilities as of
September 30, 2018
.
|
|
September 30, 2018
|
|
December 31, 2017
|
||||||||||||||||||||
|
Accrued Liabilities
|
|
Other
Long-Term Liabilities
|
|
Total
|
|
Accrued Liabilities
|
|
Other
Long-Term Liabilities
|
|
Total
|
||||||||||||
Employee-related liabilities
(1)
|
$
|
128.3
|
|
|
$
|
59.6
|
|
|
$
|
187.9
|
|
|
$
|
152.1
|
|
|
$
|
67.4
|
|
|
$
|
219.5
|
|
Single employer pension plan obligations
|
1.7
|
|
|
66.2
|
|
|
67.9
|
|
|
1.7
|
|
|
82.4
|
|
|
84.1
|
|
||||||
Multiemployer pension plans – withdrawal liability
|
6.9
|
|
|
13.5
|
|
|
20.4
|
|
|
8.8
|
|
|
19.4
|
|
|
28.2
|
|
||||||
Tax-related liabilities
|
24.9
|
|
|
8.2
|
|
|
33.1
|
|
|
29.0
|
|
|
18.2
|
|
|
47.2
|
|
||||||
Restructuring liabilities
|
11.3
|
|
|
3.0
|
|
|
14.3
|
|
|
24.6
|
|
|
4.2
|
|
|
28.8
|
|
||||||
Interest and rent liabilities
|
11.7
|
|
|
2.3
|
|
|
14.0
|
|
|
6.7
|
|
|
1.9
|
|
|
8.6
|
|
||||||
Other
|
97.9
|
|
|
34.6
|
|
|
132.5
|
|
|
93.8
|
|
|
31.5
|
|
|
125.3
|
|
||||||
Total
|
$
|
282.7
|
|
|
$
|
187.4
|
|
|
$
|
470.1
|
|
|
$
|
316.7
|
|
|
$
|
225.0
|
|
|
$
|
541.7
|
|
(1)
|
Employee-related liabilities consist primarily of payroll, bonus, vacation, health and workers' compensation.
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Interest cost
|
$
|
(4.0
|
)
|
|
$
|
(4.3
|
)
|
|
$
|
(12.0
|
)
|
|
$
|
(12.9
|
)
|
Expected return on plan assets
|
7.1
|
|
|
6.9
|
|
|
21.3
|
|
|
20.7
|
|
||||
Net pension income
|
$
|
3.1
|
|
|
$
|
2.6
|
|
|
$
|
9.3
|
|
|
$
|
7.8
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Numerator
|
|
|
|
|
|
|
|
||||||||
Net earnings attributable to Quad/Graphics common shareholders
|
$
|
23.4
|
|
|
$
|
19.8
|
|
|
$
|
29.3
|
|
|
$
|
51.9
|
|
|
|
|
|
|
|
|
|
||||||||
Denominator
|
|
|
|
|
|
|
|
||||||||
Basic weighted average number of common shares outstanding for all classes of common shares
|
49.3
|
|
|
49.5
|
|
|
50.0
|
|
|
49.4
|
|
||||
Plus: effect of dilutive equity incentive instruments
|
1.8
|
|
|
2.0
|
|
|
1.8
|
|
|
2.2
|
|
||||
Diluted weighted average number of common shares outstanding for all classes of common shares
|
51.1
|
|
|
51.5
|
|
|
51.8
|
|
|
51.6
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Earnings per share attributable to Quad/Graphics common shareholders
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
0.47
|
|
|
$
|
0.40
|
|
|
$
|
0.59
|
|
|
$
|
1.05
|
|
Diluted
|
$
|
0.46
|
|
|
$
|
0.38
|
|
|
$
|
0.57
|
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
|
||||||||
Cash dividends paid per common share for all classes of common shares
|
$
|
0.30
|
|
|
$
|
0.30
|
|
|
$
|
0.90
|
|
|
$
|
0.90
|
|
|
Shares Under
Option
|
|
Weighted Average
Exercise
Price
|
|
Weighted Average
Remaining
Contractual Term
(years)
|
|
Aggregate
Intrinsic Value
(millions)
|
|||||
Outstanding at December 31, 2017
|
1,532,033
|
|
|
$
|
23.60
|
|
|
2.3
|
|
$
|
6.8
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|
||
Exercised
|
(280,161
|
)
|
|
14.80
|
|
|
|
|
|
|
||
Canceled/forfeited/expired
|
(307,057
|
)
|
|
29.54
|
|
|
|
|
|
|
||
Outstanding and exercisable at September 30, 2018
|
944,815
|
|
|
$
|
24.29
|
|
|
2.0
|
|
$
|
3.5
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Total intrinsic value of stock options exercised
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
3.7
|
|
|
$
|
1.7
|
|
Proceeds from stock options exercised
|
0.1
|
|
|
—
|
|
|
4.1
|
|
|
2.4
|
|
|
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, 2017
|
2,470,158
|
|
|
$
|
16.95
|
|
|
1.2
|
|
114,942
|
|
|
$
|
16.68
|
|
|
1.3
|
Granted
|
668,359
|
|
|
22.54
|
|
|
|
|
18,586
|
|
|
22.60
|
|
|
|
||
Vested
|
(650,320
|
)
|
|
21.26
|
|
|
|
|
(19,510
|
)
|
|
23.11
|
|
|
|
||
Forfeited
|
(145,938
|
)
|
|
16.60
|
|
|
|
|
—
|
|
|
—
|
|
|
|
||
Nonvested at September 30, 2018
|
2,342,259
|
|
|
$
|
17.37
|
|
|
1.2
|
|
114,018
|
|
|
$
|
16.55
|
|
|
1.0
|
|
Deferred Stock Units
|
|||||
|
Units
|
|
Weighted-Average Grant Date Fair Value Per Share
|
|||
Outstanding at December 31, 2017
|
195,913
|
|
|
$
|
18.18
|
|
Granted
|
39,360
|
|
|
22.60
|
|
|
Dividend equivalents granted
|
9,103
|
|
|
22.20
|
|
|
Settled
|
(12,587
|
)
|
|
10.56
|
|
|
Outstanding at September 30, 2018
|
231,789
|
|
|
$
|
19.50
|
|
|
|
|
Issued Common Stock
|
||||||||
|
Authorized Shares
|
|
Outstanding
|
|
Treasury
|
|
Total Issued Shares
|
||||
Class A stock ($0.025 par value)
|
80.0
|
|
|
|
|
|
|
|
|||
September 30, 2018
|
|
|
38.2
|
|
|
2.1
|
|
|
40.3
|
|
|
December 31, 2017
|
|
|
38.2
|
|
|
1.8
|
|
|
40.0
|
|
|
|
|
|
|
|
|
|
|
||||
Class B stock ($0.025 par value)
|
80.0
|
|
|
|
|
|
|
|
|||
September 30, 2018
|
|
|
13.5
|
|
|
—
|
|
|
13.5
|
|
|
December 31, 2017
|
|
|
13.8
|
|
|
—
|
|
|
13.8
|
|
|
|
|
|
|
|
|
|
|
||||
Class C stock ($0.025 par value)
|
20.0
|
|
|
|
|
|
|
|
|||
September 30, 2018
|
|
|
—
|
|
|
0.5
|
|
|
0.5
|
|
|
December 31, 2017
|
|
|
—
|
|
|
0.5
|
|
|
0.5
|
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Dividend Amount
per Share
|
||
2018
|
|
|
|
|
|
|
|
||
Q3 Dividend
|
July 31, 2018
|
|
August 20, 2018
|
|
September 7, 2018
|
|
$
|
0.30
|
|
Q2 Dividend
|
May 1, 2018
|
|
May 21, 2018
|
|
June 8, 2018
|
|
0.30
|
|
|
Q1 Dividend
|
February 21, 2018
|
|
March 19, 2018
|
|
March 30, 2018
|
|
0.30
|
|
|
2017
|
|
|
|
|
|
|
|
||
Q3 Dividend
|
August 1, 2017
|
|
August 21, 2017
|
|
September 1, 2017
|
|
$
|
0.30
|
|
Q2 Dividend
|
May 1, 2017
|
|
May 22, 2017
|
|
June 2, 2017
|
|
0.30
|
|
|
Q1 Dividend
|
February 17, 2017
|
|
February 27, 2017
|
|
March 10, 2017
|
|
0.30
|
|
|
Quad/Graphics' Shareholders' Equity
|
|
Noncontrolling Interests
|
|
Total Shareholders' Equity and Noncontrolling Interests
|
||||||
Balance at December 31, 2017
|
$
|
522.4
|
|
|
$
|
—
|
|
|
$
|
522.4
|
|
Net earnings (loss)
|
29.3
|
|
|
(0.8
|
)
|
|
28.5
|
|
|||
Consolidation of Rise
|
—
|
|
|
18.4
|
|
|
18.4
|
|
|||
Accumulated deficit transition adjustment for adoption of Topic 606 (see Note 2)
|
3.2
|
|
|
—
|
|
|
3.2
|
|
|||
Translation adjustments
|
(9.3
|
)
|
|
—
|
|
|
(9.3
|
)
|
|||
Interest rate swap adjustments, net of tax
|
4.6
|
|
|
—
|
|
|
4.6
|
|
|||
Cash dividends declared
|
(47.5
|
)
|
|
—
|
|
|
(47.5
|
)
|
|||
Stock-based compensation
|
12.3
|
|
|
—
|
|
|
12.3
|
|
|||
Employee stock ownership plan contribution
|
22.3
|
|
|
—
|
|
|
22.3
|
|
|||
Purchases of treasury stock
|
(36.7
|
)
|
|
—
|
|
|
(36.7
|
)
|
|||
Stock options exercised
|
4.1
|
|
|
—
|
|
|
4.1
|
|
|||
Equity awards redeemed to pay employees' tax obligations
|
(9.0
|
)
|
|
—
|
|
|
(9.0
|
)
|
|||
Balance at September 30, 2018
|
$
|
495.7
|
|
|
$
|
17.6
|
|
|
$
|
513.3
|
|
|
Translation Adjustments
|
|
Interest Rate Swap Adjustments
|
|
Pension Benefit Plan Adjustments
|
|
Total
|
||||||||
Balance at December 31, 2017
|
$
|
(115.9
|
)
|
|
$
|
1.3
|
|
|
$
|
(9.8
|
)
|
|
$
|
(124.4
|
)
|
Other comprehensive income (loss) before reclassifications
|
(9.3
|
)
|
|
4.6
|
|
|
—
|
|
|
(4.7
|
)
|
||||
Amounts reclassified from accumulated other comprehensive loss to net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Net other comprehensive income (loss)
|
(9.3
|
)
|
|
4.6
|
|
|
—
|
|
|
(4.7
|
)
|
||||
Amounts reclassified from accumulated other comprehensive loss to accumulated deficit
(1)
|
(1.1
|
)
|
|
0.3
|
|
|
(2.1
|
)
|
|
(2.9
|
)
|
||||
Balance at September 30, 2018
|
$
|
(126.3
|
)
|
|
$
|
6.2
|
|
|
$
|
(11.9
|
)
|
|
$
|
(132.0
|
)
|
(1)
|
Includes adjustments for the adoption of Accounting Standards Update 2018-02 "Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income".
|
|
Translation Adjustments
|
|
Interest Rate Swap Adjustments
|
|
Pension Benefit Plan Adjustments
|
|
Total
|
||||||||
Balance at December 31, 2016
|
$
|
(130.8
|
)
|
|
$
|
—
|
|
|
$
|
(21.8
|
)
|
|
$
|
(152.6
|
)
|
Other comprehensive income (loss) before reclassifications
|
14.9
|
|
|
(0.3
|
)
|
|
—
|
|
|
14.6
|
|
||||
Amounts reclassified from accumulated other comprehensive loss to net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Net other comprehensive income (loss)
|
14.9
|
|
|
(0.3
|
)
|
|
—
|
|
|
14.6
|
|
||||
Balance at September 30, 2017
|
$
|
(115.9
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
(21.8
|
)
|
|
$
|
(138.0
|
)
|
|
Net Sales
|
|
Operating Income (Loss)
|
|
Restructuring, Impairment and Transaction-
Related Charges
|
||||||||||
|
Products
|
|
Services
|
|
|
||||||||||
Three months ended September 30, 2018
|
|
|
|
|
|
|
|
||||||||
United States Print and Related Services
|
$
|
742.3
|
|
|
$
|
198.0
|
|
|
$
|
49.0
|
|
|
$
|
3.2
|
|
International
|
84.4
|
|
|
4.4
|
|
|
3.8
|
|
|
1.9
|
|
||||
Total operating segments
|
826.7
|
|
|
202.4
|
|
|
52.8
|
|
|
5.1
|
|
||||
Corporate
|
—
|
|
|
—
|
|
|
(12.2
|
)
|
|
0.2
|
|
||||
Total
|
$
|
826.7
|
|
|
$
|
202.4
|
|
|
$
|
40.6
|
|
|
$
|
5.3
|
|
|
|
|
|
|
|
|
|
||||||||
Three months ended September 30, 2017
|
|
|
|
|
|
|
|
||||||||
United States Print and Related Services
|
$
|
762.5
|
|
|
$
|
143.8
|
|
|
$
|
53.4
|
|
|
$
|
7.8
|
|
International
|
94.4
|
|
|
4.7
|
|
|
7.2
|
|
|
(1.0
|
)
|
||||
Total operating segments
|
856.9
|
|
|
148.5
|
|
|
60.6
|
|
|
6.8
|
|
||||
Corporate
|
—
|
|
|
—
|
|
|
(13.8
|
)
|
|
1.2
|
|
||||
Total
|
$
|
856.9
|
|
|
$
|
148.5
|
|
|
$
|
46.8
|
|
|
$
|
8.0
|
|
|
|
|
|
|
|
|
|
||||||||
Nine months ended September 30, 2018
|
|
|
|
|
|
|
|
||||||||
United States Print and Related Services
|
$
|
2,160.7
|
|
|
$
|
566.9
|
|
|
$
|
102.6
|
|
|
$
|
31.7
|
|
International
|
270.5
|
|
|
14.0
|
|
|
11.1
|
|
|
4.9
|
|
||||
Total operating segments
|
2,431.2
|
|
|
580.9
|
|
|
113.7
|
|
|
36.6
|
|
||||
Corporate
|
—
|
|
|
—
|
|
|
(45.1
|
)
|
|
4.0
|
|
||||
Total
|
$
|
2,431.2
|
|
|
$
|
580.9
|
|
|
$
|
68.6
|
|
|
$
|
40.6
|
|
|
|
|
|
|
|
|
|
||||||||
Nine months ended September 30, 2017
|
|
|
|
|
|
|
|
||||||||
United States Print and Related Services
|
$
|
2,258.7
|
|
|
$
|
422.1
|
|
|
$
|
156.6
|
|
|
$
|
17.7
|
|
International
|
271.9
|
|
|
14.5
|
|
|
15.3
|
|
|
1.8
|
|
||||
Total operating segments
|
2,530.6
|
|
|
436.6
|
|
|
171.9
|
|
|
19.5
|
|
||||
Corporate
|
—
|
|
|
—
|
|
|
(44.0
|
)
|
|
3.0
|
|
||||
Total
|
$
|
2,530.6
|
|
|
$
|
436.6
|
|
|
$
|
127.9
|
|
|
$
|
22.5
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Operating income
|
$
|
40.6
|
|
|
$
|
46.8
|
|
|
$
|
68.6
|
|
|
$
|
127.9
|
|
Less: interest expense
|
18.3
|
|
|
17.8
|
|
|
54.0
|
|
|
53.6
|
|
||||
Less: net pension income
|
(3.1
|
)
|
|
(2.6
|
)
|
|
(9.3
|
)
|
|
(7.8
|
)
|
||||
Less: loss on debt extinguishment
|
—
|
|
|
—
|
|
|
—
|
|
|
2.6
|
|
||||
Earnings before income taxes and equity in (earnings) loss of unconsolidated entity
|
$
|
25.4
|
|
|
$
|
31.6
|
|
|
$
|
23.9
|
|
|
$
|
79.5
|
|
•
|
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.
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
Net sales
|
$
|
426.0
|
|
|
$
|
626.8
|
|
|
$
|
110.3
|
|
|
$
|
(134.0
|
)
|
|
$
|
1,029.1
|
|
Cost of sales
|
326.1
|
|
|
552.6
|
|
|
84.5
|
|
|
(131.5
|
)
|
|
831.7
|
|
|||||
Selling, general and administrative expenses
|
57.8
|
|
|
25.3
|
|
|
11.8
|
|
|
(2.5
|
)
|
|
92.4
|
|
|||||
Depreciation and amortization
|
24.7
|
|
|
26.5
|
|
|
7.9
|
|
|
—
|
|
|
59.1
|
|
|||||
Restructuring, impairment and transaction-related charges
|
(2.5
|
)
|
|
5.7
|
|
|
2.1
|
|
|
—
|
|
|
5.3
|
|
|||||
Total operating expenses
|
406.1
|
|
|
610.1
|
|
|
106.3
|
|
|
(134.0
|
)
|
|
988.5
|
|
|||||
Operating income (loss)
|
$
|
19.9
|
|
|
$
|
16.7
|
|
|
$
|
4.0
|
|
|
$
|
—
|
|
|
$
|
40.6
|
|
Interest expense (income)
|
16.3
|
|
|
0.7
|
|
|
1.3
|
|
|
—
|
|
|
18.3
|
|
|||||
Net pension income
|
—
|
|
|
(3.1
|
)
|
|
—
|
|
|
—
|
|
|
(3.1
|
)
|
|||||
Earnings (loss) before income taxes and equity in (earnings) loss of consolidated and unconsolidated entities
|
3.6
|
|
|
19.1
|
|
|
2.7
|
|
|
—
|
|
|
25.4
|
|
|||||
Income tax expense (benefit)
|
1.2
|
|
|
1.4
|
|
|
0.5
|
|
|
—
|
|
|
3.1
|
|
|||||
Earnings (loss) before equity in (earnings) loss of consolidated and unconsolidated entities
|
2.4
|
|
|
17.7
|
|
|
2.2
|
|
|
—
|
|
|
22.3
|
|
|||||
Equity in (earnings) loss of consolidated entities
|
(21.0
|
)
|
|
(1.5
|
)
|
|
—
|
|
|
22.5
|
|
|
—
|
|
|||||
Equity in (earnings) loss of unconsolidated entity
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
|||||
Net earnings (loss)
|
$
|
23.4
|
|
|
$
|
19.2
|
|
|
$
|
2.4
|
|
|
$
|
(22.5
|
)
|
|
$
|
22.5
|
|
Less: net earnings (loss) attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(0.9
|
)
|
|
—
|
|
|
(0.9
|
)
|
|||||
Net earnings (loss) attributable to Quad/Graphics common shareholders
|
$
|
23.4
|
|
|
$
|
19.2
|
|
|
$
|
3.3
|
|
|
$
|
(22.5
|
)
|
|
$
|
23.4
|
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
Net earnings (loss)
|
$
|
23.4
|
|
|
$
|
19.2
|
|
|
$
|
2.4
|
|
|
$
|
(22.5
|
)
|
|
$
|
22.5
|
|
Other comprehensive income (loss), net of tax
|
1.4
|
|
|
(1.9
|
)
|
|
(0.4
|
)
|
|
2.3
|
|
|
1.4
|
|
|||||
Total comprehensive income (loss)
|
$
|
24.8
|
|
|
$
|
17.3
|
|
|
$
|
2.0
|
|
|
$
|
(20.2
|
)
|
|
$
|
23.9
|
|
Less: comprehensive earnings (loss) attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(0.9
|
)
|
|
—
|
|
|
(0.9
|
)
|
|||||
Comprehensive income (loss) attributable to Quad/Graphics common shareholders
|
$
|
24.8
|
|
|
$
|
17.3
|
|
|
$
|
2.9
|
|
|
$
|
(20.2
|
)
|
|
$
|
24.8
|
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
Net sales
|
$
|
413.6
|
|
|
$
|
585.5
|
|
|
$
|
107.8
|
|
|
$
|
(101.5
|
)
|
|
$
|
1,005.4
|
|
Cost of sales
|
297.1
|
|
|
502.3
|
|
|
84.8
|
|
|
(99.4
|
)
|
|
784.8
|
|
|||||
Selling, general and administrative expenses
|
66.6
|
|
|
32.6
|
|
|
10.4
|
|
|
(2.1
|
)
|
|
107.5
|
|
|||||
Depreciation and amortization
|
26.4
|
|
|
26.2
|
|
|
5.7
|
|
|
—
|
|
|
58.3
|
|
|||||
Restructuring, impairment and transaction-related charges
|
7.9
|
|
|
1.1
|
|
|
(1.0
|
)
|
|
—
|
|
|
8.0
|
|
|||||
Total operating expenses
|
398.0
|
|
|
562.2
|
|
|
99.9
|
|
|
(101.5
|
)
|
|
958.6
|
|
|||||
Operating income (loss)
|
$
|
15.6
|
|
|
$
|
23.3
|
|
|
$
|
7.9
|
|
|
$
|
—
|
|
|
$
|
46.8
|
|
Interest expense (income)
|
17.7
|
|
|
(0.7
|
)
|
|
0.8
|
|
|
—
|
|
|
17.8
|
|
|||||
Net pension income
|
—
|
|
|
(2.6
|
)
|
|
—
|
|
|
—
|
|
|
(2.6
|
)
|
|||||
Earnings (loss) before income taxes and equity in (earnings) loss of consolidated and unconsolidated entities
|
(2.1
|
)
|
|
26.6
|
|
|
7.1
|
|
|
—
|
|
|
31.6
|
|
|||||
Income tax expense (benefit)
|
4.5
|
|
|
6.1
|
|
|
1.2
|
|
|
—
|
|
|
11.8
|
|
|||||
Earnings (loss) before equity in (earnings) loss of consolidated and unconsolidated entities
|
(6.6
|
)
|
|
20.5
|
|
|
5.9
|
|
|
—
|
|
|
19.8
|
|
|||||
Equity in (earnings) loss of consolidated entities
|
(26.4
|
)
|
|
(1.0
|
)
|
|
—
|
|
|
27.4
|
|
|
—
|
|
|||||
Equity in (earnings) loss of unconsolidated entity
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Net earnings (loss)
|
$
|
19.8
|
|
|
$
|
21.5
|
|
|
$
|
5.9
|
|
|
$
|
(27.4
|
)
|
|
$
|
19.8
|
|
Less: net earnings (loss) attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Net earnings (loss) attributable to Quad/Graphics common shareholders
|
$
|
19.8
|
|
|
$
|
21.5
|
|
|
$
|
5.9
|
|
|
$
|
(27.4
|
)
|
|
$
|
19.8
|
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
Net earnings (loss)
|
$
|
19.8
|
|
|
$
|
21.5
|
|
|
$
|
5.9
|
|
|
$
|
(27.4
|
)
|
|
$
|
19.8
|
|
Other comprehensive income (loss), net of tax
|
3.6
|
|
|
(0.3
|
)
|
|
3.4
|
|
|
(3.1
|
)
|
|
3.6
|
|
|||||
Total comprehensive income (loss)
|
$
|
23.4
|
|
|
$
|
21.2
|
|
|
$
|
9.3
|
|
|
$
|
(30.5
|
)
|
|
$
|
23.4
|
|
Less: comprehensive earnings (loss) attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Comprehensive income (loss) attributable to Quad/Graphics common shareholders
|
$
|
23.4
|
|
|
$
|
21.2
|
|
|
$
|
9.3
|
|
|
$
|
(30.5
|
)
|
|
$
|
23.4
|
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
Net sales
|
$
|
1,236.8
|
|
|
$
|
1,775.5
|
|
|
$
|
337.2
|
|
|
$
|
(337.4
|
)
|
|
$
|
3,012.1
|
|
Cost of sales
|
966.5
|
|
|
1,552.7
|
|
|
261.5
|
|
|
(329.9
|
)
|
|
2,450.8
|
|
|||||
Selling, general and administrative expenses
|
176.6
|
|
|
75.1
|
|
|
34.3
|
|
|
(7.5
|
)
|
|
278.5
|
|
|||||
Depreciation and amortization
|
74.9
|
|
|
79.0
|
|
|
19.7
|
|
|
—
|
|
|
173.6
|
|
|||||
Restructuring, impairment and transaction-related charges
|
6.8
|
|
|
29.0
|
|
|
4.8
|
|
|
—
|
|
|
40.6
|
|
|||||
Total operating expenses
|
1,224.8
|
|
|
1,735.8
|
|
|
320.3
|
|
|
(337.4
|
)
|
|
2,943.5
|
|
|||||
Operating income (loss)
|
$
|
12.0
|
|
|
$
|
39.7
|
|
|
$
|
16.9
|
|
|
$
|
—
|
|
|
$
|
68.6
|
|
Interest expense (income)
|
47.7
|
|
|
2.4
|
|
|
3.9
|
|
|
—
|
|
|
54.0
|
|
|||||
Net pension income
|
—
|
|
|
(9.3
|
)
|
|
—
|
|
|
—
|
|
|
(9.3
|
)
|
|||||
Earnings (loss) before income taxes and equity in (earnings) loss of consolidated and unconsolidated entities
|
(35.7
|
)
|
|
46.6
|
|
|
13.0
|
|
|
—
|
|
|
23.9
|
|
|||||
Income tax expense (benefit)
|
(8.7
|
)
|
|
3.6
|
|
|
1.2
|
|
|
—
|
|
|
(3.9
|
)
|
|||||
Earnings (loss) before equity in (earnings) loss of consolidated and unconsolidated entities
|
(27.0
|
)
|
|
43.0
|
|
|
11.8
|
|
|
—
|
|
|
27.8
|
|
|||||
Equity in (earnings) loss of consolidated entities
|
(56.3
|
)
|
|
(4.4
|
)
|
|
—
|
|
|
60.7
|
|
|
—
|
|
|||||
Equity in (earnings) loss of unconsolidated entity
|
—
|
|
|
—
|
|
|
(0.7
|
)
|
|
—
|
|
|
(0.7
|
)
|
|||||
Net earnings (loss)
|
29.3
|
|
|
47.4
|
|
|
12.5
|
|
|
(60.7
|
)
|
|
28.5
|
|
|||||
Less: net earnings (loss) attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(0.8
|
)
|
|
—
|
|
|
(0.8
|
)
|
|||||
Net earnings (loss) attributable to Quad/Graphics common shareholders
|
$
|
29.3
|
|
|
$
|
47.4
|
|
|
$
|
13.3
|
|
|
$
|
(60.7
|
)
|
|
$
|
29.3
|
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
Net earnings (loss)
|
$
|
29.3
|
|
|
$
|
47.4
|
|
|
$
|
12.5
|
|
|
$
|
(60.7
|
)
|
|
$
|
28.5
|
|
Other comprehensive income (loss), net of tax
|
(4.7
|
)
|
|
(4.8
|
)
|
|
(9.8
|
)
|
|
14.6
|
|
|
(4.7
|
)
|
|||||
Total comprehensive income (loss)
|
24.6
|
|
|
42.6
|
|
|
2.7
|
|
|
(46.1
|
)
|
|
23.8
|
|
|||||
Less: comprehensive earnings (loss) attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(0.8
|
)
|
|
—
|
|
|
(0.8
|
)
|
|||||
Comprehensive income (loss) attributable to Quad/Graphics common shareholders
|
$
|
24.6
|
|
|
$
|
42.6
|
|
|
$
|
3.5
|
|
|
$
|
(46.1
|
)
|
|
$
|
24.6
|
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
Net sales
|
$
|
1,221.1
|
|
|
$
|
1,711.1
|
|
|
$
|
310.4
|
|
|
$
|
(275.4
|
)
|
|
$
|
2,967.2
|
|
Cost of sales
|
884.2
|
|
|
1,470.2
|
|
|
246.8
|
|
|
(270.3
|
)
|
|
2,330.9
|
|
|||||
Selling, general and administrative expenses
|
191.4
|
|
|
96.6
|
|
|
27.5
|
|
|
(5.1
|
)
|
|
310.4
|
|
|||||
Depreciation and amortization
|
81.3
|
|
|
77.8
|
|
|
16.4
|
|
|
—
|
|
|
175.5
|
|
|||||
Restructuring, impairment and transaction-related charges
|
25.8
|
|
|
(5.0
|
)
|
|
1.7
|
|
|
—
|
|
|
22.5
|
|
|||||
Total operating expenses
|
1,182.7
|
|
|
1,639.6
|
|
|
292.4
|
|
|
(275.4
|
)
|
|
2,839.3
|
|
|||||
Operating income (loss)
|
$
|
38.4
|
|
|
$
|
71.5
|
|
|
$
|
18.0
|
|
|
$
|
—
|
|
|
$
|
127.9
|
|
Interest expense (income)
|
52.2
|
|
|
(1.3
|
)
|
|
2.7
|
|
|
—
|
|
|
53.6
|
|
|||||
Net pension income
|
—
|
|
|
(7.8
|
)
|
|
—
|
|
|
—
|
|
|
(7.8
|
)
|
|||||
Loss (gain) on debt extinguishment
|
2.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.6
|
|
|||||
Earnings (loss) before income taxes and equity in (earnings) loss of consolidated and unconsolidated entities
|
(16.4
|
)
|
|
80.6
|
|
|
15.3
|
|
|
—
|
|
|
79.5
|
|
|||||
Income tax expense (benefit)
|
(2.2
|
)
|
|
26.3
|
|
|
2.7
|
|
|
—
|
|
|
26.8
|
|
|||||
Earnings (loss) before equity in (earnings) loss of consolidated and unconsolidated entities
|
(14.2
|
)
|
|
54.3
|
|
|
12.6
|
|
|
—
|
|
|
52.7
|
|
|||||
Equity in (earnings) loss of consolidated entities
|
(66.1
|
)
|
|
(2.2
|
)
|
|
—
|
|
|
68.3
|
|
|
—
|
|
|||||
Equity in (earnings) loss of unconsolidated entity
|
—
|
|
|
—
|
|
|
0.8
|
|
|
—
|
|
|
0.8
|
|
|||||
Net earnings (loss)
|
51.9
|
|
|
56.5
|
|
|
11.8
|
|
|
(68.3
|
)
|
|
51.9
|
|
|||||
Less: net earnings (loss) attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Net earnings (loss) attributable to Quad/Graphics common shareholders
|
$
|
51.9
|
|
|
$
|
56.5
|
|
|
$
|
11.8
|
|
|
$
|
(68.3
|
)
|
|
$
|
51.9
|
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
Net earnings (loss)
|
$
|
51.9
|
|
|
$
|
56.5
|
|
|
$
|
11.8
|
|
|
$
|
(68.3
|
)
|
|
$
|
51.9
|
|
Other comprehensive income (loss), net of tax
|
14.6
|
|
|
(0.5
|
)
|
|
14.3
|
|
|
(13.8
|
)
|
|
14.6
|
|
|||||
Total comprehensive income (loss)
|
66.5
|
|
|
56.0
|
|
|
26.1
|
|
|
(82.1
|
)
|
|
66.5
|
|
|||||
Less: comprehensive earnings (loss) attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Comprehensive income (loss) attributable to Quad/Graphics common shareholders
|
$
|
66.5
|
|
|
$
|
56.0
|
|
|
$
|
26.1
|
|
|
$
|
(82.1
|
)
|
|
$
|
66.5
|
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash from (used in) operating activities
|
$
|
34.7
|
|
|
$
|
(0.7
|
)
|
|
$
|
12.6
|
|
|
$
|
—
|
|
|
$
|
46.6
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
||||||||||
Purchases of property, plant and equipment
|
(18.4
|
)
|
|
(41.5
|
)
|
|
(25.1
|
)
|
|
—
|
|
|
(85.0
|
)
|
|||||
Acquisition related investing activities
|
—
|
|
|
(76.4
|
)
|
|
5.0
|
|
|
—
|
|
|
(71.4
|
)
|
|||||
Intercompany investing activities
|
(138.7
|
)
|
|
1.8
|
|
|
(0.5
|
)
|
|
137.4
|
|
|
—
|
|
|||||
Other investing activities
|
22.3
|
|
|
10.0
|
|
|
4.5
|
|
|
—
|
|
|
36.8
|
|
|||||
Net cash from (used in) investing activities
|
(134.8
|
)
|
|
(106.1
|
)
|
|
(16.1
|
)
|
|
137.4
|
|
|
(119.6
|
)
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
||||||||||
Proceeds from issuance of long-term debt
|
—
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|||||
Payments of long-term debt and capital lease obligations
|
(26.6
|
)
|
|
(1.0
|
)
|
|
(5.1
|
)
|
|
—
|
|
|
(32.7
|
)
|
|||||
Borrowings on revolving credit facilities
|
1,813.9
|
|
|
—
|
|
|
16.1
|
|
|
—
|
|
|
1,830.0
|
|
|||||
Payments on revolving credit facilities
|
(1,677.8
|
)
|
|
—
|
|
|
(14.1
|
)
|
|
—
|
|
|
(1,691.9
|
)
|
|||||
Purchases of treasury stock
|
(36.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(36.7
|
)
|
|||||
Payment of cash dividends
|
(47.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(47.5
|
)
|
|||||
Intercompany financing activities
|
29.8
|
|
|
105.8
|
|
|
1.8
|
|
|
(137.4
|
)
|
|
—
|
|
|||||
Other financing activities
|
(4.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.9
|
)
|
|||||
Net cash from (used in) financing activities
|
50.2
|
|
|
104.8
|
|
|
(1.0
|
)
|
|
(137.4
|
)
|
|
16.6
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Effect of exchange rates on cash and cash equivalents
|
—
|
|
|
—
|
|
|
(1.7
|
)
|
|
—
|
|
|
(1.7
|
)
|
|||||
Net increase (decrease) in cash and cash equivalents
|
(49.9
|
)
|
|
(2.0
|
)
|
|
(6.2
|
)
|
|
—
|
|
|
(58.1
|
)
|
|||||
Cash and cash equivalents at beginning of period
|
51.7
|
|
|
2.0
|
|
|
10.7
|
|
|
—
|
|
|
64.4
|
|
|||||
Cash and cash equivalents at end of period
|
$
|
1.8
|
|
|
$
|
—
|
|
|
$
|
4.5
|
|
|
$
|
—
|
|
|
$
|
6.3
|
|
|
Quad/Graphics,
Inc. |
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
||||||||||
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash from (used in) operating activities
|
$
|
100.4
|
|
|
$
|
54.7
|
|
|
$
|
24.6
|
|
|
$
|
—
|
|
|
$
|
179.7
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
||||||||||
Purchases of property, plant and equipment
|
(17.8
|
)
|
|
(36.1
|
)
|
|
(7.7
|
)
|
|
—
|
|
|
(61.6
|
)
|
|||||
Intercompany investing activities
|
(4.3
|
)
|
|
(45.3
|
)
|
|
0.8
|
|
|
48.8
|
|
|
—
|
|
|||||
Other investing activities
|
(5.0
|
)
|
|
25.9
|
|
|
2.0
|
|
|
—
|
|
|
22.9
|
|
|||||
Net cash from (used in) investing activities
|
(27.1
|
)
|
|
(55.5
|
)
|
|
(4.9
|
)
|
|
48.8
|
|
|
(38.7
|
)
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
||||||||||
Proceeds from issuance of long-term debt
|
375.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
375.0
|
|
|||||
Payments of long-term debt and capital lease obligations
|
(423.5
|
)
|
|
(2.5
|
)
|
|
(4.2
|
)
|
|
—
|
|
|
(430.2
|
)
|
|||||
Borrowings on revolving credit facilities
|
521.9
|
|
|
—
|
|
|
3.8
|
|
|
—
|
|
|
525.7
|
|
|||||
Payments on revolving credit facilities
|
(540.9
|
)
|
|
—
|
|
|
(9.5
|
)
|
|
—
|
|
|
(550.4
|
)
|
|||||
Purchases of treasury stock
|
(3.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.8
|
)
|
|||||
Payment of cash dividends
|
(46.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(46.5
|
)
|
|||||
Intercompany financing activities
|
57.7
|
|
|
0.1
|
|
|
(9.0
|
)
|
|
(48.8
|
)
|
|
—
|
|
|||||
Other financing activities
|
(8.2
|
)
|
|
(4.1
|
)
|
|
—
|
|
|
—
|
|
|
(12.3
|
)
|
|||||
Net cash from (used in) financing activities
|
(68.3
|
)
|
|
(6.5
|
)
|
|
(18.9
|
)
|
|
(48.8
|
)
|
|
(142.5
|
)
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Effect of exchange rates on cash and cash equivalents
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
(0.3
|
)
|
|||||
Net increase (decrease) in cash and cash equivalents
|
5.0
|
|
|
(7.3
|
)
|
|
0.5
|
|
|
—
|
|
|
(1.8
|
)
|
|||||
Cash and cash equivalents at beginning of period
|
0.3
|
|
|
12.1
|
|
|
6.8
|
|
|
—
|
|
|
19.2
|
|
|||||
Cash and cash equivalents at end of period
|
$
|
5.3
|
|
|
$
|
4.8
|
|
|
$
|
7.3
|
|
|
$
|
—
|
|
|
$
|
17.4
|
|
ITEM 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
•
|
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, 2018
, to the
three months ended
September 30, 2017
; and (2) the
nine months ended
September 30, 2018
, to the
nine months ended
September 30, 2017
. The comparability of the Company's results of operations between periods was impacted by the 2018 acquisition of Ivie and the 2018 additional investment in and consolidation of Rise. The results of operations of the acquisition of Ivie and the investment in Rise are included in the Company's condensed consolidated results prospectively from their respective acquisition dates. 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, a statement about off-balance sheet arrangements 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.
|
•
|
New Accounting Pronouncements.
|
•
|
The impact of decreasing demand for printed materials and significant overcapacity in the highly competitive commercial printing industry creates downward pricing pressures and potential underutilization of assets;
|
•
|
The impact of electronic 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 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 impact of increased business complexity as a result of the Company's transformation to a marketing solutions provider;
|
•
|
The impact of regulatory matters and legislative developments or changes in laws, including changes in cyber-security, privacy and environmental laws;
|
•
|
The impact of fluctuations in costs (including labor and labor-related costs, energy costs, freight rates and raw materials) and the impact of fluctuations in the availability of raw materials;
|
•
|
The failure to attract and retain qualified production personnel;
|
•
|
The impact of changes in postal rates, service levels or regulations;
|
•
|
The fragility and decline in overall distribution channels, including newspaper distribution channels;
|
•
|
The failure to successfully identify, manage, complete and integrate acquisitions and investments;
|
•
|
The impact of risks associated with the operations outside of the United States, including costs incurred or reputational damage suffered due to improper conduct of its employees, contractors or agents;
|
•
|
Significant capital expenditures may be needed to maintain the Company's platform and processes 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;
|
•
|
The impact on the holders of Quad/Graphics' 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; and
|
•
|
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.
|
•
|
Ongoing innovation and investment to integrate offline and online media,
in support of the Company's Quad 3.0 value proposition of helping clients create, integrate, deploy and measure content more efficiently and market more effectively. This includes process investments to help clients optimize workflows through audit and discovery services; streamlined content creation to help reduce overall production and distribution costs and improve speed-to-market; and platform investments in variable printing and data management to bridge the traditional analog and digital marketing worlds to help clients precisely segment, execute and measure more personal, one-on-one relevant brand experiences via multichannel campaigns that engage consumers at the right place and time to generate greater market penetration and lift in response. The Company's goal is to remain the high-quality, low-cost producer across the continuum, from traditional print to multichannel execution.
|
•
|
Organic growth,
in which the Company leverages knowledge from existing client relationships in key growth vertical industries to develop complementary products and services that help brand owners market more efficiently and effectively across media channels. Quad/Graphics is also focused on ensuring it has the right talent in the best positions to have strategic marketing conversations with its clients that facilitate understanding their needs, developing tailored solutions and growing market share.
|
•
|
Disciplined acquisitions,
that take many different forms. For example, the Company intends to continue to transform its existing product lines while expanding into higher growth product and service categories that help bolster the Company's ability to create value for its clients, as well as pursue value-driven industry consolidating acquisitions and/or acquisitions that help accelerate the Company's transformation in Quad 3.0.
|
•
|
The Company completed the acquisition of Ivie on
February 21, 2018
, for a net purchase price of
$92 million
, excluding acquired cash. Ivie is headquartered in Flower Mound, Texas and provides a full array of marketing services, including creative and production services, studio services, sourcing, procurement, staff enhancement, media services, public relations, digital, technology solutions and project management for many leading brands throughout the world.
|
•
|
The Company increased its equity position in Rise from
19%
to
57%
on
March 14, 2018
, for
$9 million
cash paid and the conversion of previously provided loans to equity ownership. Rise is a digital marketing agency headquartered in Chicago, Illinois, that specializes in media, analytics and customer experience, and helps enterprise marketers see, shape, and act on opportunities in digital media.
|
|
Operating
Income |
|
Operating Margin
|
|
Net Earnings Attributable to Quad/Graphics Common Shareholders
|
|
Diluted Earnings Per Share Attributable to Quad/Graphics Common Shareholders
|
|||||||
For the Three Months Ended September 30, 2017
|
$
|
46.8
|
|
|
4.7
|
%
|
|
$
|
19.8
|
|
|
$
|
0.38
|
|
2018 restructuring, impairment and transaction-related charges
(1)
|
(5.3
|
)
|
|
(0.5
|
)%
|
|
(4.0
|
)
|
|
(0.08
|
)
|
|||
2017 restructuring, impairment and transaction-related charges
(2)
|
8.0
|
|
|
0.8
|
%
|
|
4.8
|
|
|
0.09
|
|
|||
Interest expense
(3)
|
N/A
|
|
|
N/A
|
|
|
(3.0
|
)
|
|
(0.06
|
)
|
|||
Net pension income
(4)
|
N/A
|
|
|
N/A
|
|
|
0.7
|
|
|
0.02
|
|
|||
Income taxes
(5)
|
N/A
|
|
|
N/A
|
|
|
2.5
|
|
|
0.05
|
|
|||
Investments in unconsolidated entity and noncontrolling interests, net of tax
(6)
|
N/A
|
|
|
N/A
|
|
|
1.1
|
|
|
0.02
|
|
|||
Operating income
(7)
|
(8.9
|
)
|
|
(1.0
|
)%
|
|
1.5
|
|
|
0.04
|
|
|||
For the Three Months Ended September 30, 2018
|
$
|
40.6
|
|
|
3.9
|
%
|
|
$
|
23.4
|
|
|
$
|
0.46
|
|
(1)
|
Restructuring, impairment and transaction-related charges of
$5.3 million
(
$4.0 million
, net of tax) incurred during the
three months ended
September 30, 2018
, included the following:
|
a.
|
$4.1 million
of employee termination charges related to workforce reductions through facility consolidations and separation programs;
|
b.
|
$4.5 million
of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations;
|
c.
|
$0.3 million
of transaction-related charges, consisting of professional service fees for business acquisition and divestiture activities;
|
d.
|
$0.5 million
of acquisition-related integration costs; and
|
e.
|
$4.1 million
of other restructuring income, primarily related to a $7.5 million gain on the sale of the Taunton, Massachusetts Book facility, net of
$1.4 million
in charges from foreign currency losses as a result of the economy in Argentina being classified as highly inflationary, as well as other costs to maintain and exit closed facilities.
|
(2)
|
Restructuring, impairment and transaction-related charges of
$8.0 million
(
$4.8 million
, net of tax) incurred during the
three months ended
September 30, 2017
, included the following:
|
a.
|
$7.3 million
of employee termination charges related to workforce reductions through facility consolidations and separation programs;
|
b.
|
$0.3 million
of impairment charges, including
$0.2 million
for land and building and
$0.1 million
for machinery and equipment no longer being utilized in production as a result of facility consolidations;
|
c.
|
$0.6 million
of transaction-related charges, consisting of professional service fees for business acquisition and divestiture activities; and
|
d.
|
$0.2 million
of other restructuring income, primarily related to a $1.2 million gain from the Company's Argentina Subsidiaries' settlements with vendors through bankruptcy proceedings, net of other costs to maintain and exit closed facilities, as well as lease exit charges.
|
(3)
|
Interest expense
increased
$0.5 million
(
$3.0 million
, net of tax impact due to the change in the normalized tax rate) during the
three months ended
September 30, 2018
, to
$18.3 million
. This change was due to a higher weighted average interest rate on borrowings and higher average debt levels in the
third
quarter of
2018
as compared to the
third
quarter of
2017
.
|
(4)
|
Net pension income
increased
$0.5 million
(
$0.7 million
, net of tax impact due to the change in the normalized tax rate) during the
three months ended
September 30, 2018
, to
$3.1 million
. This change was due to a $0.3 million decrease from interest cost on pension plan liabilities and a $0.2 million increase from the expected return on pension plan assets.
|
(6)
|
The increase from investments in unconsolidated entity and noncontrolling interests, net of tax, of
$1.1 million
during the
three months ended
September 30, 2018
,
was primarily related to a
$0.9 million
net loss attributed to noncontrolling interests in the Company's condensed consolidated statements of operations related to the Company's 57% ownership of Rise, and due to a
$0.2 million
increase in earnings at the Company's investment in Plural Industria Gráfica Ltda. ("
Plural
"), the Company's Brazilian joint venture.
|
(7)
|
Operating income, excluding restructuring, impairment and transaction-related charges,
decreased
$8.9 million
(
increased
$1.5 million
, net of tax impact due to the change in the normalized tax rate) primarily due to lower print volume and pricing due to ongoing industry pressures and a
$0.8 million
increase in depreciation and amortization expense, partially offset by savings from cost reduction initiatives and earnings from the Ivie acquisition and the investment in Rise
|
|
Three Months Ended September 30,
|
|
|
|
|
|||||||||||||||
|
2018
|
|
2017
|
|
|
|
|
|||||||||||||
|
(dollars in millions)
|
|
|
|||||||||||||||||
|
Amount
|
|
% of
Sales
|
|
Amount
|
|
% of
Sales
|
|
$ Change
|
|
%
Change
|
|||||||||
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Products
|
$
|
826.7
|
|
|
80.3
|
%
|
|
$
|
856.9
|
|
|
85.2
|
%
|
|
$
|
(30.2
|
)
|
|
(3.5
|
)%
|
Services
|
202.4
|
|
|
19.7
|
%
|
|
148.5
|
|
|
14.8
|
%
|
|
53.9
|
|
|
36.3
|
%
|
|||
Total net sales
|
1,029.1
|
|
|
100.0
|
%
|
|
1,005.4
|
|
|
100.0
|
%
|
|
23.7
|
|
|
2.4
|
%
|
|||
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Products
|
683.6
|
|
|
66.4
|
%
|
|
679.1
|
|
|
67.5
|
%
|
|
4.5
|
|
|
0.7
|
%
|
|||
Services
|
148.1
|
|
|
14.4
|
%
|
|
105.7
|
|
|
10.5
|
%
|
|
42.4
|
|
|
40.1
|
%
|
|||
Total cost of sales
|
831.7
|
|
|
80.8
|
%
|
|
784.8
|
|
|
78.0
|
%
|
|
46.9
|
|
|
6.0
|
%
|
|||
Selling, general & administrative expenses
|
92.4
|
|
|
9.0
|
%
|
|
107.5
|
|
|
10.7
|
%
|
|
(15.1
|
)
|
|
(14.0
|
)%
|
|||
Depreciation and amortization
|
59.1
|
|
|
5.8
|
%
|
|
58.3
|
|
|
5.8
|
%
|
|
0.8
|
|
|
1.4
|
%
|
|||
Restructuring, impairment and transaction-related charges
|
5.3
|
|
|
0.5
|
%
|
|
8.0
|
|
|
0.8
|
%
|
|
(2.7
|
)
|
|
(33.8
|
)%
|
|||
Total operating expenses
|
988.5
|
|
|
96.1
|
%
|
|
958.6
|
|
|
95.3
|
%
|
|
29.9
|
|
|
3.1
|
%
|
|||
Operating income
|
$
|
40.6
|
|
|
3.9
|
%
|
|
$
|
46.8
|
|
|
4.7
|
%
|
|
$
|
(6.2
|
)
|
|
(13.2
|
)%
|
|
Three Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
||||||||||
|
Amount
|
|
% of Net Sales
|
|
Amount
|
|
% of Net Sales
|
||||||
|
(dollars in millions)
|
||||||||||||
EBITDA and EBITDA margin (non-GAAP)
|
$
|
103.9
|
|
|
10.1
|
%
|
|
$
|
107.7
|
|
|
10.7
|
%
|
|
Three Months Ended September 30,
|
||||||
|
2018
|
|
2017
|
||||
|
(dollars in millions)
|
||||||
Net earnings attributable to Quad/Graphics common shareholders
(1)
|
$
|
23.4
|
|
|
$
|
19.8
|
|
Interest expense
|
18.3
|
|
|
17.8
|
|
||
Income tax expense
|
3.1
|
|
|
11.8
|
|
||
Depreciation and amortization
|
59.1
|
|
|
58.3
|
|
||
EBITDA (non-GAAP)
|
$
|
103.9
|
|
|
$
|
107.7
|
|
(1)
|
Net earnings attributable to Quad/Graphics common shareholders included the following:
|
a.
|
Restructuring, impairment and transaction-related charges of
$5.3 million
and
$8.0 million
for the
three months ended
September 30, 2018
and
2017
, respectively;
|
b.
|
Net pension income of
$3.1 million
and
$2.6 million
for the
three months ended
September 30, 2018
and
2017
, respectively;
|
c.
|
Equity in earnings of unconsolidated entity of
$0.2 million
for the
three months ended
September 30, 2018
; and
|
d.
|
Net loss attributable to noncontrolling interests of
$0.9 million
for the
three months ended
September 30, 2018
.
|
|
Three Months Ended September 30,
|
|
|
|
|
|||||||||
|
2018
|
|
2017
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Net sales:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
742.3
|
|
|
$
|
762.5
|
|
|
$
|
(20.2
|
)
|
|
(2.6
|
)%
|
Services
|
198.0
|
|
|
143.8
|
|
|
54.2
|
|
|
37.7
|
%
|
|||
Operating income (including restructuring, impairment and transaction-related charges)
|
49.0
|
|
|
53.4
|
|
|
(4.4
|
)
|
|
(8.2
|
)%
|
|||
Operating margin
|
5.2
|
%
|
|
5.9
|
%
|
|
N/A
|
|
|
N/A
|
|
|||
Restructuring, impairment and transaction-related charges
|
$
|
3.2
|
|
|
$
|
7.8
|
|
|
$
|
(4.6
|
)
|
|
(59.0
|
)%
|
|
Three Months Ended September 30,
|
|
|
|
|
|||||||||
|
2018
|
|
2017
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Net sales:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
84.4
|
|
|
$
|
94.4
|
|
|
$
|
(10.0
|
)
|
|
(10.6
|
)%
|
Services
|
4.4
|
|
|
4.7
|
|
|
(0.3
|
)
|
|
(6.4
|
)%
|
|||
Operating income (including restructuring, impairment and transaction-related charges)
|
3.8
|
|
|
7.2
|
|
|
(3.4
|
)
|
|
(47.2
|
)%
|
|||
Operating margin
|
4.3
|
%
|
|
7.3
|
%
|
|
N/A
|
|
|
N/A
|
|
|||
Restructuring, impairment and transaction-related charges (income)
|
$
|
1.9
|
|
|
$
|
(1.0
|
)
|
|
$
|
2.9
|
|
|
(290.0
|
)%
|
Equity in earnings of unconsolidated entity
|
(0.2
|
)
|
|
—
|
|
|
0.2
|
|
|
100.0
|
%
|
|
Three Months Ended September 30,
|
|
|
|
|
|||||||||
|
2018
|
|
2017
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Operating expenses (including restructuring, impairment and transaction-related charges)
|
$
|
12.2
|
|
|
$
|
13.8
|
|
|
$
|
(1.6
|
)
|
|
(11.6
|
)%
|
Restructuring, impairment and transaction-related charges
|
0.2
|
|
|
1.2
|
|
|
(1.0
|
)
|
|
(83.3
|
)%
|
|
Operating
Income
|
|
Operating Margin
|
|
Net Earnings Attributable to Quad/Graphics Common Shareholders
|
|
Diluted Earnings Per Share Attributable to Quad/Graphics Common Shareholders
|
|||||||
For the nine months ended September 30, 2017
|
$
|
127.9
|
|
|
4.3
|
%
|
|
$
|
51.9
|
|
|
$
|
1.01
|
|
2018 restructuring, impairment and transaction-related charges
(1)
|
(40.6
|
)
|
|
(1.3
|
)%
|
|
(30.5
|
)
|
|
(0.59
|
)
|
|||
2017 restructuring, impairment and transaction-related charges
(2)
|
22.5
|
|
|
0.8
|
%
|
|
13.5
|
|
|
0.26
|
|
|||
Interest expense
(3)
|
N/A
|
|
|
N/A
|
|
|
(8.3
|
)
|
|
(0.16
|
)
|
|||
Net pension income
(4)
|
N/A
|
|
|
N/A
|
|
|
2.3
|
|
|
0.05
|
|
|||
2017 loss on debt extinguishment
(5)
|
N/A
|
|
|
N/A
|
|
|
1.6
|
|
|
0.03
|
|
|||
Income taxes
(6)
|
N/A
|
|
|
N/A
|
|
|
4.9
|
|
|
0.09
|
|
|||
Investments in unconsolidated entity and noncontrolling interests, net of tax
(7)
|
N/A
|
|
|
N/A
|
|
|
2.3
|
|
|
0.05
|
|
|||
Operating income
(8)
|
(41.2
|
)
|
|
(1.5
|
)%
|
|
(8.4
|
)
|
|
(0.17
|
)
|
|||
For the nine months ended September 30, 2018
|
$
|
68.6
|
|
|
2.3
|
%
|
|
$
|
29.3
|
|
|
$
|
0.57
|
|
(1)
|
Restructuring, impairment and transaction-related charges of
$40.6 million
(
$30.5 million
, net of tax) incurred during the
nine months ended
September 30, 2018
, included the following:
|
a.
|
$17.2 million
of employee termination charges related to workforce reductions through facility consolidations and separation programs;
|
b.
|
$16.0 million
of impairment charges, including
$2.4 million
of impairment charges for land and building and
$13.6 million
of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction restructuring activities;
|
c.
|
$1.1 million
of transaction-related charges, consisting of professional service fees for business acquisition and divestiture activities;
|
d.
|
$0.7 million
of acquisition-related integration costs; and
|
e.
|
$5.6 million
of various other restructuring charges, including
$1.4 million
in charges from foreign currency losses as a result of the economy in Argentina being classified as highly inflationary, as well as costs to maintain and exit closed facilities, net of a
$9.7 million
gain from the sale of the Taunton, Massachusetts Book and San Ixhuatepec, Mexico facilities.
|
(2)
|
Restructuring, impairment and transaction-related charges of
$22.5 million
(
$13.5 million
, net of tax) incurred during the
nine months ended
September 30, 2017
, included the following:
|
a.
|
$13.2 million
of employee termination charges related to workforce reductions through facility consolidations and separation programs;
|
b.
|
$1.0 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 restructuring activities;
|
c.
|
$1.8 million
of transaction-related charges consisting of professional service fees for business acquisition and divestiture activities; and
|
d.
|
$6.5 million
of various other restructuring charges, including costs to maintain and exit closed facilities, as well as lease exit charges, net of a $7.1 million gain from the sale of the Atglen, Pennsylvania; Dickson, Tennessee; East Greenville, Pennsylvania; Lenexa, Kansas; and Marengo, Iowa plants; and a $1.2 million gain from the Company's Argentina Subsidiaries' settlements with vendors through bankruptcy proceedings.
|
(3)
|
Interest expense
increased
$0.4 million
(
$8.3 million
, net of tax impact due to the change in the normalized tax rate) during the
nine months ended
September 30, 2018
, to
$54.0 million
. This change was due to a higher weighted average interest rate on borrowings, partially offset by a lower weighted average interest rate on borrowings in the
nine months ended
September 30, 2018
, as compared to the
nine months ended
September 30, 2017
.
|
(4)
|
Net pension income
increased
$1.5 million
(
$2.3 million
, net of tax impact due to the change in the normalized tax rate) during the
nine months ended
September 30, 2018
, to
$9.3 million
. This change was due to a $0.9 million decrease from interest cost on pension plan liabilities and a $0.6 million increase from the expected return on pension plan assets.
|
(5)
|
A $2.6 million loss on debt extinguishment (
$1.6 million
, net of tax) was recognized during the
nine months ended
September 30, 2017
, from the refinancing of the Senior Secured Credit Facility, completed on February 10, 2017.
|
(6)
|
The
$4.9 million
increase in income tax benefit as calculated in the following table is primarily due to an $8.5 million increased tax benefit from a decrease in the Company's liability for unrecognized tax benefits and a $3.1 million increased benefit from foreign receivables, partially offset by a $5.1 million decreased tax benefit related to foreign earnings and a $1.0 million decreased tax benefit from equity award activity:
|
|
Nine Months Ended September 30,
|
|
|
||||||||
|
2018
|
|
2017
|
|
$ Change
|
||||||
Earnings before income taxes and equity in loss of unconsolidated entity
|
$
|
23.9
|
|
|
$
|
79.5
|
|
|
$
|
(55.6
|
)
|
Normalized tax rate in 2017
|
40.0
|
%
|
|
40.0
|
%
|
|
|
||||
Income tax expense at normalized tax rate in 2017
|
9.6
|
|
|
31.8
|
|
|
(22.2
|
)
|
|||
|
|
|
|
|
|
||||||
Impact of change in normalized tax rate to 25% in 2018
|
(3.6
|
)
|
|
—
|
|
|
(3.6
|
)
|
|||
Income tax expense at normalized tax rate of 25% in 2018 and 40% in 2017
|
6.0
|
|
|
31.8
|
|
|
(25.8
|
)
|
|||
|
|
|
|
|
|
||||||
Income tax (benefit) expense from the condensed consolidated statements of operations
|
(3.9
|
)
|
|
26.8
|
|
|
(30.7
|
)
|
|||
|
|
|
|
|
|
||||||
Impact of income taxes
|
$
|
9.9
|
|
|
$
|
5.0
|
|
|
$
|
4.9
|
|
(7)
|
The increase from investments in unconsolidated entity and noncontrolling interests, net of tax, of
$2.3 million
during the
nine months ended
September 30, 2018
, was primarily related to a
$1.5 million
increase in earnings at the Company's investment in
Plural
, and a
$0.8 million
net loss attributed to noncontrolling interests in the Company's condensed consolidated statements of operations related to the Company's 57% ownership of Rise.
|
(8)
|
Operating income, excluding restructuring, impairment and transaction-related charges,
decreased
$41.2 million
(
$8.4 million
, net of tax impact) during the
nine months ended
September 30, 2018
, primarily due to the following: (1) lower print volume and pricing due to ongoing industry pressures; (2) a $22.3 million non-cash expense related to a special employee retirement contribution in 2018 resulting from the benefit of tax reform; and (3) a $12.8 million net benefit in 2017 from changes in employee vacation policies. These decreases were partially offset by the following: (1) a $13.3 million net benefit in 2018 in gain from property insurance claims; (2) savings from cost reduction initiatives, including employee-related costs; and (3) earnings from the Ivie acquisition and investment in Rise.
|
|
Nine Months Ended September 30,
|
|
|
|
|
|||||||||||||||
|
2018
|
|
2017
|
|
|
|
|
|||||||||||||
|
(dollars in millions)
|
|
|
|||||||||||||||||
|
Amount
|
|
% of
Sales
|
|
Amount
|
|
% of
Sales
|
|
$ Change
|
|
%
Change
|
|||||||||
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Products
|
$
|
2,431.2
|
|
|
80.7
|
%
|
|
$
|
2,530.6
|
|
|
85.3
|
%
|
|
$
|
(99.4
|
)
|
|
(3.9
|
)%
|
Services
|
580.9
|
|
|
19.3
|
%
|
|
436.6
|
|
|
14.7
|
%
|
|
144.3
|
|
|
33.1
|
%
|
|||
Total net sales
|
3,012.1
|
|
|
100.0
|
%
|
|
2,967.2
|
|
|
100.0
|
%
|
|
44.9
|
|
|
1.5
|
%
|
|||
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Products
|
2,013.2
|
|
|
66.9
|
%
|
|
2,024.9
|
|
|
68.2
|
%
|
|
(11.7
|
)
|
|
(0.6
|
)%
|
|||
Services
|
437.6
|
|
|
14.5
|
%
|
|
306.0
|
|
|
10.3
|
%
|
|
131.6
|
|
|
43.0
|
%
|
|||
Total cost of sales
|
2,450.8
|
|
|
81.4
|
%
|
|
2,330.9
|
|
|
78.5
|
%
|
|
119.9
|
|
|
5.1
|
%
|
|||
Selling, general & administrative expenses
|
278.5
|
|
|
9.2
|
%
|
|
310.4
|
|
|
10.5
|
%
|
|
(31.9
|
)
|
|
(10.3
|
)%
|
|||
Depreciation and amortization
|
173.6
|
|
|
5.8
|
%
|
|
175.5
|
|
|
5.9
|
%
|
|
(1.9
|
)
|
|
(1.1
|
)%
|
|||
Restructuring, impairment and transaction-related charges
|
40.6
|
|
|
1.3
|
%
|
|
22.5
|
|
|
0.8
|
%
|
|
18.1
|
|
|
80.4
|
%
|
|||
Total operating expenses
|
2,943.5
|
|
|
97.7
|
%
|
|
2,839.3
|
|
|
95.7
|
%
|
|
104.2
|
|
|
3.7
|
%
|
|||
Operating income
|
$
|
68.6
|
|
|
2.3
|
%
|
|
$
|
127.9
|
|
|
4.3
|
%
|
|
$
|
(59.3
|
)
|
|
(46.4
|
)%
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2018
|
|
2017
|
||||||||||
|
Amount
|
|
% of Net Sales
|
|
Amount
|
|
% of Net Sales
|
||||||
|
(dollars in millions)
|
||||||||||||
EBITDA and EBITDA margin (non-GAAP)
|
$
|
253.0
|
|
|
8.4
|
%
|
|
$
|
307.8
|
|
|
10.4
|
%
|
|
Nine Months Ended September 30,
|
||||||
|
2018
|
|
2017
|
||||
|
(dollars in millions)
|
||||||
Net earnings attributable to Quad/Graphics common shareholders
(1)
|
$
|
29.3
|
|
|
$
|
51.9
|
|
Interest expense
|
54.0
|
|
|
53.6
|
|
||
Income tax (benefit) expense
|
(3.9
|
)
|
|
26.8
|
|
||
Depreciation and amortization
|
173.6
|
|
|
175.5
|
|
||
EBITDA (non-GAAP)
|
$
|
253.0
|
|
|
$
|
307.8
|
|
(1)
|
Net earnings attributable to Quad/Graphics common shareholders included the following:
|
a.
|
Restructuring, impairment and transaction-related charges of
$40.6 million
and
$22.5 million
for the
nine months ended
September 30, 2018
and
2017
, respectively;
|
b.
|
Employee stock ownership plan non-cash expense related to a special employee retirement contribution of $22.3 million for the
nine months ended
September 30, 2018
;
|
c.
|
Net pension income of
$9.3 million
and
$7.8 million
for the
nine months ended
September 30, 2018
and
2017
, respectively;
|
d.
|
Loss on debt extinguishment of
$2.6 million
for the
nine months ended
September 30, 2017
;
|
e.
|
Equity in earnings of unconsolidated entity of
$0.7 million
and equity in loss of unconsolidated entity of
$0.8 million
for the
nine months ended
September 30, 2018
and
2017
, respectively; and
|
f.
|
Net loss attributable to noncontrolling interests of
$0.8 million
for the
nine months ended
September 30, 2018
.
|
|
Nine Months Ended September 30,
|
|
|
|
|
|||||||||
|
2018
|
|
2017
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Net sales:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
2,160.7
|
|
|
$
|
2,258.7
|
|
|
$
|
(98.0
|
)
|
|
(4.3
|
)%
|
Services
|
566.9
|
|
|
422.1
|
|
|
144.8
|
|
|
34.3
|
%
|
|||
Operating income (including restructuring, impairment and transaction-related charges)
|
102.6
|
|
|
156.6
|
|
|
(54.0
|
)
|
|
(34.5
|
)%
|
|||
Operating margin
|
3.8
|
%
|
|
5.8
|
%
|
|
N/A
|
|
|
N/A
|
|
|||
Restructuring, impairment and transaction-related charges
|
$
|
31.7
|
|
|
$
|
17.7
|
|
|
$
|
14.0
|
|
|
79.1
|
%
|
|
Nine Months Ended September 30,
|
|
|
|
|
|||||||||
|
2018
|
|
2017
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Net sales:
|
|
|
|
|
|
|
|
|||||||
Products
|
$
|
270.5
|
|
|
$
|
271.9
|
|
|
$
|
(1.4
|
)
|
|
(0.5
|
)%
|
Services
|
14.0
|
|
|
14.5
|
|
|
(0.5
|
)
|
|
(3.4
|
)%
|
|||
Operating income (including restructuring, impairment and transaction-related charges)
|
11.1
|
|
|
15.3
|
|
|
(4.2
|
)
|
|
(27.5
|
)%
|
|||
Operating margin
|
3.9
|
%
|
|
5.3
|
%
|
|
N/A
|
|
|
N/A
|
|
|||
Restructuring, impairment and transaction-related charges
|
$
|
4.9
|
|
|
$
|
1.8
|
|
|
$
|
3.1
|
|
|
172.2
|
%
|
Equity in (earnings) loss of unconsolidated entity
|
(0.7
|
)
|
|
0.8
|
|
|
1.5
|
|
|
187.5
|
%
|
|
Nine Months Ended September 30,
|
|
|
|
|
|||||||||
|
2018
|
|
2017
|
|
|
|
|
|||||||
|
(dollars in millions)
|
|
|
|||||||||||
|
Amount
|
|
Amount
|
|
$ Change
|
|
% Change
|
|||||||
Operating expenses (including restructuring, impairment and transaction-related charges)
|
$
|
45.1
|
|
|
$
|
44.0
|
|
|
$
|
1.1
|
|
|
2.5
|
%
|
Restructuring, impairment and transaction-related charges
|
4.0
|
|
|
3.0
|
|
|
1.0
|
|
|
33.3
|
%
|
|
Nine Months Ended September 30,
|
||||||
|
2018
|
|
2017
|
||||
|
(dollars in millions)
|
||||||
Net cash provided by operating activities
|
$
|
46.6
|
|
|
$
|
179.7
|
|
Less: purchases of property, plant and equipment
|
(85.0
|
)
|
|
(61.6
|
)
|
||
Free Cash Flow (non-GAAP)
|
$
|
(38.4
|
)
|
|
$
|
118.1
|
|
|
September 30,
2018 |
|
December 31,
2017 |
||||
|
(dollars in millions)
|
||||||
Total debt and capital lease obligations on the condensed consolidated balance sheets
|
$
|
1,074.4
|
|
|
$
|
964.8
|
|
|
|
|
|
||||
Divided by:
|
|
|
|
||||
Trailing twelve months Adjusted EBITDA for Quad/Graphics (non-GAAP)
|
$
|
427.4
|
|
|
$
|
448.2
|
|
Pro forma Adjusted EBITDA for Ivie (non-GAAP)
(1)
|
8.6
|
|
|
—
|
|
||
Trailing twelve months Adjusted EBITDA (non-GAAP)
|
$
|
436.0
|
|
|
$
|
448.2
|
|
|
|
|
|
||||
Debt Leverage Ratio (non-GAAP)
|
2.46
|
x
|
|
2.15
|
x
|
(1)
|
As permitted by the Senior Secured Credit Facility, certain pro forma financial information related to the acquisition of Ivie was included when calculating the Debt Leverage Ratio as of
September 30, 2018
. As the acquisition of Ivie was completed on
February 21, 2018
, the
$8.6 million
pro forma Adjusted EBITDA represents the period from October 1, 2017 to February 20, 2018. Pro forma Adjusted EBITDA for Ivie was calculated in a consistent manner with the calculation above for Quad/Graphics. Ivie's financial information subsequent to the
February 21, 2018
acquisition has been included within the Quad/Graphics Adjusted EBITDA as the results of Ivie have been consolidated with Quad/Graphics' financial results since that date. If the five months of pro forma Adjusted EBITDA for Ivie was not included in the calculation, the Company's Debt Leverage Ratio would have been 2.51x as of
September 30, 2018
.
|
|
|
|
Add
|
|
Subtract
|
|
Trailing Twelve
Months Ended
|
||||||||
|
Year Ended
|
|
Nine Months Ended
|
|
|||||||||||
|
December 31, 2017
(1)
|
|
September 30,
2018 |
|
September 30,
2017 |
|
September 30,
2018 |
||||||||
Net earnings attributable to Quad/Graphics common shareholders
|
$
|
107.2
|
|
|
$
|
29.3
|
|
|
$
|
51.9
|
|
|
$
|
84.6
|
|
Interest expense
|
71.1
|
|
|
54.0
|
|
|
53.6
|
|
|
71.5
|
|
||||
Income tax (benefit) expense
|
(16.0
|
)
|
|
(3.9
|
)
|
|
26.8
|
|
|
(46.7
|
)
|
||||
Depreciation and amortization
|
232.5
|
|
|
173.6
|
|
|
175.5
|
|
|
230.6
|
|
||||
EBITDA (non-GAAP)
|
$
|
394.8
|
|
|
$
|
253.0
|
|
|
$
|
307.8
|
|
|
$
|
340.0
|
|
Restructuring, impairment and transaction-related charges
|
60.4
|
|
|
40.6
|
|
|
22.5
|
|
|
78.5
|
|
||||
Net pension income
(2)
|
(9.6
|
)
|
|
(9.3
|
)
|
|
(7.8
|
)
|
|
(11.1
|
)
|
||||
Employee stock ownership plan contribution
|
—
|
|
|
22.3
|
|
|
—
|
|
|
22.3
|
|
||||
Loss on debt extinguishment
|
2.6
|
|
|
—
|
|
|
2.6
|
|
|
—
|
|
||||
Equity in (earnings) loss of unconsolidated entity
|
—
|
|
|
(0.7
|
)
|
|
0.8
|
|
|
(1.5
|
)
|
||||
Net loss attributable to noncontrolling interests
|
—
|
|
|
(0.8
|
)
|
|
—
|
|
|
(0.8
|
)
|
||||
Adjusted EBITDA (non-GAAP)
|
$
|
448.2
|
|
|
$
|
305.1
|
|
|
$
|
325.9
|
|
|
$
|
427.4
|
|
(1)
|
Financial information for the year ended
December 31, 2017
, is included as reported in the Company's
2017
Annual Report on Form 10-K filed with the SEC on
February 21, 2018
.
|
(2)
|
As a result of the adoption of ASU 2017-07, pension components other than service cost are required to be excluded from operating income. The Company has also excluded pension income from the calculation of Adjusted EBITDA, which is reflected in all periods presented.
|
•
|
Senior Secured Credit Facility:
|
◦
|
$725.0 million
revolving credit facility (
$136.1 million
outstanding as of
September 30, 2018
);
|
◦
|
$375.0 million
Term Loan A (
$281.3 million
outstanding as of
September 30, 2018
); and
|
◦
|
$300.0 million
Term Loan B (
$279.4 million
outstanding as of
September 30, 2018
);
|
•
|
Senior Unsecured Notes (
$243.5 million
outstanding as of
September 30, 2018
); and
|
•
|
Master Note and Security Agreement (
$101.1 million
outstanding as of
September 30, 2018
).
|
•
|
Total Leverage Ratio.
On a rolling twelve-month basis, the total leverage ratio, defined as total consolidated debt to consolidated EBITDA, shall not exceed
3.75
to 1.00 (for the twelve months ended
September 30, 2018
, the Company's total leverage ratio was
2.39
to 1.00).
|
•
|
Senior Secured Leverage Ratio.
On a rolling twelve-month basis, the senior secured leverage ratio, defined as senior secured debt to consolidated EBITDA, shall not exceed
3.50
to 1.00 (for the twelve months ended
September 30, 2018
, the Company's senior secured leverage ratio was
1.85
to 1.00).
|
•
|
Minimum Interest Coverage Ratio.
On a rolling twelve-month basis, the minimum interest coverage ratio, defined as consolidated EBITDA to consolidated cash interest expense, shall not be less than
3.50
to 1.00 (for the twelve months ended
September 30, 2018
, the Company's minimum interest coverage ratio was
6.67
to 1.00).
|
•
|
If the Company's total leverage ratio is greater than
3.00
to 1.00 (as defined in the Senior Secured Credit Facility), the Company is prohibited from making greater than
$120.0 million
of annual dividend payments, capital stock repurchases and certain other payments. If the total leverage ratio is less than
3.00
to 1.00, there are no such restrictions.
|
•
|
If the Company's senior secured leverage ratio is greater than
3.00
to 1.00 or the Company's total leverage ratio is greater than
3.50
to 1.00 (these ratios as defined in the Senior Secured Credit Facility), 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 leverage ratio is less than
3.50
to 1.00, there are no such restrictions.
|
ITEM 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
ITEM 4.
|
Controls and Procedures
|
ITEM 1.
|
Legal Proceedings
|
ITEM 1A.
|
Risk Factors
|
ITEM 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
(a)
|
None.
|
(b)
|
Not applicable.
|
(c)
|
Information about the Company's repurchases of its class A common stock in the quarter ended
September 30, 2018
, 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)
|
||||||
July 1, 2018 to July 31, 2018
|
|
67,285
|
|
(3)
|
$
|
—
|
|
|
—
|
|
|
$
|
100,000,000
|
|
August 1, 2018 to August 31, 2018
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100,000,000
|
|
||
September 1, 2018 to September 30, 2018
|
|
4,437
|
|
(3)
|
—
|
|
|
—
|
|
|
100,000,000
|
|
||
Total
|
|
71,722
|
|
|
|
|
—
|
|
|
|
(1)
|
Represents shares of the Company's class A common stock.
|
(2)
|
On
September 6, 2011
, the Company's Board of Directors authorized a share repurchase program of up to
$100.0 million
of the Company's outstanding class A common stock. On
July 30, 2018
, the Company's Board of Directors discontinued the remainder of the
September 6, 2011
share repurchase program and authorized a new share repurchase program of up to
$100.0 million
of the Company's outstanding class A 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. During the
nine months ended
September 30, 2018
, the Company repurchased
1,871,631
shares of its class A common stock at a weighted average price of
$19.59
per share for a total purchase price of
$36.7 million
. There were
no
shares repurchased during the
three months ended
September 30, 2018
. As of
September 30, 2018
, there were
$100.0 million
of authorized repurchases remaining under the program.
|
(3)
|
Represents
67,285
and
4,437
shares of class A common stock transferred from employees to the Company to satisfy tax withholding requirements in connection with the vesting of restricted stock and restricted stock units under the Omnibus Plan during the months of July 2018 and September 2018, respectively.
|
ITEM 6.
|
Exhibits
|
Exhibit Number
|
|
Exhibit Description
|
|
|
|
|
||
|
|
|
|
||
|
|
|
|
||
|
|
|
(101)
|
|
Financial statements from the Quarterly Report on Form 10-Q of Quad/Graphics, Inc. for the quarter ended September 30, 2018 formatted in eXtensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations (Unaudited), (ii) the Condensed Consolidated Statements of Comprehensive Income (Unaudited), (iii) the Condensed Consolidated Balance Sheets (Unaudited), (iv) the Condensed Consolidated Statements of Cash Flows (Unaudited), (v) the Notes to Condensed Consolidated Financial Statements (Unaudited), and (vi) document and entity information.
|
|
|
|
|
QUAD/GRAPHICS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
October 31, 2018
|
|
By:
|
/s/ J. Joel Quadracci
|
|
|
|
|
J. Joel Quadracci
|
|
|
|
|
Chairman, President and Chief Executive Officer
|
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
Date:
|
October 31, 2018
|
|
By:
|
/s/ David J. Honan
|
|
|
|
|
David J. Honan
|
|
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
(Principal Financial Officer)
|
1 Year Quad Graphics Chart |
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