UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2020~~2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-34806

Quad/Graphics, Inc.

(Exact name of registrant as specified in its charter)


Wisconsin						39-1152983
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

N61 W23044 Harry’s Way, Sussex, Wisconsin 53089-3995

(Address of principal executive offices) (Zip Code)

(414) 566-6000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.025 per share	QUAD	The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.


Class						Outstanding as of April 30, ~~2020~~2021
Class A Common Stock						~~40,214,733~~41,123,548
Class B Common Stock						13,556,858
Class C Common Stock						—0

Table of Contents

QUAD/GRAPHICS, INC.

FORM 10-Q INDEX

For the Quarter Ended March 31, ~~2020~~2021

Page No.

PART I

FINANCIAL INFORMATION

ITEM 1.

Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Statements of Operations (Unaudited)

Condensed Consolidated Statements of Comprehensive ~~Loss~~Income (Loss) (Unaudited)

Condensed Consolidated Balance Sheets (Unaudited)

Condensed Consolidated Statements of Cash Flows (Unaudited)

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited)

ITEM 2.

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

3433

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

5956

ITEM 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

PART I — FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements (Unaudited)

QUAD/GRAPHICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(UNAUDITED)


		Three Months Ended March 31,					Three Months Ended March 31,
		2020		2019			2021		2020
Net sales	Net sales					Net sales
Products	Products	$	645.0	$	761.4	Products	$	526.0	$	645.0
Services	Services	177.5		199.6		Services	179.8		177.5
Total net sales	Total net sales	822.5		961.0		Total net sales	705.8		822.5
Cost of sales	Cost of sales					Cost of sales
Products	Products	523.7		646.2		Products	428.3		523.7
Services	Services	124.0		142.1		Services	131.5		124.0
Total cost of sales	Total cost of sales	647.7		788.3		Total cost of sales	559.8		647.7
Operating expenses	Operating expenses					Operating expenses
Selling, general and administrative expenses	Selling, general and administrative expenses	99.6		94.5		Selling, general and administrative expenses	80.5		99.6
Depreciation and amortization	Depreciation and amortization	47.4		54.2		Depreciation and amortization	41.9		47.4
Restructuring, impairment and transaction-related charges	Restructuring, impairment and transaction-related charges	22.8		7.6		Restructuring, impairment and transaction-related charges	2.6		22.8

Total operating expenses	Total operating expenses	817.5		944.6		Total operating expenses	684.8		817.5
Operating income from continuing operations	Operating income from continuing operations	5.0		16.4		Operating income from continuing operations	21.0		5.0
Interest expense	Interest expense	18.1		21.8		Interest expense	14.5		18.1
Net pension income	Net pension income	(2.7)		(1.5)		Net pension income	(4.1)		(2.7)
(Gain) loss on debt extinguishment		(0.6)		15.9
Loss from continuing operations before income taxes and equity in loss of unconsolidated entity		(9.8)		(19.8)
Income tax benefit		(1.2)		(7.2)
Loss from continuing operations before equity in loss of unconsolidated entity		(8.6)		(12.6)
Equity in loss of unconsolidated entity		—		0.1
Net loss from continuing operations		(8.6)		(12.7)
Gain on debt extinguishment						Gain on debt extinguishment	0		(0.6)
Earnings (loss) from continuing operations before income taxes and equity in earnings of unconsolidated entity						Earnings (loss) from continuing operations before income taxes and equity in earnings of unconsolidated entity	10.6		(9.8)
Income tax expense (benefit)						Income tax expense (benefit)	0.5		(1.2)
Earnings (loss) from continuing operations before equity in earnings of unconsolidated entity						Earnings (loss) from continuing operations before equity in earnings of unconsolidated entity	10.1		(8.6)
Equity in earnings of unconsolidated entity						Equity in earnings of unconsolidated entity	(0.1)		0
Net earnings (loss) from continuing operations						Net earnings (loss) from continuing operations	10.2		(8.6)
Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	(3.8)		(10.1)		Loss from discontinued operations, net of tax	0		(3.8)
Net loss		(12.4)		(22.8)
Less: net loss attributable to noncontrolling interests		—		(0.3)
Net loss attributable to Quad common shareholders		$	(12.4)	$	(22.5)

Loss per share attributable to Quad common shareholders
Basic and diluted:
Continuing operations		$	(0.17)	$	(0.25)
Discontinued operations		(0.08)		(0.20)
Basic and diluted loss per share attributable to Quad common shareholders		$	(0.25)	$	(0.45)
Net earnings (loss)						Net earnings (loss)	10.2		(12.4)
Less: net earnings (loss) attributable to noncontrolling interests						Less: net earnings (loss) attributable to noncontrolling interests	0		0
Net earnings (loss) attributable to Quad common shareholders						Net earnings (loss) attributable to Quad common shareholders	$	10.2	$	(12.4)


Weighted average number of common shares outstanding
Basic and diluted		50.5		49.6

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

Table of Contents

QUAD/GRAPHICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (continued)

(in millions, except per share data)

(UNAUDITED)


	Three Months Ended March 31,
		2021		2020
Earnings (loss) per share attributable to Quad common shareholders
Basic:
Continuing operations		$	0.20	$	(0.17)
Discontinued operations		0		(0.08)
Basic earnings (loss) per share attributable to Quad common shareholders		$	0.20	$	(0.25)

Diluted:
Continuing operations		$	0.19	$	(0.17)
Discontinued operations		0		(0.08)
Diluted earnings (loss) per share attributable to Quad common shareholders		$	0.19	$	(0.25)

Weighted average number of common shares outstanding
Basic		51.4		50.5
Diluted		52.8		50.5

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

Table of Contents

QUAD/GRAPHICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~LOSS~~INCOME (LOSS)

(in millions)

(UNAUDITED)

Three Months Ended March 31,
2020 2019
Net loss $ (12.4) $ (22.8)
Other comprehensive loss
Translation adjustments (15.3) (0.3)
Interest rate swap adjustments (11.1) (3.7)
Other comprehensive loss, before tax (26.4) (4.0)
Income tax impact related to items of other comprehensive loss 2.8 0.9
Other comprehensive loss, net of tax (23.6) (3.1)
Total comprehensive loss (36.0) (25.9)
Less: comprehensive loss attributable to noncontrolling interests — (0.3)
Comprehensive loss attributable to Quad common shareholders $ (36.0) $ (25.6)


	Three Months Ended March 31,
		2021		2020
Net earnings (loss)		$	10.2	$	(12.4)

Other comprehensive income (loss)
Translation adjustments		(6.0)		(15.3)
Interest rate swap adjustments		1.8		(11.1)

Other comprehensive loss, before tax		(4.2)		(26.4)

Income tax impact related to items of other comprehensive income (loss)		0		2.8

Other comprehensive loss, net of tax		(4.2)		(23.6)

Total comprehensive income (loss)		6.0		(36.0)

Less: comprehensive income (loss) attributable to noncontrolling interests		0		0

Comprehensive income (loss) attributable to Quad common shareholders		$	6.0	$	(36.0)

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

Table of Contents

QUAD/GRAPHICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions)

(UNAUDITED)


		March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	207.8	$	78.7	Cash and cash equivalents	$	80.6	$	55.2
Receivables, less allowance for credit losses of $37.1 million at March 31, 2020, and $25.0 million at December 31, 2019		401.8		456.1
Receivables, less allowance for credit losses of $33.3 million at March 31, 2021, and $33.8 million at December 31, 2020						Receivables, less allowance for credit losses of $33.3 million at March 31, 2021, and $33.8 million at December 31, 2020	340.3		399.1
Inventories	Inventories	188.9		210.5		Inventories	162.0		170.2
Prepaid expenses and other current assets	Prepaid expenses and other current assets	66.8		109.0		Prepaid expenses and other current assets	50.8		54.7
Current assets of discontinued operations		52.3		56.6

Total current assets	Total current assets	917.6		910.9		Total current assets	633.7		679.2

Property, plant and equipment—net	Property, plant and equipment—net	1,006.7		1,036.5		Property, plant and equipment—net	850.7		884.2
Operating lease right-of-use assets—net	Operating lease right-of-use assets—net	91.5		97.9		Operating lease right-of-use assets—net	78.7		81.0
Goodwill	Goodwill	103.0		103.0		Goodwill	103.0		103.0
Other intangible assets—net	Other intangible assets—net	131.9		137.2		Other intangible assets—net	95.9		104.3
Equity method investment in unconsolidated entity	Equity method investment in unconsolidated entity	2.8		3.6		Equity method investment in unconsolidated entity	2.5		2.6
Other long-term assets	Other long-term assets	115.1		127.5		Other long-term assets	72.7		73.4
Long-term assets of discontinued operations		—		0.5

Total assets	Total assets	$	2,368.6	$	2,417.1	Total assets	$	1,837.2	$	1,927.7

LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	Accounts payable	$	418.4	$	416.7	Accounts payable	$	330.0	$	320.0
Other current liabilities	Other current liabilities	229.6		303.0		Other current liabilities	251.5		310.8
Short-term debt and current portion of long-term debt	Short-term debt and current portion of long-term debt	44.1		40.0		Short-term debt and current portion of long-term debt	16.8		20.7
Current portion of finance lease obligations	Current portion of finance lease obligations	5.7		7.7		Current portion of finance lease obligations	2.7		2.8
Current portion of operating lease obligations	Current portion of operating lease obligations	29.0		30.2		Current portion of operating lease obligations	27.7		28.4
Current liabilities of discontinued operations		13.9		15.8

Total current liabilities	Total current liabilities	740.7		813.4		Total current liabilities	628.7		682.7

Long-term debt	Long-term debt	1,137.8		1,058.5		Long-term debt	871.3		902.7
Finance lease obligations	Finance lease obligations	4.9		6.0		Finance lease obligations	1.8		2.0
Operating lease obligations	Operating lease obligations	65.0		70.4		Operating lease obligations	53.0		54.5
Deferred income taxes	Deferred income taxes	3.2		2.8		Deferred income taxes	5.1		4.2
Other long-term liabilities	Other long-term liabilities	220.1		221.1		Other long-term liabilities	184.2		196.8
Long-term liabilities of discontinued operations		0.6		0.6

Total liabilities	Total liabilities	2,172.3		2,172.8		Total liabilities	1,744.1		1,842.9

Commitments and contingencies (Note 10)	Commitments and contingencies (Note 10)					Commitments and contingencies (Note 10)	0		0

Shareholders’ equity	Shareholders’ equity					Shareholders’ equity
Preferred stock	Preferred stock	—		—		Preferred stock	0		0
Common stock, Class A	Common stock, Class A	1.0		1.0		Common stock, Class A	1.0		1.0
Common stock, Class B	Common stock, Class B	0.4		0.4		Common stock, Class B	0.4		0.4
Common stock, Class C	Common stock, Class C	—		—		Common stock, Class C	0		0
Additional paid-in capital	Additional paid-in capital	830.7		847.4		Additional paid-in capital	835.5		833.1
Treasury stock, at cost	Treasury stock, at cost	(12.7)		(31.5)		Treasury stock, at cost	(13.2)		(13.1)
Accumulated deficit	Accumulated deficit	(450.1)		(423.5)		Accumulated deficit	(555.8)		(566.0)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(190.8)		(167.2)		Accumulated other comprehensive loss	(175.5)		(171.3)
Quad’s shareholders’ equity	Quad’s shareholders’ equity	178.5		226.6		Quad’s shareholders’ equity	92.4		84.1
Noncontrolling interests	Noncontrolling interests	17.8		17.7		Noncontrolling interests	0.7		0.7
Total shareholders’ equity and noncontrolling interests	Total shareholders’ equity and noncontrolling interests	196.3		244.3		Total shareholders’ equity and noncontrolling interests	93.1		84.8
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	2,368.6	$	2,417.1	Total liabilities and shareholders’ equity	$	1,837.2	$	1,927.7

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

Table of Contents

QUAD/GRAPHICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(UNAUDITED)


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019			2021		2020
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net loss		$	(12.4)	$	(22.8)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Net earnings (loss)						Net earnings (loss)	$	10.2	$	(12.4)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:						Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	47.4		59.2		Depreciation and amortization	41.9		47.4

Impairment charges	Impairment charges	3.8		1.7		Impairment charges	0.8		3.8

Amortization of debt issuance costs and original issue discount	Amortization of debt issuance costs and original issue discount	0.6		1.1		Amortization of debt issuance costs and original issue discount	0.6		0.6
(Gain) loss on debt extinguishment		(0.6)		15.9
Gain on debt extinguishment						Gain on debt extinguishment	0		(0.6)
Stock-based compensation	Stock-based compensation	2.8		5.0		Stock-based compensation	3.0		2.8
Gain from property insurance claims		—		(0.8)
Loss on the sale of a business		2.9		—

Loss on the sale of a businesses						Loss on the sale of a businesses	0		2.9
Gain on the sale or disposal of property, plant and equipment	Gain on the sale or disposal of property, plant and equipment	(0.8)		(3.0)		Gain on the sale or disposal of property, plant and equipment	(7.0)		(0.8)
Deferred income taxes	Deferred income taxes	12.6		(10.7)		Deferred income taxes	0.1		12.6
Equity in loss of unconsolidated entity		—		0.1
Equity in earnings of unconsolidated entity						Equity in earnings of unconsolidated entity	(0.1)		0

Changes in operating assets and liabilities—net of acquisitions		(11.6)		(104.3)
Net cash provided by (used in) operating activities		44.7		(58.6)
Changes in operating assets and liabilities—net of acquisitions and divestitures						Changes in operating assets and liabilities—net of acquisitions and divestitures	23.4		(11.6)
Net cash provided by operating activities						Net cash provided by operating activities	72.9		44.7

INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Purchases of property, plant and equipment	Purchases of property, plant and equipment	(29.0)		(45.3)		Purchases of property, plant and equipment	(16.9)		(29.0)
Cost investment in unconsolidated entities						Cost investment in unconsolidated entities	(0.3)		0
Proceeds from the sale of property, plant and equipment						Proceeds from the sale of property, plant and equipment	11.4		3.6
Proceeds from the sale of businesses						Proceeds from the sale of businesses	0		41.3

Proceeds from the sale of property, plant and equipment		3.6		7.8
Proceeds from the sale of business		41.3		—
Proceeds from property insurance claims		—		0.3

Acquisition of businesses—net of cash acquired	Acquisition of businesses—net of cash acquired	(1.6)		(121.0)		Acquisition of businesses—net of cash acquired	0		(1.6)
Net cash provided by (used in) investing activities		14.3		(158.2)
Other investing activities						Other investing activities	(0.2)		0
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	(6.0)		14.3

FINANCING ACTIVITIES	FINANCING ACTIVITIES					FINANCING ACTIVITIES
Proceeds from issuance of long-term debt		—		490.4

Payments of long-term debt	Payments of long-term debt	(43.9)		(534.3)		Payments of long-term debt	(33.9)		(43.9)
Payments of finance lease obligations	Payments of finance lease obligations	(3.1)		(1.6)		Payments of finance lease obligations	(0.8)		(3.1)
Borrowings on revolving credit facilities	Borrowings on revolving credit facilities	204.8		1,239.3		Borrowings on revolving credit facilities	4.4		204.8
Payments on revolving credit facilities	Payments on revolving credit facilities	(76.7)		(990.1)		Payments on revolving credit facilities	(5.7)		(76.7)
Payments of debt issuance costs and financing fees		—		(20.2)

Equity awards redeemed to pay employees’ tax obligations	Equity awards redeemed to pay employees’ tax obligations	(1.0)		(6.6)		Equity awards redeemed to pay employees’ tax obligations	(1.1)		(1.0)
Payment of cash dividends	Payment of cash dividends	(9.5)		(19.2)		Payment of cash dividends	(1.4)		(9.5)
Other financing activities	Other financing activities	0.1		—		Other financing activities	(2.9)		0.1
Net cash provided by financing activities		70.7		157.7
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(41.4)		70.7

Effect of exchange rates on cash and cash equivalents	Effect of exchange rates on cash and cash equivalents	(0.6)		—		Effect of exchange rates on cash and cash equivalents	(0.1)		(0.6)
Net increase (decrease) in cash and cash equivalents		129.1		(59.1)
Net increase in cash and cash equivalents						Net increase in cash and cash equivalents	25.4		129.1
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	78.7		69.5		Cash and cash equivalents at beginning of period	55.2		78.7
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	207.8	$	10.4	Cash and cash equivalents at end of period	$	80.6	$	207.8

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

Table of Contents

QUAD/GRAPHICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

AND NONCONTROLLING INTERESTS

(in millions)

(UNAUDITED)

Condensed Consolidated Statement of Shareholders’ Equity For the Three Months Ended March 31, ~~2020~~2021

Common Stock Additional
Paid-in
Capital Treasury Stock Accumulated
Deficit Accumulated
Other
Comprehensive
Loss Quad’s
Shareholders’
Equity Noncontrolling
Interests
Shares Amount Shares Amount
Balance at December 31, 2019 54.3 $ 1.4 $ 847.4 (1.6) $ (31.5) $ (423.5) $ (167.2) $ 226.6 $ 17.7
Accumulated deficit transition adjustment for adoption of ASU 2016-13, net of tax — — — — — (6.3) — (6.3) —
Balance at January 1, 2020 54.3 $ 1.4 $ 847.4 (1.6) $ (31.5) $ (429.8) $ (167.2) $ 220.3 $ 17.7
Net loss — — — — — (12.4) — (12.4) —
Change in ownership of noncontrolling interests — — — — — — — — 0.1
Foreign currency translation adjustments — — — — — — (15.3) (15.3) —
Interest rate swap adjustments, net of tax — — — — — — (8.3) (8.3) —
Cash dividends declared ($0.15 per common share) — — — — — (7.9) — (7.9) —
Stock-based compensation — — 3.1 — — — — 3.1 —
Issuance of share-based awards, net of other activity 0.1 — (19.8) 1.1 19.8 — — — —
Awards redeemed to pay employees’ tax obligations — — — (0.2) (1.0) — — (1.0) —
Balance at March 31, 2020 54.4 $ 1.4 $ 830.7 (0.7) $ (12.7) $ (450.1) $ (190.8) $ 178.5 $ 17.8

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


	Common Stock			Additional Paid-in Capital		Treasury Stock			Accumulated Deficit		Accumulated Other Comprehensive Loss		Quad’s Shareholders’ Equity		Noncontrolling Interests
	Shares	Amount				Shares	Amount
Balance at December 31, 2020	54.4	$	1.4	$	833.1	(0.8)	$	(13.1)	$	(566.0)	$	(171.3)	$	84.1	$	0.7


Net earnings	—	—		—		—	—		10.2		—		10.2		—

Foreign currency translation adjustments	—	—		—		—	—		—		(6.0)		(6.0)		—
Interest rate swap adjustments, net of tax	—	—		—		—	—		—		1.8		1.8		—


Stock-based compensation	—	—		3.0		—	—		—		—		3.0		—



Issuance of share-based awards, net of other activity	1.3	—		(0.6)		0	1.0		—		—		0.4		—
Awards redeemed to pay employees’ tax obligations	—	—		—		(0.2)	(1.1)		—		—		(1.1)		—
Balance at March 31, 2021	55.7	$	1.4	$	835.5	(1.0)	$	(13.2)	$	(555.8)	$	(175.5)	$	92.4	$	0.7

Condensed Consolidated Statement of Shareholders’ Equity For the Three Months Ended March 31, ~~2019~~2020


		Common Stock					Additional Paid-in Capital		Treasury Stock							Accumulated Deficit		Accumulated Other Comprehensive Loss		Quad’s Shareholders’ Equity		Noncontrolling Interests				Common Stock					Additional Paid-in Capital			Treasury Stock								Accumulated Deficit			Accumulated Other Comprehensive Loss			Quad’s Shareholders’ Equity			Noncontrolling Interests
		Shares	Amount					Shares			Amount																	Shares		Amount			Additional Paid-in Capital			Shares				Amount				Accumulated Deficit			Accumulated Other Comprehensive Loss			Quad’s Shareholders’ Equity		Noncontrolling Interests
Balance at December 31, 2018		54.3	$	1.4	$	861.3	(2.7)		$	(56.6)		$	(211.4)	$	(152.2)	$	442.5	$	17.7
Balance at December 31, 2019																					Balance at December 31, 2019		54.3	$	1.4	$	847.4		(1.6)		$	(31.5)				$	(423.5)			$	(167.2)				$	226.6		$	17.7
Accumulated deficit transition adjustment for adoption of ASU 2016-13, net of tax																					Accumulated deficit transition adjustment for adoption of ASU 2016-13, net of tax		—	—		—			—		—			(6.3)				—				(6.3)			—
Balance at January 1, 2020																					Balance at January 1, 2020		54.3	$	1.4	$	847.4		(1.6)		$	(31.5)		$	(429.8)			$	(167.2)			$	220.3		$	17.7
Net loss	Net loss	—	—		—		—		—			(22.5)		—		(22.5)		(0.3)			Net loss		—	—		—			—		—			(12.4)				—				(12.4)			0

Change in ownership of noncontrolling interests																					Change in ownership of noncontrolling interests		—	—		—			—		—			—				—				—			0.1
Foreign currency translation adjustments	Foreign currency translation adjustments	—	—		—		—		—			—		(0.3)		(0.3)		—			Foreign currency translation adjustments		—	—		—			—		—			—				(15.3)				(15.3)			—
Interest rate swap adjustments, net of tax	Interest rate swap adjustments, net of tax	—	—		—		—		—			—		(2.8)		(2.8)		—			Interest rate swap adjustments, net of tax		—	—		—			—		—			—				(8.3)				(8.3)			—

Cash dividends declared ($0.30 per common share)		—	—		—		—		—			(16.0)		—		(16.0)		—
Cash dividends declared ($0.15 per common share)																					Cash dividends declared ($0.15 per common share)		—	—		—			—		—			(7.9)				—				(7.9)			—
Stock-based compensation	Stock-based compensation	—	—		5.0		—		—			—		—		5.0		—			Stock-based compensation		—	—		3.1			—		—			—				—				3.1			—

Issuance of share-based awards, net of other activity	Issuance of share-based awards, net of other activity	—	—		(30.1)		1.7		33.3			—		—		3.2		—			Issuance of share-based awards, net of other activity		0.1	—		(19.8)			1.1		19.8			—				—				0			—
Awards redeemed to pay employees’ tax obligations	Awards redeemed to pay employees’ tax obligations	—	—		—		(0.5)		(6.6)			—		—		(6.6)		—			Awards redeemed to pay employees’ tax obligations		—	—		—			(0.2)		(1.0)			—				—				(1.0)			—
Balance at March 31, 2019		54.3	$	1.4	$	836.2	(1.5)		$	(29.9)		$	(249.9)	$	(155.3)	$	402.5	$	17.4
Balance at March 31, 2020																					Balance at March 31, 2020		54.4	$	1.4	$	830.7		(0.7)		$	(12.7)		$	(450.1)			$	(190.8)			$	178.5		$	17.8

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

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

(In millions, except share and per share data and unless otherwise indicated)

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements for Quad/Graphics, Inc. and its subsidiaries (the “Company” or “Quad”) have been prepared by the Company pursuant to the rules and regulations for interim financial information of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such SEC rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated annual financial statements as of and for the year ended December 31, ~~2019,~~2020, and notes thereto included in the Company’s latest Annual Report on Form 10-K filed with the SEC on February ~~19, 2020.~~24, 2021.

The Company is subject to seasonality in its quarterly results as net sales and operating income are higher in the third and fourth quarters of the calendar year as compared to the first and second quarters. The fourth quarter is typically the highest seasonal quarter for cash flows from operating activities due to the reduction of working capital requirements that reach peak levels during the third quarter. Seasonality is driven by increased magazine advertising page counts, retail inserts and catalogs primarily due to back-to-school and holiday-related advertising and promotions. The Company expects this seasonality impact to continue in future years.

The financial information contained herein reflects all adjustments, in the opinion of management, necessary for a fair presentation of the Company’s results of operations for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020. All of these adjustments are of a normal recurring nature, except as otherwise noted. All intercompany transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements include estimates and assumptions of management that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these estimates.

Discontinued Operations

The results of operations of the Company’s ~~United States~~ Book business ~~(“Book business”) have been~~are reported as discontinued operations for ~~all periods presented,~~the three months ended March 31, 2020, in accordance with Accounting Standards Codification (“ASC”) 205-20 — Discontinued Operations. The ~~corresponding current and long-term assets and liabilities~~sale of the Book business ~~have been classified as held for sale in the condensed consolidated balance sheets in accordance with ASC 205-20 as of March 31, 2020, and December 31, 2019.~~was completed during 2020. The financial information pertaining to discontinued operations has been excluded from all relevant notes to the ~~condensed~~ consolidated financial statements, unless otherwise noted. See all required disclosures and further information in Note 4, “Discontinued Operations” for information about the Company’s ~~intent to sell~~sale of its Book business.

~~Receivables~~

Coronavirus (“COVID-19”) Pandemic Impacts and Response -

~~On January 1,~~The COVID-19 pandemic has had, and will continue to have, a negative impact on the Company’s business, financial condition, cash flows, results of operations and supply chain, although the full extent is still uncertain. The Company implemented cost reduction and cash conservation initiatives in response to the impact of the COVID-19 pandemic on its business. The Company also amended its Senior Secured Credit Facility during the second quarter of 2020 to provide for certain financial covenant relief through the Company adopted Accounting Standards Update 2016-13 “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments. This new impairment model, also known as the current expected credit loss (“CECL”) model, is based on expected losses rather than incurred losses. Under ASC 326—~~Financial Instruments~~—~~Credit Losses~~ ~~(“ASC 326”), the~~fiscal quarter ending September 30, 2021. The Company is ~~required~~continuing to ~~measure expected credit losses for~~evaluate its cost structure and expects to implement additional cost reduction measures as necessary. As the pandemic continues, the extent of the impact on the Company’s business, financial ~~instruments, including trade receivables, based~~condition, cash flows, results of operations and supply chain will depend on historical experience, current conditions and reasonable forecasts. The Company has adopted ASU 2016-13 using a modified retrospective transition approach and has recorded a cumulative-effect transition adjustment to accumulated deficit to increase the allowance for credit losses balance asfuture developments, all of ~~January 1, 2020. See Note 7, “Receivables,” for additional accounting policy and transition disclosures.~~which are still highly uncertain.

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

(In millions, except share and per share data and unless otherwise indicated)

Note 2. Revenue Recognition

Revenue Disaggregation

The following table provides information about disaggregated revenue by the Company’s operating segments and major products and services offerings for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:

United States Print
and Related Services International Total
Three months ended March 31, 2020
Catalog, publications, retail inserts, and directories $ 412.1 $ 64.7 $ 476.8
Direct mail and other printed products 150.4 16.4 166.8
Other 1.1 0.3 1.4
Total products 563.6 81.4 645.0
Logistics services 90.0 4.4 94.4
Imaging, marketing services and other services 83.0 0.1 83.1
Total services 173.0 4.5 177.5
Total net sales $ 736.6 $ 85.9 $ 822.5
Three months ended March 31, 2019
Catalog, publications, retail inserts, and directories $ 485.7 $ 71.3 $ 557.0
Direct mail and other printed products 167.4 30.4 197.8
Other 6.5 0.1 6.6
Total products 659.6 101.8 761.4
Logistics services 100.3 4.1 104.4
Imaging, marketing services and other services 95.1 0.1 95.2
Total services 195.4 4.2 199.6
Total net sales $ 855.0 $ 106.0 $ 961.0


	United States Print and Related Services		International		Total
Three months ended March 31, 2021
Catalog, publications, retail inserts, and directories	$	329.7	$	49.0	$	378.7
Direct mail and other printed products	129.0		16.8		145.8
Other	1.2		0.3		1.5
Total products	459.9		66.1		526.0
Logistics services	92.7		5.1		97.8
Imaging, marketing services and other services	82.0		0		82.0
Total services	174.7		5.1		179.8
Total net sales	$	634.6	$	71.2	$	705.8

Three months ended March 31, 2020
Catalog, publications, retail inserts, and directories	$	412.1	$	64.7	$	476.8
Direct mail and other printed products	150.4		16.4		166.8
Other	1.1		0.3		1.4
Total products	563.6		81.4		645.0
Logistics services	90.0		4.4		94.4
Imaging, marketing services and other services	83.0		0.1		83.1
Total services	173.0		4.5		177.5
Total net sales	$	736.6	$	85.9	$	822.5

Nature of Products and Services

The Company recognizes its products and services revenue based on when the transfer of control passes to the client or when the service is completed and accepted by the client.

The products offering is predominantly comprised of the Company’s print operations which includes retail inserts, ~~publications, catalogs, special interest~~ publications, journals, direct mail, directories, in-store marketing and promotion, packaging, newspapers, custom print products, other commercial and specialty printed products and global paper procurement.

The Company considers its logistic operations as services, which include the delivery of printed material. The Services offering also includes revenues related to the Company’s imaging operations, which include digital content management, photography, color services, page production, marketing services, media planning and placement, facilities management and medical services.

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

(In millions, except share and per share data and unless otherwise indicated)

Costs to Obtain Contracts

In accordance with ASC 606 — Revenue from Contracts with Customers, the Company capitalizes certain sales incentives of the sales compensation packages for costs that are directly attributed to being awarded a client contract or renewal and would not have been incurred had the contract not been obtained. The Company also defers certain contract acquisition costs paid to the client at contract inception. Costs to obtain contracts with a duration of less than one year are expensed as incurred. For all contract costs with contracts over one year, the Company amortizes the costs to obtain contracts on a straight-line basis over the estimated life of the contract and reviews quarterly for ~~impairment.~~ impairment. Activity impacting costs to obtain contracts for the three months ended March 31, ~~2020,~~2021, was as follows:


	Costs to Obtain Contracts
Balance at December 31, ~~2019~~	2020	$	~~12.7~~8.7
Costs to obtain contracts	~~0.6~~0
Amortization of costs to obtain contracts	~~(1.2)~~(0.9)
Balance at March 31, ~~2020~~2021	$	~~12.1~~7.8

Note 3. ~~Acquisitions~~Strategic Investments

~~2019 Acquisition~~2020 Change of ~~Periscope~~Ownership in Rise Interactive

On ~~January 3, 2019,~~June 15, 2020, the Company ~~completed~~purchased units of equity in Rise Interactive Media & Analytics, LLC (“Rise”) from a previous holder in the ~~acquisition~~form of ~~Periscope, Inc. (“Periscope”),~~ a ~~creative agency headquartered~~$15.9 million note payable paid in ~~Minneapolis, Minnesota, for $121.0~~full on October 1, 2020, and $1.0 million cash ~~paid. Periscope provides a comprehensive service offering, including media buying~~paid on June 15, 2020. In addition, on June 15, 2020, Rise purchased and ~~analytics, creative and account management. Periscope also has packaging design and premedia services that complement Quad’s print-production capabilities. The purchase price~~retired units of ~~$134.0~~equity from previous holders of Rise for $5.4 million ~~includes $9.8 million of acquired cash and non-cash equity incentive awards with a grant date fair value of $3.2 million. Included~~in cash. These transactions result in the ~~purchase price allocation are $69.8 million~~Company’s ownership interest to change from 57% to 99%. The Company began consolidating the results of ~~identifiable other intangible~~Rise in the Company’s condensed consolidated financial statements when its equity ownership increased to 57% on March 14, 2018. The portion of Rise’s operating results not owned by the Company of 43% through June 15, 2020 and of 1% after June 15, 2020 is recorded as net earnings (loss) attributable to noncontrolling interests on the condensed consolidated statement of operations. The portion of net assets ~~which are amortized over their estimated useful lives, ranging from five to six years, and $58.5 million of goodwill, of which $52.7 million~~not owned by the Company is ~~deductible for tax purposes. The final allocation of the purchase price was based on valuations performed to determine the fair value of the net assets~~recorded as noncontrolling interests as of the ~~acquisition date. The net assets acquired, excluding acquired cash, were classified as Level 3 in~~respective dates shown on the valuation hierarchy (see Note 13, “Financial Instruments and Fair Value Measurements,” for the definition of Level 3 inputs). Periscope’s operations are included in the United States Print and Related Services segment.condensed consolidated balance sheets.

Note 4. Discontinued Operations

During the third quarter of 2019, the Company made a decision to sell its United States Book business as a part of an ongoing process to review its business portfolio and divest assets not core to the ~~Quad 3.0 transformation.~~Company’s transformation strategy. Accordingly, the Company has classified the Book business as a discontinued operation, as required by ASC 205-20 — Discontinued Operations. The Book business primarily consists of 3three facilities: Versailles, Kentucky; Fairfield, Pennsylvania; and Martinsburg, West Virginia. The Company’s Book business has historically been included within the United States Print and Related Services segment and the Core Print and Related Services reporting unit.

On July 1, 2020, the Company completed the sale of its Versailles, Kentucky book manufacturing plant to CJK Group, Inc., which serves book, magazine, catalog and journal publishers, for $7.0 million in cash and the assumption of approximately $3.0 million in finance lease obligation, resulting in a $10.1 million impairment charge related to property, plant and equipment and a $3.0 million gain on the sale of the business during the year ended December 31, 2020. The Company used the proceeds from the sale to reduce debt.

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~~QUAD/GRAPHICS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2020~~

~~(In millions, except share and per share data and unless otherwise indicated)~~

~~The following table summarizes the results of operations of the Company’s United States~~ ~~Book business, which are included in the loss from discontinued operations in the condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019:~~

Three Months Ended March 31,
2020 2019
Total net sales $ 40.3 $ 43.7
Total cost of sales, excluding depreciation and amortization 41.1 48.8
Selling, general and administrative expenses 1.9 3.4
Depreciation and amortization — 5.0
Restructuring, impairment and transaction-related charges ⁽¹⁾
2.2 —
Loss from discontinued operations before income taxes (4.9) (13.5)
Income tax benefit (1.1) (3.4)
Loss from discontinued operations, net of tax $ (3.8) $ (10.1)

⁽¹⁾~~The Company recognized $1.3 million of impairment charges for tangible property, plant and equipment during the~~ ~~three months ended March 31, 2020, to reduce the carrying value of the~~ ~~Book business~~ ~~to its fair value.~~

The condensed consolidated statements of cash flows for all periods have not been adjusted to separately disclose cash flows related to discontinued operations. Cash flows used in operating activities related to the Book business were $0.9 million and $3.4 million during the three months ended March 31, 2020 and 2019, respectively; and cash flows used in investing activities related to the Book business were $1.6 million and $9.3 million during the three months ended March 31, 2020 and 2019, respectively.

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

(In millions, except share and per share data and unless otherwise indicated)

On October 31, 2020, the Company completed the sale of its Fairfield, Pennsylvania and Martinsburg, West Virginia book manufacturing plants to Berryville Graphics, a division of Bertelsmann Printing Group USA, a media, services and education company, for $14.2 million in cash, resulting in a loss on the sale of the business of $3.5 million and a $1.4 million impairment charge related to property plant and equipment during the year ended December 31, 2020. The Company used the proceeds from the sale to reduce debt. This sale was the final step in the previously announced strategic decision to divest the Company’s Book business to optimize its product portfolio.

The following table summarizes the ~~current and long-term assets and liabilities~~results of operations, which are included in the loss from discontinued ~~United States Book business that were classified as held for sale~~operations in the condensed consolidated ~~balance sheets at~~statements of operations for the three months ended March 31, 2020:



	Three Months Ended March 31, 2020
Total net sales	$	40.3
Total cost of sales, excluding depreciation and amortization	41.1
Selling, general and administrative expenses	1.9

Restructuring, impairment and transaction-related charges (1)	2.2

Other expenses, net	0
Loss from discontinued operations before income taxes	(4.9)
Income tax benefit	(1.1)
Loss from discontinued operations, net of tax	$	(3.8)

(1)The Company recognized $1.3 million of impairment charges for tangible property, plant and equipment during the three months ended March 31, 2020, ~~and December~~to reduce the carrying value of the Book business to its fair value.

The condensed consolidated statement of cash flows for the three months ended March 31, ~~2019:~~2020 has not been adjusted to separately disclose cash flows related to discontinued operations. Cash flows related to the discontinued Book business during the three months ended March 31, 2020, were as follows:

March 31,
2020 December 31,
2019
Receivables—net $ 16.1 $ 19.6
Inventories 12.9 14.0
Prepaid expenses and other current assets 23.3 23.0
Current assets of discontinued operations 52.3 56.6
Property, plant and equipment—net — —
Operating lease right-of-use assets—net — 0.2
Other long-term assets — 0.3
Long-term assets of discontinued operations — 0.5
Accounts payable 8.0 7.0
Accrued liabilities 5.9 8.5
Current portion of finance lease obligations — 0.1
Current portion of operating lease obligations — 0.2
Current liabilities of discontinued operations 13.9 15.8
Finance lease obligations — —
Other long-term liabilities 0.6 0.6
Long-term liabilities of discontinued operations 0.6 0.6



	Three Months Ended March 31, 2020
Cash flows used in operating activities	$	(0.9)
Cash flows used in investing activities	(1.6)

Note 5. Restructuring, Impairment and Transaction-Related Charges

The Company recorded restructuring, impairment and transaction-related charges for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, as follows:


		Three Months Ended March 31,					Three Months Ended March 31,
		2020		2019			2021		2020
Employee termination charges	Employee termination charges	$	12.6	$	4.3	Employee termination charges	$	4.7	$	12.6
Impairment charges	Impairment charges	2.5		1.7		Impairment charges	0.8		2.5
Transaction-related charges	Transaction-related charges	0.5		1.5		Transaction-related charges	0.2		0.5
Integration costs	Integration costs	0.7		0.8		Integration costs	0		0.7
Other restructuring charges (income)	Other restructuring charges (income)	6.5		(0.7)		Other restructuring charges (income)	(3.1)		6.5
Total	Total	$	22.8	$	7.6	Total	$	2.6	$	22.8

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(In millions, except share and per share data and unless otherwise indicated)

The costs related to these activities have been recorded in the condensed consolidated statements of operations as restructuring, impairment and transaction-related charges. See Note 20, “Segment Information,” for restructuring, impairment and transaction-related charges by segment.

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~~QUAD/GRAPHICS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2020~~

~~(In millions, except share and per share data and unless otherwise indicated)~~

Restructuring Charges

The Company began a restructuring program in 2010 related to eliminating excess manufacturing capacity and properly aligning its cost structure and has since announced a total of 4650 plant closures through March 31, ~~2020, including the announced closure of the Charlotte, North Carolina facility during the first quarter of 2020.~~2021. The Company classifies the following charges as restructuring:

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

•Integration costs are incurred primarily for the integration of acquired companies (see Note 3, ~~“Acquisitions,~~“Strategic Investments,” for descriptions of the Company’s recent ~~acquisitions)~~acquisitions and strategic investments).

•Other restructuring charges (income) are presented net of the gains on the sale of facilities and businesses, including a gain on the sale of the Riverside, California facility during the three months ended March 31, 2021, and a gain on the sale of the Shakopee, Minnesota facility during the three months ended March 31, ~~2020, and a gain on the sale of the Hazleton, Pennsylvania facility during the three months ended March 31, 2019.~~2020. The Company also recognized a $2.9 million loss on the sale of a business during the three months ended March 31, 2020, which is included within other restructuring activities below. The components of other restructuring charges (income) consisted of the following during the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended March 31,					Three Months Ended March 31,
		2020		2019			2021		2020
Vacant facility carrying costs and lease exit charges	Vacant facility carrying costs and lease exit charges	$	2.7	$	1.3	Vacant facility carrying costs and lease exit charges	$	3.9	$	2.7
Equipment and infrastructure removal costs	Equipment and infrastructure removal costs	0.6		0.1		Equipment and infrastructure removal costs	0.8		0.6
Gains on the sale of facilities	Gains on the sale of facilities	(0.8)		(3.5)		Gains on the sale of facilities	(7.8)		(0.8)
Other restructuring activities	Other restructuring activities	4.0		1.4		Other restructuring activities	0		4.0
Other restructuring charges (income)	Other restructuring charges (income)	$	6.5	$	(0.7)	Other restructuring charges (income)	$	(3.1)	$	6.5

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

Impairment Charges

The Company recognized impairment charges of ~~$2.5~~$0.8 million and ~~$1.7~~$2.5 million during the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively, primarily for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction restructuring activities.

The fair values of the impaired assets were determined by the Company to be Level 3 under the fair value hierarchy (see Note 13, “Financial Instruments and Fair Value Measurements,” for the definition of Level 3 inputs) and were estimated based on broker quotes, internal expertise related to current marketplace conditions and estimated future discounted cash flows. These assets were adjusted to their estimated fair values at the time of impairment. If estimated fair values subsequently decline, the carrying values of the assets are adjusted accordingly.

~~Transaction-Related Charges~~

The Company incurs transaction-related charges primarily consisting of professional service fees related to business acquisition and divestiture activities. Transaction-related charges of $0.5 million and $1.5 million were recorded during the three months ended March 31, 2020 and 2019, respectively.

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

(In millions, except share and per share data and unless otherwise indicated)

Transaction-Related Charges

The Company incurs transaction-related charges primarily consisting of professional service fees related to business acquisition and divestiture activities. Transaction-related charges of $0.2 million and $0.5 million were recorded during the three months ended March 31, 2021 and 2020, respectively.

Restructuring Reserves

Activity impacting the Company’s restructuring reserves for the three months ended March 31, ~~2020,~~2021, was as follows:

Employee
Termination
Charges Impairment
Charges Transaction-Related
Charges Integration
Costs Other
Restructuring
Charges
(Income) Total
Balance at December 31, 2019 $ 9.9 $ — $ 0.8 $ 0.2 $ 13.6 $ 24.5
Expense, net 12.6 2.5 0.5 0.7 6.5 22.8
Cash payments, net (10.4) — (0.3) (0.7) (3.4) (14.8)
Non-cash adjustments/reclassifications 0.3 (2.5) — — (1.7) (3.9)
Balance at March 31, 2020 $ 12.4 $ — $ 1.0 $ 0.2 $ 15.0 $ 28.6


	Employee Termination Charges		Impairment Charges		Transaction-Related Charges		Other Restructuring Charges		Total
Balance at December 31, 2020	$	14.6	$	0	$	0.5	$	25.8	$	40.9
Expense, net	4.7		0.8		0.2		(3.1)		2.6
Cash payments, net	(5.6)		0		(0.3)		6.6		0.7
Non-cash adjustments/reclassifications and translation	(0.4)		(0.8)		0		(4.2)		(5.4)
Balance at March 31, 2021	$	13.3	$	0	$	0.4	$	25.1	$	38.8

The Company’s restructuring reserves at March 31, ~~2020,~~2021, included a short-term and a long-term component. The short-term portion included ~~$20.4~~$31.1 million in ~~accrued~~other current liabilities (see Note 14, “Other Current and Long-Term Liabilities”) and ~~$1.4~~$0.7 million in accounts payable in the condensed consolidated balance sheets as the Company expects these reserves to be paid within the next twelve months. The long-term portion of ~~$6.8~~$7.0 million is included in other long-term liabilities (see Note 14, “Other Current and Long-Term Liabilities”) in the condensed consolidated balance sheets.

Note 6. Goodwill and Other Intangible Assets

Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill is assigned to specific reporting units and is tested annually for impairment as of October 31 or more frequently if events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is below its carrying value. ~~Due to the decline~~

No indicators of impairment were identified in ~~the Company’s stock price and the uncertainty and impacts~~any of the ~~coronavirus (“COVID-19”) pandemic on the Company and the global economy, an interim goodwill impairment test was completed on the goodwill in the Core Print and Related Services~~Company's reporting ~~unit~~units during the three months ended March 31, ~~2020.~~2021.

Fair value was determined using an equal weighting of both the income and market approaches. Under the income approach, the Company determined fair value based on estimated future cash flows discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk and the rate of return an outside investor would expect to earn. Under the market approach, the Company derived the fair value of the reporting units based on market multiples of comparable publicly-traded companies. This fair value determination was categorized as Level 3 in the fair value hierarchy (see Note 13, “Financial Instruments and Fair Value Measurements,” for the definition of Level 3 inputs).

~~As a result of the interim~~The accumulated goodwill impairment ~~test, the Company determined the fair value of the Core Print~~losses and ~~Related Services reporting unit exceeded~~ the carrying value ~~and therefore no impairment was recorded during the three months ended~~of goodwill at March 31, ~~2020.~~2021, and December 31, 2020, were as follows:



	United States Print and Related Services		International		Total
Goodwill	$	881.3	$	30.0	$	911.3
Accumulated goodwill impairment loss	(778.3)		(30.0)		(808.3)
Goodwill, net of accumulated goodwill impairment loss	$	103.0	$	0	$	103.0

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

(In millions, except share and per share data and unless otherwise indicated)

~~The accumulated goodwill impairment losses and the carrying value of goodwill at March 31, 2020, and December 31, 2019, were as follows:~~

United States Print and Related Services International Total
Goodwill $ 881.3 $ 30.0 $ 911.3
Accumulated goodwill impairment loss (778.3) (30.0) (808.3)
Goodwill, net of accumulated goodwill impairment loss $ 103.0 $ — $ 103.0

Other Intangible Assets

The components of finite-lived intangible assets at March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, were as follows:


		March 31, 2020												December 31, 2019													March 31, 2021				December 31, 2020
		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			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	Trademarks, patents, licenses and agreements	6	$	67.3	$	(33.8)	$	33.5	6	$	68.6	$	(33.6)	$	35.0	Trademarks, patents, licenses and agreements	6	$	68.7	$	(46.0)	$	22.7	6	$	69.6	$	(44.3)	25.3
Capitalized software	Capitalized software	5	16.2		(9.2)		7.0		5	16.1		(8.5)		7.6		Capitalized software	5	17.5		(12.3)		5.2		5	17.3		(11.7)		5.6
Acquired Technology	Acquired Technology	5	2.9		—		2.9		—	—		—		—		Acquired Technology	5	3.6		(0.7)		2.9		5	3.0		(0.5)		2.5
Customer relationships	Customer relationships	6	561.4		(472.9)		88.5		6	562.1		(467.5)		94.6		Customer relationships	6	561.1		(496.0)		65.1		6	561.9		(491.0)		70.9
Total	Total		$	647.8	$	(515.9)	$	131.9		$	646.8	$	(509.6)	$	137.2	Total		$	650.9	$	(555.0)	$	95.9		$	651.8	$	(547.5)	$	104.3

The gross carrying amount and accumulated amortization within other intangible assets—net in the condensed consolidated balance sheets at March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, differs from the value originally recorded at acquisition due to impairment charges recorded in prior years and the effects of currency fluctuations since the purchase date.

Other intangible assets are evaluated for potential impairment whenever events or circumstances indicate that the carrying value may not be recoverable. There were 0 impairment charges recorded on finite-lived intangible assets for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020.

Amortization expense for other intangible assets was ~~$9.9~~$9.1 million and ~~$11.6~~$9.9 million for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. The estimated future amortization expense related to other intangible assets as of March 31, ~~2020,~~2021, was as follows:


		Amortization Expense			Amortization Expense
Remainder of 2020		$	29.6
2021		31.0
Remainder of 2021				Remainder of 2021	$	22.6
2022	2022	29.6		2022	29.9
2023	2023	24.9		2023	25.7
2024	2024	14.4		2024	14.9
2025 and thereafter		2.4
2025				2025	2.5
2026				2026	0.3
Total	Total	$	131.9	Total	$	95.9

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~~QUAD/GRAPHICS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2020~~

~~(In millions, except share and per share data and unless otherwise indicated)~~

Note 7. Receivables

The Company adopted ASU 2016-13 as of January 1, 2020, using a modified retrospective transition approach and has recorded a cumulative-effect transition adjustment to accumulated deficit as of January 1, 2020. The transition adjustment of $6.3 million to accumulated deficit included an $8.4 million increase in the allowance for credit losses, partially offset by a $2.1 million increase in deferred tax benefit. The transition had no impact to the condensed consolidated statement of operations.

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

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(In millions, except share and per share data and unless otherwise indicated)

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

The Company has recorded credit loss expense of ~~$5.0~~$0.6 million and ~~$0.8~~$5.0 million during the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively, which is included in selling, general and administrative expenses in the condensed consolidated statements of operations.

Receivables are stated net of allowances for credit losses in the condensed consolidated balance sheets. Based on the clients’ account reviews and the continued uncertainty of the global economy, the Company has established an allowance for credit loss of $37.1 million as of March 31, 2020, and $25.0 million as of December 31, 2019.

Activity impacting the allowance for credit losses for the three months ended March 31, ~~2020,~~2021, was as follows:


	Allowance for Credit Losses


Balance at December 31, ~~2019~~2020	$	~~25.0~~33.8
~~Transition adjustment for adoption of ASU 2016-13~~	~~8.4~~
~~Balance at January 1, 2020~~	~~33.4~~
Provisions	~~5.0~~0.6
Write-offs⁽¹⁾	~~(1.5)~~		(0.6)

Translation and other	~~0.2~~ (0.5)
Balance at March 31, ~~2020~~2021	$	~~37.1~~33.3

⁽¹⁾~~Write-offs primarily consisted of fully reserved receivables.~~

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~~QUAD/GRAPHICS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2020~~

~~(In millions, except share and per share data and unless otherwise indicated)~~

Note 8. Inventories

The components of inventories at March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, were as follows:


		March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Raw materials and manufacturing supplies	Raw materials and manufacturing supplies	$	110.5	$	112.2	Raw materials and manufacturing supplies	$	89.8	$	90.9
Work in process	Work in process	31.3		41.2		Work in process	30.7		33.4
Finished goods	Finished goods	47.1		57.1		Finished goods	41.5		45.9
Total	Total	$	188.9	$	210.5	Total	$	162.0	$	170.2

Note 9. Property, Plant and Equipment

The components of property, plant and equipment at March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, were as follows:


		March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Land	Land	$	101.2	$	102.5	Land	$	91.0	$	97.6
Buildings	Buildings	843.7		846.1		Buildings	773.9		780.3
Machinery and equipment	Machinery and equipment	3,280.2		3,337.1		Machinery and equipment	3,076.2		3,094.1
Other⁽¹⁾	Other⁽¹⁾	176.8		175.7		Other(1)	184.8		183.2
Construction in progress	Construction in progress	52.6		35.0		Construction in progress	37.1		33.0
Property, plant and equipment—gross	Property, plant and equipment—gross	$	4,454.5	$	4,496.4	Property, plant and equipment—gross	$	4,163.0	$	4,188.2
Less: accumulated depreciation	Less: accumulated depreciation	(3,447.8)		(3,459.9)		Less: accumulated depreciation	(3,312.3)		(3,304.0)
Property, plant and equipment—net	Property, plant and equipment—net	$	1,006.7	$	1,036.5	Property, plant and equipment—net	$	850.7	$	884.2

⁽¹⁾Other consists of computer equipment, vehicles, furniture and fixtures, leasehold improvements and communication-related equipment.

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(In millions, except share and per share data and unless otherwise indicated)

The Company recorded impairment charges of $0.8 million and $2.5 million ~~and $1.7 million, for~~during the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively, to reduce the carrying amounts of certain property, plant and equipment no longer utilized in production to fair value (see Note 5, “Restructuring, Impairment and Transaction-Related Charges,” for further discussion on impairment charges).

The Company recognized depreciation expense of ~~$37.5~~$32.8 million and ~~$42.6~~$37.5 million for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

Assets Held for Sale from Continuing Operations

The Company ~~considered~~assessed whether certain closed facilities and facilities where the Company has received a signed letter of intent to purchase ~~for~~should be classified as held for sale ~~classification~~ on the condensed consolidated balance sheets. Assets held for sale are carried at the lesser of original cost or fair value, less the estimated costs to sell. ~~There were 0 assets~~Assets held for sale ~~from continuing operations~~were $6.3 million and $4.9 million as of March 31, ~~2020,~~2021, and ~~assets held for sale from continuing operations were $59.3 million as of~~ December 31, ~~2019.~~2020, respectively. The fair values were determined by the Company to be Level 3 under the fair value hierarchy (see Note 13, “Financial Instruments and Fair Value Measurements,” for the definition of Level 3 inputs) and were estimated based on quoted market prices where available and independent appraisals, as appropriate. Assets held for sale were included in prepaid ~~expense~~expenses and other current assets in the condensed consolidated balance ~~sheet.~~sheets.

~~Table of Contents~~

~~QUAD/GRAPHICS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2020~~

~~(In millions, except share and per share data and unless otherwise indicated)~~

Note 10. Commitments and Contingencies

Litigation

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

Environmental Reserves

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

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(In millions, except share and per share data and unless otherwise indicated)

Note 11. Debt

The components of long-term debt as of March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, were as follows:


		March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Master note and security agreement	Master note and security agreement	$	31.3	$	70.7	Master note and security agreement	$	14.6	$	15.6
Term Loan A	Term Loan A	768.3		768.3		Term Loan A	627.0		657.6

Revolving credit facility	Revolving credit facility	130.0		—		Revolving credit facility	0		0
Senior unsecured notes	Senior unsecured notes	238.7		243.5		Senior unsecured notes	238.7		238.7
International term loans	International term loans	15.9		16.5		International term loans	8.2		10.7
International revolving credit facilities	International revolving credit facilities	3.6		5.7		International revolving credit facilities	3.4		4.9
Other	Other	2.6		3.1		Other	2.5		2.8
Debt issuance costs	Debt issuance costs	(8.5)		(9.3)		Debt issuance costs	(6.3)		(6.9)
Total debt	Total debt	$	1,181.9	$	1,098.5	Total debt	$	888.1	$	923.4
Less: short-term debt and current portion of long-term debt	Less: short-term debt and current portion of long-term debt	(44.1)		(40.0)		Less: short-term debt and current portion of long-term debt	(16.8)		(20.7)
Long-term debt	Long-term debt	$	1,137.8	$	1,058.5	Long-term debt	$	871.3	$	902.7

Fair Value of Debt

Based upon the interest rates available to the Company for borrowings with similar terms and maturities, the fair value of the Company’s total debt was approximately ~~$1.1~~$0.9 billion at March 31, ~~2020,~~2021, and at December 31, ~~2019.~~2020. The fair value determination of the Company’s total debt was categorized as Level 2 in the fair value hierarchy (see Note 13, “Financial Instruments and Fair Value Measurements,” for the definition of Level 2 inputs).

Debt Issuance Costs

Activity impacting the Company’s debt issuance costs for the three months ended March 31, 2021, was as follows:


	Capitalized Debt Issuance Costs
Balance at December 31, 2020	$	6.9
Amortization of debt issuance costs	(0.6)
Balance at March 31, 2021	$	6.3

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

(In millions, except share and per share data and unless otherwise indicated)

~~Master Note and Security Agreement Tender~~Gain on Debt Extinguishment

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

~~Senior Unsecured Notes Repurchases~~

~~The~~ Company repurchased $4.7 million of its outstanding unsecured 7.0% senior notes due May 1, 2022 (the “Senior Unsecured Notes”) in the open market, ~~resulting~~which resulted in a ~~net~~ gain on debt extinguishment of $0.8 million during the three months ended March 31, 2020. All repurchased Senior Unsecured Notes were canceled. The Company used cash flows from operating activities and borrowings under its revolving credit facility to fund the repurchases. These repurchases were primarily completed to reallocate debt to the lower interest rate revolving credit facility and thereby reduce interest expense based on current LIBOR rates.

~~Debt Issuance Costs~~

~~Activity impacting the Company’s debt issuance costs for the three months ended March 31, 2020, was as follows:~~


	Capitalized Debt Issuance Costs
~~Balance at December 31, 2019~~	$	~~9.3~~
~~Loss on debt extinguishment from Master Note and Security Tender~~	~~(0.2)~~
~~Amortization of debt issuance costs~~	~~(0.6)~~
~~Balance at March 31, 2020~~	$	~~8.5~~

~~(Gain) Loss on Debt Extinguishment~~

recorded. The gain on debt extinguishment recorded during the three months ended March 31, 2020, was comprised of the following:


	2020 Gain on Debt Extinguishment
Loss on debt extinguishment from Master Note and Security Tender	$	0.2
Gain on debt extinguishment from Senior Unsecured Note Repurchases	(0.8)
Total	$	(0.6)

~~Table of Contents~~

~~QUAD/GRAPHICS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2020~~

~~(In millions, except share and per share data and unless otherwise indicated)~~

The Company completed the third amendment to the April 28, 2014 Senior Secured Credit Facility on January 31, 2019, which resulted in a loss on debt extinguishment recorded during the three months ended March 31, 2019, and was comprised of the following:


	~~2019 Loss on Debt Extinguishment~~
~~Debt issuance costs:~~
~~Debt issuance costs from February 10, 2017 debt financing arrangement~~	$	~~0.7~~
~~Debt issuance costs from January 31, 2019 debt financing arrangement~~	~~14.2~~


~~Original issue discount:~~
~~Original issue discount from February 10, 2017 debt financing arrangement~~	~~1.0~~


~~Total~~	$	~~15.9~~

Covenants and Compliance

The Company’s various lending arrangements include certain financial covenants (all financial terms, numbers and ratios are as defined in the Company’s debt ~~agreements)~~agreements, as amended to date). Among these covenants, the Company was required to maintain the following as of March 31, ~~2020:~~2021:

•Maximum Total Net Leverage Ratio. On a rolling twelve-month basis, the Maximum Total Net Leverage Ratio, defined as consolidated total indebtedness, net of no more than $75.0 million of unrestricted cash, to consolidated EBITDA, shall not exceed (i) 4.50 to 1.00 for the quarter ended March 31, 2021, (ii) 4.25 to 1.00 for the quarter ending June 30, 2021, and (iii) 4.125 to 1.00 for the quarter ending September 30, 2021 (for the twelve months ended March 31, 2021, the Company’s Maximum Total Net Leverage Ratio was 3.18 to 1.00). In 2020, the Company amended its Senior Secured Credit Facility to provide for certain financial covenant relief during the period starting June 29, 2020 and ending September 30, 2021 (the “Covenant Relief Period”). After the Covenant Relief Period, the Company will be required to comply with the Total Leverage Ratio covenant, defined as consolidated total indebtedness to consolidated EBITDA which shall not exceed 3.75 to ~~1.00 (for the twelve months ended March 31, 2020, the Company’s Total Leverage Ratio was 3.53 to 1.00).~~1.00.

•If there is any amount outstanding on the Revolving Credit Facility or Term Loan A, or if any lender has any revolving credit exposure or Term Loan A credit exposure, the Company is required to maintain the following:

◦Senior Secured Leverage Ratio. On a rolling twelve-month basis, the Senior Secured Leverage Ratio, defined as consolidated senior secured net indebtedness to consolidated EBITDA, shall not exceed 3.50 to 1.00 (for the twelve months ended March 31, ~~2020,~~2021, the Company’s Senior Secured Leverage Ratio was ~~2.24~~2.26 to 1.00).

◦Interest Coverage Ratio. On a rolling twelve-month basis, the Interest Coverage Ratio, defined as consolidated EBITDA to cash consolidated interest expense, shall not be less than 3.00 to 1.00 (for the twelve months ended March 31, ~~2020,~~2021, the Company’s Interest Coverage Ratio was ~~4.62~~4.82 to 1.00).

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

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

(In millions, except share and per share data and unless otherwise indicated)

In addition to those covenants, the Senior Secured Credit Facility also includes certain limitations on acquisitions, indebtedness, liens, dividends and repurchases of capital stock. The following limitations utilize a Total Net Leverage Ratio calculation, which, on a rolling twelve-month basis, is defined as consolidated net indebtedness to consolidated EBITDA (for the twelve months ended March 31, ~~2020,~~2021, the Company’s Total Net Leverage Ratio was ~~2.95~~3.18 to 1.00).

•If the Company’s Total Net Leverage Ratio is greater than 2.75 to 1.00, the Company is prohibited from making greater than ~~$120.0~~$60.0 million of annual dividend payments, capital stock repurchases and certain other payments. If the Total Net Leverage Ratio is less than 2.75 to 1.00, there are no such ~~restrictions.~~restrictions, provided, however, that no such restricted payments shall be made during the Covenant Relief Period. As the Company’s Total Net Leverage Ratio as of March 31, ~~2020,~~2021, was ~~2.95~~3.18 to 1.00, and we are in the Covenant Relief Period, the limitations described above are currently applicable.

•If the Company’s Senior Secured Leverage Ratio is greater than 3.00 to 1.00 or the Company’s Total Net Leverage Ratio is greater than 3.50 to 1.00, the Company is prohibited from voluntarily prepaying any of the Senior Unsecured Notes and from voluntarily prepaying any other unsecured or subordinated indebtedness, with certain exceptions (including any mandatory prepayments on the Senior Unsecured Notes or any other unsecured or subordinated debt). If the senior Secured Leverage Ratio is less than 3.00 to 1.00 and the Total Net Leverage Ratio is less than 3.50 to 1.00, there are no such restrictions. The limitations described above are currently not applicable, as the Company’s Senior Secured Leverage Ratio was ~~2.24~~2.26 to 1.00 and the Total Net Leverage Ratio was ~~2.95~~3.18 to 1.00, as of March 31, ~~2020.~~2021.

Note 12. Income Taxes

The Company records income tax expense (benefit) on an interim basis. The estimated effective income tax rate is adjusted quarterly, and items discrete to a specific quarter and adjustments to valuation allowances that could result in a reduction to tax expense or benefit are reflected in income tax expense (benefit) for that interim period. Tax allocable to continuing operations is calculated without regard to the tax effects of ~~income~~earnings and losses allocable to discontinued operations under the incremental approach.

The effective income tax rate for the interim period can differ from the statutory tax rate, as it reflects discrete items, such as changes in the liability for unrecognized tax benefits related to the establishment and settlement of income tax exposures and benefits related to share-based compensation.

The Company currently has various open tax audits in multiple jurisdictions. From time to time, the Company will receive tax assessments as part of the process. Based on the information available as of March 31, ~~2020,~~2021, the Company has recorded its best estimate of the potential settlements of these audits. Actual results could differ from the estimated amounts.

The Company’s liability for unrecognized tax benefits as of March 31, ~~2020,~~2021, was ~~$17.7~~$11.6 million. The Company anticipates a ~~$1.6~~$0.4 million decrease to its liability for unrecognized tax benefits within the next twelve months due to the resolution of income tax audits or statute expirations.

On March 27, 2020, the United States government passed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). This legislation includes significant tax provisions and other measures to assist individuals and businesses impacted by the economic effects of the COVID-19 pandemic. The Company recognized a $4.6 million discrete tax benefit during the three months ended March 31, 2020, as a result of the CARES Act, related to the provision temporarily increasing the amount of interest expense businesses are allowed to deduct on their income tax returns by increasing the 30-percent limitation to 50-percent of adjusted taxable income for 2019 and 2020. In addition, the discrete benefit recorded by the Company includes the estimated benefit of the provision allowing a net operating loss (“NOL”) generated in a tax year beginning in 2018, 2019, or 2020 to be carried back five years, including years when the federal statutory tax rate was 35%. The provision also temporarily removes the taxable income limitation to allow an NOL to fully offset income. The Company anticipates adjusting its discrete benefit during 2020 as the tax return for the year ended December 31, 2019, is prepared and filed with the Internal Revenue Service.

2120

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

(In millions, except share and per share data and unless otherwise indicated)

Note 13. Financial Instruments and Fair Value Measurements

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

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

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

Level 3: Unobservable inputs for the asset or liability. There were no recurring Level 3 fair value measurements of assets or liabilities as of March 31, ~~2020.~~2021.

Interest Rate Swaps

The Company currently holds two interest rate swap contracts. The purpose of entering into the contracts ~~designated as cash flow hedges, as the purpose is~~was to reduce the variability of cash flows from interest payments related to a portion of Quad’s variable-rate debt. The interest rate swaps were previously designated as cash flow hedges as they effectively ~~convert~~converted the notional value of the Company’s variable rate debt based on one-month ~~LIBOR~~London Interbank Offered Rate (“LIBOR”) to a fixed rate, including a spread on underlying debt, and a monthly reset in the variable interest rate. However, the Company amended its Senior Secured Credit Facility during the second quarter of 2020, which added a 0.75% LIBOR floor to the Company’s variable rate debt, changing the critical terms of the hedged instrument. Due to this change in critical terms, the Company has elected to de-designate the swaps as cash flow hedges, resulting in future changes in fair value being recognized in interest expense. The balance of the accumulated other comprehensive loss attributable to the interest rate swaps as of June 30, 2020, will be amortized to interest expense on a straight-line basis over the remaining lives of the swap contracts. The Company expects to reclassify $6.8 million of this balance to interest expense over the next twelve months.

The key terms of the interest rate swaps are as follows:


	March 19, 2019 Interest Rate Swap	February 7, 2017 Interest Rate Swap
Effective date	March 29, 2019	February 28, 2017
Termination date	March 28, 2024	February 28, 2022
Term	5 years	5 years
Notional amount	$130.0	$250.0

Fixed swap rate	2.43%	1.89%

The Company classifies the interest rate swaps as Level 2 because the inputs into the valuation model are observable or can be derived or corroborated utilizing observable market data at commonly quoted intervals. The fair value of the interest rate swaps classified as Level 2 as of March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, were as follows:


		Balance Sheet Location	March 31, 2020		December 31, 2019			Balance Sheet Location	March 31, 2021		December 31, 2020
Interest rate swap assets		Prepaid expenses and other current assets	$	—	$	—
Interest rate swap liabilities	Interest rate swap liabilities	Other long-term liabilities	$	(17.5)	$	(6.4)	Interest rate swap liabilities	Other current liabilites	$	(4.0)	$	0
Interest rate swap liabilities							Interest rate swap liabilities	Other long-term liabilities	$	(7.7)	$	(14.4)

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

(In millions, except share and per share data and unless otherwise indicated)

~~The~~Prior to the Company’s de-designation of the interest rate swaps as cash flow hedges, the interest rate swaps were considered highly effective, ~~as of March 31, 2020. NaN~~with 0 amount of ineffectiveness ~~has~~recorded into earnings. The changes in the fair value of the interest rate swaps have been included in other comprehensive loss in the condensed consolidated statements of comprehensive loss through the first quarter of 2020, and have been recorded ~~into earnings related~~as an adjustment to ~~these cash flow hedges.~~interest expense in the condensed consolidated statements of operations in the periods thereafter. The cash flows associated with the interest rate swaps have been recognized as an adjustment to interest expense in the condensed consolidated statements of ~~operations, and the changes in the fair value of the interest rate swaps have been included in other comprehensive loss in the condensed consolidated statements of comprehensive loss:~~operations:


		Three Months Ended March 31,					Three Months Ended March 31,
		2020		2019			2021		2020
Cash Flow Impacts						Cash Flow Impacts
Net interest paid (received)	Net interest paid (received)	$	0.4	$	(0.4)	Net interest paid (received)	$	1.8	$	0.4

Impacts with Swaps as Hedging Instruments						Impacts with Swaps as Hedging Instruments
Loss recognized in other comprehensive loss	Loss recognized in other comprehensive loss	$	(11.1)	$	(3.7)	Loss recognized in other comprehensive loss	0		11.1

Impacts with Swaps as Nonhedging Instruments						Impacts with Swaps as Nonhedging Instruments
Income recognized in interest expense excluded from hedge effectiveness assessments						Income recognized in interest expense excluded from hedge effectiveness assessments	(2.7)		0
Amounts reclassified out of accumulated other comprehensive loss to interest expense						Amounts reclassified out of accumulated other comprehensive loss to interest expense	1.8		0
Net interest expense						Net interest expense	1.8		0.4
Total impact of swaps to interest expense						Total impact of swaps to interest expense	$	0.9	$	0.4

Foreign Exchange Contracts

The Company has operations in countries that have transactions outside their functional currencies and periodically enters into foreign exchange contracts. These contracts are used to hedge the net exposures of changes in foreign currency exchange rates and are designated as either cash flow hedges or fair value hedges. Gains or losses on net foreign currency hedges are intended to offset losses or gains on the underlying net exposures in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates. There were 0 open foreign currency exchange contracts as of March 31, ~~2020.~~2021.

Natural Gas Forward Contracts

The Company periodically enters into natural gas forward purchase contracts to hedge against increases in commodity costs. The Company’s commodity contracts qualified for the exception related to normal purchases and sales during the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, as the Company takes delivery in the normal course of business.

Debt

The Company measures fair value on its debt instruments using interest rates available to the Company for borrowings with similar terms and maturities and is categorized as Level 2. See Note 11, “Debt,” for the fair value of the Company’s debt as of March 31, ~~2020.~~2021.

Nonrecurring Fair Value Measurements

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company is required to record certain assets and liabilities at fair value on a nonrecurring basis, generally as a result of acquisitions or the remeasurement of assets resulting in impairment charges. See Note 3, ~~“Acquisitions,~~“Strategic Investments,” for further discussion on acquisitions. See Note 4, “Discontinued Operations”; Note 5, “Restructuring, Impairment and Transaction-Related Charges”~~; Note 6, “Goodwill and Other Intangible Assets”~~; and Note 9, “Property, Plant and Equipment” for further discussion on impairment charges recorded as a result of the remeasurement of certain long-lived assets.

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(In millions, except share and per share data and unless otherwise indicated)

Other Estimated Fair Value Measurements

The Company records the fair value of its forward contracts and pension plan assets on a recurring basis. The fair value of cash and cash equivalents, receivables, inventories, accounts payable and ~~accrued~~other current liabilities approximate their carrying values as of March 31, ~~2020,~~2021, and December 31, ~~2019.~~2020.

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~~QUAD/GRAPHICS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2020~~

~~(In millions, except share and per share data and unless otherwise indicated)~~

Note 14. Other Current and Long-Term Liabilities

The components of other current and long-term liabilities as of March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, were as follows:


		March 31, 2020										December 31, 2019											March 31, 2021				December 31, 2020
		Other Current Liabilities		Other Long-Term Liabilities		Total		Other Current Liabilities		Other Long-Term Liabilities		Total			Other Current Liabilities		Other Long-Term Liabilities		Total		Other Current Liabilities		Other Long-Term Liabilities		Total
Employee-related liabilities ⁽¹⁾	Employee-related liabilities ⁽¹⁾	$	87.0	$	55.0	$	142.0	$	129.4	$	61.9	$	191.3	Employee-related liabilities (1)	$	98.4	$	67.3	$	165.7	$	130.2	$	67.4	$	197.6
Single employer pension plan obligations	Single employer pension plan obligations	1.8		72.5		74.3		1.8		77.1		78.9		Single employer pension plan obligations	1.7		49.9		51.6		1.7		54.9		56.6
Multiemployer pension plans – withdrawal liability	Multiemployer pension plans – withdrawal liability	5.8		34.9		40.7		8.4		35.7		44.1		Multiemployer pension plans – withdrawal liability	3.6		31.3		34.9		3.5		32.2		35.7
Deferred revenue														Deferred revenue	45.7		2.3		48.0		52.9		2.6		55.5
Tax-related liabilities	Tax-related liabilities	25.1		10.6		35.7		24.6		10.7		35.3		Tax-related liabilities	17.9		5.3		23.2		25.3		5.3		30.6
Restructuring liabilities	Restructuring liabilities	20.4		6.8		27.2		15.8		7.4		23.2		Restructuring liabilities	31.1		7.0		38.1		33.1		7.2		40.3
Interest and rent liabilities	Interest and rent liabilities	8.9		0.2		9.1		4.9		0.2		5.1		Interest and rent liabilities	8.0		0		8.0		3.6		0		3.6
Interest rate swap liabilities	Interest rate swap liabilities	—		17.5		17.5		—		6.4		6.4		Interest rate swap liabilities	4.0		7.7		11.7		0		14.4		14.4
Liabilities held for sale from continuing operations ⁽²⁾		—		—		—		17.9		—		17.9

Other	Other	80.6		22.6		103.2		100.2		21.7		121.9		Other	41.1		13.4		54.5		60.5		12.8		73.3
Total	Total	$	229.6	$	220.1	$	449.7	$	303.0	$	221.1	$	524.1	Total	$	251.5	$	184.2	$	435.7	$	310.8	$	196.8	$	507.6

⁽¹⁾Employee-related liabilities consist primarily of payroll, bonus, vacation, health and workers’ compensation.

⁽²⁾~~The Omaha, Nebraska packaging plant was considered held for sale in the condensed consolidated balance sheets as of December 31, 2019. The Company completed the sale on January 31, 2020.~~

Note 15. Employee Retirement Plans

Defined Contribution Plans

The Quad/Graphics, Inc. Employee Stock Ownership Plan (“ESOP”) holds profit sharing contributions of Company stock, which are made at the discretion of the Company’s Board of Directors. There were 0 profit sharing contributions during the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020.

Pension Plans

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

~~The components of net pension income for the three months ended March 31, 2020 and 2019, were as follows:~~

Three Months Ended March 31,
2020 2019
Interest cost $ (3.4) $ (4.4)
Expected return on plan assets 6.1 5.9
Net pension income $ 2.7 $ 1.5

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

(In millions, except share and per share data and unless otherwise indicated)

The components of net pension income for the three months ended March 31, 2021 and 2020, were as follows:


	Three Months Ended March 31,
		2021		2020


Interest cost		$	(2.1)	$	(3.4)
Expected return on plan assets		6.2		6.1



Net pension income		$	4.1	$	2.7

The Company made ~~$0.6~~$0.1 million in benefit payments to its non-qualified defined benefit pension plans and made ~~$1.3~~$0.8 million in contributions to its qualified defined benefit pension plans during the three months ended March 31, 2020. The CARES Act allows organizations to delay required 2020 quarterly contributions until January 1, 2021, with interest, but without penalty. The Company expects to delay its future quarterly contributions to its qualified defined benefit plan until January 1, 2021.

Multiemployer Pension Plans (“MEPPs”)

The Company has withdrawn from all significant MEPPs and replaced these union sponsored “promise to pay in the future” defined benefit plans with a Company sponsored “pay as you go” defined contribution plan. The 2 MEPPs, the Graphic Communications International Union – Employer Retirement Fund (“GCIU”) and the Graphic Communications Conference of the International Brotherhood of Teamsters National Pension Fund (“GCC”), are significantly underfunded, and require the Company to pay a withdrawal liability to fund its pro rata share of the underfunding as of the plan year the full withdrawal was completed. As a result of the decision to withdraw, the Company accrued a withdrawal liability based on information provided by each plan’s trustee. The Company has reserved ~~$40.7~~$34.9 million for the total MEPPs withdrawal liability as of March 31, ~~2020,~~2021, of which ~~$34.9~~$31.3 million was recorded in other long-term liabilities and ~~$5.8~~$3.6 million was recorded in ~~accrued~~other current liabilities in the condensed consolidated balance sheets. The Company is scheduled to make payments to the GCIU and GCC until April 2032 and February 2024, respectively. The Company made payments totaling ~~$4.2~~$1.5 million and ~~$2.6~~$4.2 million for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

Note 16. ~~Loss~~Earnings (Loss) Per Share Attributable to Quad Common Shareholders

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

Equity incentive instruments for which the total employee proceeds from exercise exceed the average fair value of the same equity incentive instrument over the period have an anti-dilutive effect on earnings per share during periods with net earnings from continuing operations, and accordingly, the Company excludes them from the calculation. Anti-dilutive equity instruments excluded from the computation of diluted net earnings per share were 0.9 million class A common shares for the three months ended March 31, 2021. Due to the net loss incurred during the three months ended March 31, 2020, ~~and 2019,~~ the assumed exercise of all equity incentive instruments was anti-dilutive and therefore, not included in the diluted loss per share calculation.

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

(In millions, except share and per share data and unless otherwise indicated)

Reconciliations of the numerator and the denominator of the basic and diluted per share computations for the Company’s common stock, including the impact of discontinued operations, for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, are summarized as follows:


		Three Months Ended March 31,					Three Months Ended March 31,
		2020		2019			2021		2020
Numerator	Numerator					Numerator
Net loss from continuing operations		$	(8.6)	$	(12.7)
Less: net loss attributable to noncontrolling interests		—		(0.3)
Net loss from continuing operations attributable to Quad common shareholders		(8.6)		(12.4)
Net earnings (loss) from continuing operations						Net earnings (loss) from continuing operations	$	10.2	$	(8.6)
Less: net earnings (loss) attributable to noncontrolling interests						Less: net earnings (loss) attributable to noncontrolling interests	0		0
Net earnings (loss) from continuing operations attributable to Quad common shareholders						Net earnings (loss) from continuing operations attributable to Quad common shareholders	10.2		(8.6)

Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	(3.8)		(10.1)		Loss from discontinued operations, net of tax	0		(3.8)

Net loss attributable to Quad common shareholders		$	(12.4)	$	(22.5)
Net earnings (loss) attributable to Quad common shareholders						Net earnings (loss) attributable to Quad common shareholders	$	10.2	$	(12.4)

Denominator	Denominator					Denominator
Basic weighted average number of common shares outstanding for all classes of common shares	Basic weighted average number of common shares outstanding for all classes of common shares	50.5		49.6		Basic weighted average number of common shares outstanding for all classes of common shares	51.4		50.5
Plus: effect of dilutive equity incentive instruments	Plus: effect of dilutive equity incentive instruments	—		—		Plus: effect of dilutive equity incentive instruments	1.4		0
Diluted weighted average number of common shares outstanding for all classes of common shares	Diluted weighted average number of common shares outstanding for all classes of common shares	50.5		49.6		Diluted weighted average number of common shares outstanding for all classes of common shares	52.8		50.5

Loss per share attributable to Quad common shareholders
Basic and diluted:
Earnings (loss) per share attributable to Quad common shareholders						Earnings (loss) per share attributable to Quad common shareholders
Basic:						Basic:
Continuing operations	Continuing operations	$	(0.17)	$	(0.25)	Continuing operations	$	0.20	$	(0.17)
Discontinued operations	Discontinued operations	(0.08)		(0.20)		Discontinued operations	0		(0.08)
Basic and diluted loss per share attributable to Quad common shareholders		$	(0.25)	$	(0.45)
Basic earnings (loss) per share attributable to Quad common shareholders						Basic earnings (loss) per share attributable to Quad common shareholders	$	0.20	$	(0.25)

Diluted:						Diluted:
Continuing operations						Continuing operations	$	0.19	$	(0.17)
Discontinued operations						Discontinued operations	0		(0.08)
Diluted earnings (loss) per share attributable to Quad common shareholders						Diluted earnings (loss) per share attributable to Quad common shareholders	$	0.19	$	(0.25)

Cash dividends paid per common share for all classes of common shares	Cash dividends paid per common share for all classes of common shares	$	0.15	$	0.30	Cash dividends paid per common share for all classes of common shares	$	0	$	0.15

Note 17. Equity Incentive Programs

The shareholders of the Company approved the Quad/Graphics, Inc. ~~2010~~2020 Omnibus Incentive Plan ~~(“Omnibus~~(the “2020 Plan”) at the Company’s annual meeting of shareholders held on May 18, 2020, (the “Annual Meeting”) for two complementary purposes: (1) to attract and retain outstanding individuals to serve as directors, officers and employees; and (2) to increase shareholder value. The Company’s previous plan, the Quad/Graphics, Inc. 2010 Omnibus Plan (the “2010 Plan”), was terminated on the date of approval of the 2020 Plan, and no new awards will be granted under the 2010 Plan. All awards that were granted under the 2010 Plan that were outstanding as of May 18, 2020, will remain outstanding and will continue to be governed by the 2010 Plan.

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(In millions, except share and per share data and unless otherwise indicated)

The 2020 Plan provides for an aggregate ~~12,671,652~~3,000,000 shares of class A common stock reserved for issuance, plus shares still available for issuance or re-credited under the ~~Omnibus~~2010 Plan. Awards under the ~~Omnibus~~2020 Plan may consist of incentive awards, stock options, stock appreciation rights, performance shares, performance share units, shares of class A common stock, restricted stock (“RS”), restricted stock units (“RSU”), deferred stock units (“DSU”) or other stock-based awards as determined by the Company’s Board of Directors. Each stock option granted has an exercise price of no less than 100% of the fair market value of the class A common stock on the date of grant. There were ~~457,169~~2,512,457 shares of class A common stock reserved for issuance under the ~~Omnibus~~2020 Plan as of March 31, 2020. The Board of Directors is seeking approval from the Company’s shareholders at the annual meeting of shareholders to be held in May 2020 for the Quad/Graphics, Inc. 2020 Omnibus Incentive Plan, including the authority to issue up to 3,000,000 shares of class A common stock under the 2020 Plan.2021. Authorized unissued shares or treasury shares may be used for issuance under the Company’s equity incentive programs. The Company plans to either use treasury shares of its class A common stock or issue shares of class A common stock to meet the stock requirements of its awards in the future.

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~~QUAD/GRAPHICS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2020~~

~~(In millions, except share and per share data and unless otherwise indicated)~~

The Company recognizes compensation expense based on estimated grant date fair values for all share-based awards issued to employees and non-employee directors, including stock options, performance shares, performance share units, RS awards, RSU awards and DSU awards. The Company recognizes these compensation costs for only those awards expected to vest, on a straight-line basis over the requisite three to four year service period of the awards, except deferred stock units, which are fully vested and expensed on the grant date. The Company estimated the number of awards expected to vest based, in part, on historical forfeiture rates and also based on management’s expectations of employee turnover within the specific employee groups receiving each type of award. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates.

Equity Incentive Compensation Expense

~~The total~~Equity incentive compensation expense ~~recognized related to all equity incentive programs was $2.8 million and $5.0 million for the three months ended March 31, 2020 and 2019, respectively, and~~ was recorded primarily in selling, general and administrative expenses in the condensed consolidated statements of ~~operations. Total stock-based compensation~~operations and includes expense ~~included income of $0.3 million~~(income) recognized for liability awards that are remeasured on a quarterly ~~basis during~~basis. The total compensation expense recognized related to all equity incentive programs for the three months ended March 31, ~~2020. There~~2021 and 2020, was ~~no expense recognized for liability awards during the three months ended March 31, 2019.~~ as follows:


	Three Months Ended March 31,
		2021		2020
RS and RSU equity awards expense		$	2.2	$	2.1
RSU liability awards income		0		(0.3)
DSU awards expense		0.8		1.0
Total equity incentive compensation expense		$	3.0	$	2.8

Total future compensation expense related to all equity incentive programs granted as of March 31, ~~2020,~~2021, was estimated to be ~~$17.1~~$10.7 million, which consists entirely of expense for RS and RSU awards. Estimated future compensation expense is ~~$7.8~~$5.5 million for the remainder of ~~2020, $6.8 million for~~ 2021, ~~$2.2~~$3.5 million for 2022, ~~and $0.3~~$1.5 million for ~~2023.~~2023 and $0.2 million for 2024.

Stock Options

Options vest over four years, with 0 vesting in the first year and one-third vesting upon the second, third and fourth anniversary dates. As defined in the individual grant agreements, acceleration of vesting may occur under a change in control, death, disability or normal retirement of the grantee. Options expire no later than the tenth anniversary of the grant date, 24 months after termination for death, 36 months after termination for normal retirement or disability and 90 days after termination of employment for any other reason. Options are not credited with dividend declarations, except for the November 18, 2011 grants. Stock options are only to be granted to employees.

There were 0 stock options granted, and 0 compensation expense was recognized related to stock options for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020. There is 0 future compensation expense for stock options as of March 31, ~~2020.~~

~~The following table is a summary of the stock option activity for the three months ended March 31, 2020:~~

Shares Under
Option Weighted Average
Exercise
Price Weighted Average
Remaining
Contractual Term
(years) Aggregate
Intrinsic Value
(millions)
Outstanding at December 31, 2019 790,237 $ 25.27 1.1 $ —
Granted — —
Exercised — —
Canceled/forfeited/expired (213,870) 16.99
Outstanding and exercisable at March 31, 2020 576,367 $ 28.34 1.2 $ —

The intrinsic value of options outstanding and exercisable at March 31, 2020, and December 31, 2019, was based on the fair value of the stock price. All outstanding options are vested as of March 31, 2020. There were 0 stock options exercised during the three months ended March 31, 2020 and 2019.2021.

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

(In millions, except share and per share data and unless otherwise indicated)

The following table is a summary of the stock option activity for the three months ended March 31, 2021:


	Shares Under Option	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (millions)
Outstanding at December 31, 2020	514,876	$	27.49	0.5	$	0
Granted	0	0
Exercised	0	0
Canceled/forfeited/expired	(259,914)	41.10
Outstanding and exercisable at March 31, 2021	254,962	$	13.62	0.7	$	0

The intrinsic value of options outstanding and exercisable at March 31, 2021, and December 31, 2020, was based on the fair value of the stock price. All outstanding options are vested as of March 31, 2021. There were 0 stock options exercised during the three months ended March 31, 2021 and 2020.

Restricted Stock and Restricted Stock Units

Restricted stock and restricted stock unit awards consist of shares or the rights to shares of the Company’s class A common stock which are awarded to employees of the Company. The awards are restricted such that they are subject to substantial risk of forfeiture and to restrictions on their sale or other transfer by the employee. RSU awards are typically granted to eligible employees outside of the United States. As defined in the individual grant agreements, acceleration of vesting may occur under a change in control, death, disability or normal retirement of the grantee. Grantees receiving RS awards are able to exercise full voting rights and receive full credit for dividends during the vesting period. All such dividends will be paid to the RS grantee within 45 days of full vesting. Grantees receiving RSU awards are not entitled to vote, but do earn dividends. Upon vesting, RSU awards will be settled either through cash payment equal to the fair market value of the RSU awards on the vesting date or through issuance of the Company’s class A common stock. In general, RS and RSU awards will vest on the third anniversary of the grant date, provided the holder of the share is continuously employed by the Company until the vesting date.

The following table is a summary of RS and RSU award activity for the three months ended March 31, ~~2020:~~2021:


		Restricted Stock							Restricted Stock Units							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)		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, 2019		2,623,971	$	17.82	1.5	230,621	$	14.75	1.9
Nonvested at December 31, 2020										Nonvested at December 31, 2020	2,961,750	$	11.55	1.3	249,538	$	11.70	1.3
Granted	Granted	1,091,299	4.67			45,353	4.67			Granted	1,124,443	3.90			41,553	3.82
Vested	Vested	(547,883)	26.88			(25,228)	26.88			Vested	(576,524)	22.55			(18,586)	22.60
Forfeited	Forfeited	(131,864)	14.02			—	—			Forfeited	(59,672)	13.14			0	0
Nonvested at March 31, 2020		3,035,523	$	11.63	2.1	250,746	$	11.70	2.0
Nonvested at March 31, 2021										Nonvested at March 31, 2021	3,449,997	$	7.19	1.9	272,505	$	9.76	1.4

In the first quarter of 2019, the Company issued RSU awards in connection with the acquisition of Periscope that are accounted for as liability awards that will vest on March 1, 2022. The awards were recorded at fair value on the initial issuance date and are remeasured to fair value at each reporting period, with the change in fair value being recorded in selling, general and administrative expense in the condensed consolidated statements of operations. The change in fair value of the awards classified as liabilities resulted in income of $0.3 million for the three months ended March 31, 2020. There was no expense recorded for awards classified as liabilities during the three months ended March 31, 2019. As of March 31, ~~2020,~~2021, the fair value of the RSU awards classified as liabilities was ~~$0.3~~$0.5 million and was included in other long-term liabilities on the condensed consolidated balance sheets.

In general, RS and RSU awards will vest on the third anniversary of the grant date, provided the holder of the share is continuously employed by the Company until the vesting date. Compensation expense recognized for RS and RSU awards classified as equity was $2.1 million and $4.1 million for the three months ended March 31, 2020 and 2019, respectively.

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

(In millions, except share and per share data and unless otherwise indicated)

Deferred Stock Units

Deferred stock units are awards of rights to shares of the Company’s class A common stock and are awarded to non-employee directors of the Company. The following table is a summary of DSU award activity for the three months ended March 31, ~~2020:~~2021:


		Deferred Stock Units					Deferred Stock Units
		Units	Weighted-Average Grant Date Fair Value Per Share			Units	Weighted-Average Grant Date Fair Value Per Share
Outstanding at December 31, 2019		314,658	$	16.22
Outstanding at December 31, 2020					Outstanding at December 31, 2020	500,961	$	10.69
Granted	Granted	204,088	4.67		Granted	221,616	3.82
Dividend equivalents granted	Dividend equivalents granted	21,145	3.40		Dividend equivalents granted	0	0
Settled	Settled	(38,930)	19.81		Settled	(35,186)	11.53
Outstanding at March 31, 2020		500,961	$	10.69
Outstanding at March 31, 2021					Outstanding at March 31, 2021	687,391	$	8.36

Each DSU award entitles the grantee to receive 1 share of class A common stock upon the earlier of the separation date of the grantee or the second anniversary of the grant date, but could be subject to acceleration for a change in control, death or disability as defined in the individual DSU grant agreement. Grantees of DSU awards may not exercise voting rights, but are credited with dividend equivalents, and those dividend equivalents will be converted into additional DSU awards based on the closing price of the class A common stock. ~~Compensation expense recognized for DSU awards was $1.0 million and $0.9 million during the three months ended March 31, 2020 and 2019, respectively.~~ As DSU awards are fully vested on the grant date, all compensation expense ~~was~~is recognized at the date of grant.

Note 18. Shareholders’ Equity

The Company has 3 classes of common stock as follows (share data in millions):

Issued Common Stock
Authorized Shares Outstanding Treasury Total Issued Shares
Class A stock ($0.025 par value)
March 31, 2020 105.0 40.2 0.2 40.4
December 31, 2019 105.0 39.2 1.1 40.3
Class B stock ($0.025 par value)
March 31, 2020 80.0 13.5 — 13.5
December 31, 2019 80.0 13.5 — 13.5
Class C stock ($0.025 par value)
March 31, 2020 20.0 — 0.5 0.5
December 31, 2019 20.0 — 0.5 0.5


		Issued Common Stock
	Authorized Shares	Outstanding	Treasury	Total Issued Shares
Class A stock ($0.025 par value)
March 31, 2021	105.0	41.2	0.5	41.7
December 31, 2020	105.0	40.2	0.2	40.4

Class B stock ($0.025 par value)
March 31, 2021	80.0	13.5	0	13.5
December 31, 2020	80.0	13.5	0	13.5

Class C stock ($0.025 par value)
March 31, 2021	20.0	0	0.5	0.5
December 31, 2020	20.0	0	0.5	0.5

In accordance with the Articles of Incorporation, each class A common share has 1 vote per share and each class B and class C common share has 10 votes per share on all matters voted upon by the Company’s shareholders. Liquidation rights are the same for all 3 classes of common stock.

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

(In millions, except share and per share data and unless otherwise indicated)

The Company also has 0.5 million shares of $0.01 par value preferred stock authorized, of which NaN were issued at March 31, ~~2020,~~2021, and December 31, ~~2019.~~2020. The Company has no present plans to issue any preferred stock.

On July 30, 2018, the Company’s Board of Directors authorized a share repurchase program of up to $100.0 million of the Company’s outstanding class A common stock. There were 0 shares repurchased during the three months ended March 31, ~~2020,~~2021, or during the three months ended March 31, ~~2019.~~2020. As of March 31, ~~2020,~~2021, there were $100.0 million of authorized repurchases remaining under the program. The Company is currently prohibited from repurchasing capital stock through the Covenant Relief Period, in accordance with the fourth amendment to the April 28, 2014 Senior Secured Credit Facility, completed on June 29, 2020 (see Note 11. “Debt,” for more details on the amendment and timing of the Covenant Relief Period).

In accordance with the Articles of Incorporation, dividends are paid equally for all 3 classes of common shares. Due to uncertainty in client demand as a result of the COVID-19 pandemic, the Company’s Board of Directors proactively suspended the Company’s quarterly dividends beginning in the second quarter of 2020, and the Company is currently prohibited from making dividend payments during the Covenant Relief Period. The dividend activity related to the then outstanding shares for the three months ended March 31, 2020 ~~and 2019,~~ was as follows:

Declaration Date

Record Date

Payment Date

Dividend Amount
per Share

2020

Q1 Dividend

February 18, 2020

February 28, 2020

March 9, 2020

0.15

~~2019~~

~~Q1 Dividend~~

~~February 19, 2019~~

~~February 25, 2019~~

~~March 8, 2019~~

~~0.30~~

Note 19. Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss by component, net of tax, for the three months ended March 31, ~~2020,~~2021, were as follows:

Translation Adjustments Interest Rate Swap Adjustments Pension Benefit Plan Adjustments Total
Balance at December 31, 2019 $ (131.0) $ (4.7) $ (31.5) $ (167.2)
Other comprehensive loss before reclassifications (15.3) (8.3) — (23.6)
Amounts reclassified from accumulated other comprehensive loss to net loss — — — —
Net other comprehensive loss (15.3) (8.3) — (23.6)
Balance at March 31, 2020 $ (146.3) $ (13.0) $ (31.5) $ (190.8)


	Translation Adjustments		Interest Rate Swap Adjustments		Pension Benefit Plan Adjustments		Total
Balance at December 31, 2020	$	(130.8)	$	(12.3)	$	(28.2)	$	(171.3)
Other comprehensive loss before reclassifications	(6.0)		0		0		(6.0)
Amounts reclassified from accumulated other comprehensive loss to net income	0		1.8		0		1.8
Net other comprehensive income (loss)	(6.0)		1.8		0		(4.2)
Balance at March 31, 2021	$	(136.8)	$	(10.5)	$	(28.2)	$	(175.5)

The changes in accumulated other comprehensive loss by component, net of tax, for the three months ended March 31, ~~2019,~~2020, were as follows:


		Translation Adjustments		Interest Rate Swap Adjustments		Pension Benefit Plan Adjustments		Total			Translation Adjustments		Interest Rate Swap Adjustments		Pension Benefit Plan Adjustments		Total
Balance at December 31, 2018		$	(130.0)	$	3.3	$	(25.5)	$	(152.2)
Balance at December 31, 2019										Balance at December 31, 2019	$	(131.0)	$	(4.7)	$	(31.5)	$	(167.2)
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	(0.3)		(2.8)		—		(3.1)		Other comprehensive loss before reclassifications	(15.3)		(8.3)		0		(23.6)
Amounts reclassified from accumulated other comprehensive loss to net loss	Amounts reclassified from accumulated other comprehensive loss to net loss	—		—		—		—		Amounts reclassified from accumulated other comprehensive loss to net loss	0		0		0		0
Net other comprehensive loss	Net other comprehensive loss	(0.3)		(2.8)		—		(3.1)		Net other comprehensive loss	(15.3)		(8.3)		0		(23.6)
Balance at March 31, 2019		$	(130.3)	$	0.5	$	(25.5)	$	(155.3)
Balance at March 31, 2020										Balance at March 31, 2020	$	(146.3)	$	(13.0)	$	(31.5)	$	(190.8)

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

(In millions, except share and per share data and unless otherwise indicated)

There were 0 reclassifications from accumulated other comprehensive loss to net loss for the three months ended March 31, 2020. The details about the reclassifications from accumulated other comprehensive loss to net earnings (loss) for the three months ended March 31, 2021, were as follows:


Details about Accumulated Other Comprehensive Loss Components	Three Months Ended March 31, 2021		Consolidated Statements of Operations Presentation

Amortization of amounts accumulated for interest rate swaps de-designated as cash flow hedges	$	1.8	Interest expense
Impact of income taxes	0
Amortization of amounts accumulated for interest rate swaps de-designated as cash flow hedges, net of tax	$	1.8

Note 20. Segment Information

As a worldwide marketing solutions partner, ~~dedicated~~Quad leverages its 50-year heritage of platform excellence, innovation, strong culture and social purpose to ~~creating~~create a better way ~~Quad uses~~for its ~~data-driven, integrated marketing solutions platform to help~~ clients, ~~reduce complexity, increase efficiency~~employees and ~~enhance marketing spend effectiveness.~~communities. The Company’s operating and reportable segments are aligned with how the chief operating decision maker of the Company currently manages the business. The Company’s operating and reportable segments, including their product and service offerings, and a “Corporate” category are as follows:

•United States Print and Related Services

•International

•Corporate

United States Print and Related Services

The United States Print and Related Services segment is predominantly comprised of the Company’s United States printing operations and is managed as one integrated platform. This includes retail inserts, publications, catalogs, special interest publications, journals, direct mail, directories, in-store marketing and promotion, packaging, newspapers, custom print products, other commercial and specialty printed products and global paper procurement, together with marketing and other complementary services, including consumer insights, audience targeting, personalization, media planning and placement, process optimization, campaign planning and creation, pre-media production, videography, photography, digital execution, print execution and logistics. This segment also includes the manufacture of ink.

International

The International segment consists of the Company’s printing operations in Europe and Latin America, including operations in England, France, Germany, Poland, Argentina, Colombia, Mexico and Peru, as well as investments in printing operations in Brazil and India. This segment provides printed products and marketing and other complementary services consistent with the United States Print and Related Services segment. As of March 31, ~~2020,~~2021, the Company has no unrestricted subsidiaries as defined in the Company’s Senior Unsecured Notes indenture.

Corporate

Corporate consists of unallocated general and administrative activities and associated expenses including, in part, executive, legal and finance, as well as certain expenses and income from frozen employee retirement plans, such as pension benefit plans.

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, ~~2020~~2021

(In millions, except share and per share data and unless otherwise indicated)

The following is a summary of segment information for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:


		Net Sales						Operating Income (Loss) from Continuing Operations		Restructuring, Impairment and Transaction- Related Charges					Net Sales					Operating Income (Loss) from Continuing Operations		Restructuring, Impairment and Transaction- Related Charges
		Products		Services										Products			Services

Three months ended March 31, 2021											Three months ended March 31, 2021
United States Print and Related Services											United States Print and Related Services	$	459.9		$	174.7		$	32.5	$	1.1
International											International	66.1			5.1			1.5		0.8
Total operating segments											Total operating segments	526.0			179.8			34.0		1.9
Corporate											Corporate	0			0			(13.0)		0.7
Total											Total	$	526.0		$	179.8		$	21.0	$	2.6

Three months ended March 31, 2020	Three months ended March 31, 2020										Three months ended March 31, 2020
United States Print and Related Services	United States Print and Related Services	$	563.6	$	173.0	$	16.3	$	20.8		United States Print and Related Services	$	563.6		$	173.0		$	16.3	$	20.8
International	International	81.4		4.5		0.3		1.3			International	81.4			4.5			0.3		1.3
Total operating segments	Total operating segments	645.0		177.5		16.6		22.1			Total operating segments	645.0			177.5			16.6		22.1
Corporate	Corporate	—		—		(11.6)		0.7			Corporate	0			0			(11.6)		0.7
Total	Total	$	645.0	$	177.5	$	5.0	$	22.8		Total	$	645.0		$	177.5		$	5.0	$	22.8

Three months ended March 31, 2019
United States Print and Related Services		$	659.6	$	195.4	$	29.3	$	4.5
International		101.8		4.2		1.9		1.6
Total operating segments		761.4		199.6		31.2		6.1
Corporate		—		—		(14.8)		1.5
Total		$	761.4	$	199.6	$	16.4	$	7.6

Restructuring, impairment and transaction-related charges for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, are further described in Note 5, “Restructuring, Impairment and Transaction-Related Charges,” and are included in the operating income (loss) from continuing operations results by segment above.

A reconciliation of operating income (loss) from continuing operations to ~~loss~~earnings (loss) from continuing operations before income taxes and equity in loss of unconsolidated entity as reported in the condensed consolidated statements of operations for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, was as follows:


		Three Months Ended March 31,					Three Months Ended March 31,
		2020		2019			2021		2020
Operating income from continuing operations	Operating income from continuing operations	$	5.0	$	16.4	Operating income from continuing operations	$	21.0	$	5.0
Less: interest expense	Less: interest expense	18.1		21.8		Less: interest expense	14.5		18.1
Less: net pension income	Less: net pension income	(2.7)		(1.5)		Less: net pension income	(4.1)		(2.7)
Less: (gain) loss on debt extinguishment		(0.6)		15.9
Loss from continuing operations before income taxes and equity in loss of unconsolidated entity		$	(9.8)	$	(19.8)
Less: gain on debt extinguishment						Less: gain on debt extinguishment	0		(0.6)
Earnings (loss) from continuing operations before income taxes and equity in earnings of unconsolidated entity						Earnings (loss) from continuing operations before income taxes and equity in earnings of unconsolidated entity	$	10.6	$	(9.8)

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QUAD/GRAPHICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(In millions, except share and per share data and unless otherwise indicated)

Note 21. New Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform. ASU 2020-04 permits entities to apply certain expedients and exceptions for contracts, hedging relationships, and other transactions impacted by the anticipated transition away from the use of LIBOR or other interbank offered rates to alternative reference rates. This optional guidance is effective as of March 12, 2020, through December 31, 2022. The Company is evaluating the impact of the adoption of ASU 2020-04 on the condensed consolidated financial statements.

In December 2019, the FASB issued Accounting Standards Update 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business

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~~QUAD/GRAPHICS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2020~~

~~(In millions, except share and per share data and unless otherwise indicated)~~

combination, ownership changes in investments, accounting for hybrid tax regimes, interim-period accounting for enacted changes in tax law and limitation of tax benefit on year-to-date losses. This guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company ~~is evaluating the~~adopted this standard as of January 1, 2021. The impact of the adoption of ASU 2019-12 on the condensed consolidated financial ~~statements.~~

In August 2018, the FASB issued Accounting Standards Update 2018-14 “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”), which adds, removes and clarifies year-end disclosure requirements related to defined benefit pension and other postretirement plans. This guidance is effective for annual periods ending after December 15, 2020, with early adoption permitted. This new guidance will require a retrospective adoption approach. The Company is evaluating the impact of the adoption of ASU 2018-14 on the notes to the condensed consolidated financial statements.

~~Note 22. Subsequent Events~~

~~COVID-19 Impacts and Response~~

~~The coronavirus (“COVID-19”) pandemic has had, and will continue to~~statements did not have a ~~negative impact on the Company’s business,~~material financial condition, cash flows, results of operations and supply chain, although the full extent is uncertain. The Company implemented cost reduction and cash conservation initiatives in response to the impact of the COVID-19 pandemic on its business, including temporarily reduced salary and implemented unpaid furloughs for salaried employees, which include reducing the base salaries of the Company’s Chief Executive Officer by 50% and the other named executive officers by 35%; reduced retainer fees for the Company’s non-employee directors by 50%; suspended production at several manufacturing facilities where declining client volume or other effects of the pandemic have impacted the Company’s ability to operate; suspended quarterly dividend payments until further notice; and delayed capital spending projects. The Company is continuing to evaluate its cost structure and expects to implement additional cost reduction measures as necessary. As the pandemic continues to rapidly evolve, the extent of the impact on the Company’s business, financial condition, cash flows, results of operations and supply chain will depend on future developments, all of which are highly uncertain and cannot be predicted.impact.

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

The following discussion of the financial condition and results of operations of Quad should be read together with (1) the ~~Quad~~ condensed consolidated financial statements for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, including the notes thereto, included in Item 1, “Condensed Consolidated Financial Statements (Unaudited),” of this Quarterly Report on Form 10-Q; and (2) the audited consolidated annual financial statements as of and for the year ended December 31, ~~2019,~~2020, and notes thereto included in the Company’s Annual Report on Form 10-K, filed with the SEC on February ~~19, 2020.~~24, 2021.

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

•Cautionary Statement Regarding Forward-Looking Statements.

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

•Results of Operations. This section contains an analysis of the Company’s results of operations by comparing the results for (1) the three months ended March 31, ~~2020,~~2021, to the three months ended March 31, ~~2019.~~2020. The comparability of the Company’s results of operations between periods was impacted by the divestiture of the Omaha, Nebraska packaging plant, which was sold on January 31, 2020, and the additional investment in Rise in June 2020. The results of operations of ~~this~~the divestiture isare included in the Company’s condensed consolidated results until the date of ~~disposition.~~disposition, and the results of operations of the investment in Rise reflect the Company’s ownership interest from the respective dates of change in ownership. The results of the Company's United States Book business have been reported as discontinued operations for ~~all periods presented.~~the period ended March 31, 2020. Forward-looking statements providing a general description of recent and projected industry and Company developments that are important to understanding the Company’s results of operations are included in this section. This section also provides a discussion of EBITDA and EBITDA margin, financial measures that the Company uses to assess the performance of its business that are not prepared in accordance with 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.

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Cautionary Statement Regarding Forward-Looking Statements

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

These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the control of the Company. These risks, uncertainties and other factors could cause actual results to differ materially from those expressed or implied by those forward-looking statements. Among risks, uncertainties and other factors that may impact Quad are those described in Part I, Item 1A, “Risk Factors,”�� of the Company’s ~~2019~~2020 Annual Report on Form 10-K, filed with the SEC on February ~~19, 2020,~~24, 2021, as such may be amended or supplemented in Part II, ~~“Other Information,”~~ Item 1A, “Risk Factors,” of the Company’s subsequently filed Quarterly Reports on Form 10-Q (including this report), and the following:

•The ~~uncertain~~ negative impacts the coronavirus (COVID-19) has had and will continue to have on the Company’s business, financial condition, cash flows, results of operations and supply chain, as well as the global economy in ~~general;~~general (including future uncertain impacts);

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

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

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

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

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

•The impact negative publicity could have on our business;

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

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

•The impact of changing future economic conditions;

•The fragility and decline in overall distribution ~~channels, including newspaper distribution~~ channels;

•The impact of changes in postal rates, service levels or regulations;

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

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

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•Significant capital expenditures may be needed to maintain the Company’s platforms and processes and to remain technologically and economically competitive;

•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;

•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; and

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

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

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

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Overview

Business Overview

~~Quad is~~As a worldwide marketing solutions partner, ~~dedicated~~Quad leverages its 50-year heritage of platform excellence, innovation, strong culture and social purpose to ~~creating~~create a better way for its clients, ~~through a data-driven,~~employees and communities. The Company’s integrated marketing platform ~~that~~ helps brands and marketers reduce complexity, increase efficiency and enhance marketing spend effectiveness. Quad provides its clients with unmatched scale for on-site services and expanded subject expertise in marketing strategy, creative solutions, media deployment ~~(which includes a strong foundation in print)~~ and marketing management services. With a client-centric approach that drives the Company to continuously evolve its ~~expanded~~ offering, combined with leading-edge technology and single-source simplicity, the Company ~~believes it~~ has the resources and knowledge to help a wide variety of clients in multiple vertical industries, including retail, ~~financial/insurance, healthcare,~~publishing, consumer technology, consumer packaged goods, ~~publishing~~financial services, insurance, healthcare and direct-to-consumer.

Quad believes employee pride, combined with a relentless quest to create a better way, builds the opportunity to invent the future as a preferred marketing solutions partner, helping its clients win every day. To accomplish this vision, Quad remains focused on its consistent strategic priorities as follows:

Walk in the Shoes of Clients

The Company encourages all employees, regardless of job title, to walk in the shoes of clients by putting a priority on listening to clients’ needs and challenges, doing what they can to make it easy to work with Quad, and making the client experience enjoyable at every touchpoint. ~~As part of~~With a focus on solving problems and uncomplicating the marketing process, Quad seeks to become an invaluable strategic marketing partner for its ~~transformation, the Company has focused on~~clients, helping them successfully navigate today’s constantly evolving ~~client print-production conversations to conversations encompassing consultative, enterprise-wide~~media landscape through innovative data-driven solutions, ~~that solve marketing~~produced and ~~process challenges, and create more value for clients. To accomplish this, a~~deployed efficiently across multiple media channels. A key component of Quad’s client-facing strategy is to strengthen relationships at higher levels within a client’s organization so the Company can better understand, anticipate and satisfy the organization’s needs. Quad seeks to become an invaluable strategic marketing partner for its clients, helping them successfully navigate today’s constantly evolving media landscape through innovative data-driven solutions, producedrequirements, including their diversity, equity and ~~deployed across multiple media channels.~~inclusion goals, and broader corporate social responsibility goals. The Company also believes its proactive thought leadership in the key issues facing its clients, including data-driven marketing, sustainability and postal reform, will foster loyalty to the Quad brand.

Grow the Business Profitably

This ~~strategy~~strategic priority centers on Quad’s ability to ~~grow its business at a time when~~defend against significant media disruption and ongoing print industry headwinds ~~continue.~~and grow the business as a marketing solutions partner. Key components of this ~~strategy are as follows:~~priority are:

•~~Transformation as a marketing solutions partner,~~Expand existing account relationships ~~with an integrated marketing platform~~by introducing clients to the Company’s ever-expanding offering that the Company believes creates more value than the traditional agency approach that operates in silos and is focused on profit by individual media channel. The Company calls this transformation Quad 3.0. Quad’s unique integrated marketing platform removes the complexity Quad’s clients face when working with multiple agency partners and vendors, eliminating multiple handoffs that compromise both the strategy of programs as well as the speed at which they are executed. In addition, the Company believes its platform increases client efficiencies through workflow re-engineering, content production and process optimization; and improves their clients’ overall marketing spend effectiveness across all channels through data-driven consumer insights, media planning, and creative and campaign strategy.

•~~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~~helps them market more efficiently and effectively across media channels. To this end, Quad is ~~also~~ focused on ensuring it has the right talent in the right positions to facilitate strategic marketing conversations with its clients that lead to a better understanding of their needs, developing tailored solutions and growing market share.

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

•Grow print segment share by providing dependable, on-time performance and ongoing investments in its platform that improve manufacturing and distribution cost efficiencies, product features and effectiveness. At a time of significant industry and economic disruption, Quad is a stable and reliable partner to its clients.

•Make disciplined investmentsthat take many different forms. ~~For example, the~~The Company intends to continue to pursue acquisitions that help ~~accelerate Quad 3.0~~expand and strengthen its integrated marketing platform as well as value-driven industry consolidating acquisitions that meet its disciplined acquisition criteria. In addition, the Company intends to continue making ~~the~~ long-term investments in its talent, such as hiring business professionals with client-side marketing ~~talent, that~~experience and consulting expertise who will ~~accelerate~~bolster its ~~transformation~~position as a marketing solutions partner, as well as investments to increase ~~productivity, such as through increased hourly production employees’ wages.~~employee engagement, retention and productivity.

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Strengthen the Core

The Company operates what it believes to be a superior and unparalleled integrated marketing platform, which it has consciously built to reduce complexity, enhance efficiencies and improve marketing spend effectiveness across channels. Through this unique platform, the Company offers marketing strategy, including consumer insights and data analytics; creative solutions for producing quality content at scale; media optimization for all channels, including print, broadcast and digital; and 24/7 global production, supported by industry-leading print manufacturing capabilities. Quad uses a disciplined return on capital framework ~~and historically has made significant~~to make regular, strategic investments in ~~its print manufacturing~~this platform, ~~and data management capabilities that have resulted~~resulting in what it believes is the most integrated, automated, efficient, innovative and modern ~~manufacturing~~marketing platform ~~and distribution network in the printing industry.~~of its kind. The Company’s continued focus to strengthen its core manufacturing platform through investments that streamline, automate and improve efficiencies and throughput, while reducing labor costs, promotes sustainable cash flow and continued value creation. Further, Quad’slong-standing, disciplined culture of holistic Continuous Improvement and commitment to Lean ~~Manufacturing~~Enterprise methodologies, ~~is a high priority throughout the Company~~along with ongoing investments in employee development and retention, further supports its goal of strengthening ~~the production and distribution functions for core product lines~~its platform so that Quad can remain ~~the printing industry’s~~a high-quality, low-cost producer. ~~Quad also strengthens~~

To strengthen its core ~~print~~ offering, ~~through~~the Company continually ~~enhancing~~seeks to enhance its product portfolio, especially in the direct marketing and packaging space, with innovations that support clients’ ability to stand out in the mailbox or on the store shelf. These innovations include proprietary solutions unavailable anywhere else in the marketing, communications or printing industries.

Additionally, Quad has chosen to strategically divest of those businesses that cannot be easily leveraged as part of its greater integrated marketing platform, such as books. Through these types of optimization efforts, Quad strengthens its core by remaining focused on where it can provide the most value to clients by uncomplicating marketing to deliver more.

Empower Employees

Quad’s ~~strategy~~strategic priority to empower employees throughout their career journey builds on the key aspects of the Company’s distinct corporate culture, which the Company ~~uses to fuel Quad 3.0.~~views as a competitive advantage. These aspects include ~~strong~~the Company’s enduring values, which are centered on trust, innovation, growth and ~~lasting~~believing in people. The Company ~~values~~understands that its employees perform better at work when they can simply be themselves – confident in their abilities and ~~an organization-wide entrepreneurial spirit~~comfortable sharing their ideas, opinions and ~~opportunity-seeking mentality.~~beliefs – all of which leads to a more inclusive environment and better engagement, decision-making and business outcomes. The Company implements talent strategies to meet its labor and business transformation needs, and training and reward programs to engage, develop and retain its employees. Employees are encouraged to take ~~pride and ownership in their work, take~~ advantage of the Company’s continuous ~~learning programs to advance in their careers~~growth environment, which not only teaches critical on-the-job and ~~improve~~ leadership skills, ~~share knowledge by mentoring others~~but also helps them respond to rapid change, cultivate effective networks, and ~~innovate solutions~~create high-quality relationships necessary for personal, professional and company growth. The Company believes its approach to ~~drive performance.~~continuous growth for each employee is advantageously distinct from other employers. With the Company’s encouragement to do things differently, to be something greater and to create a better way, ~~the Company believes its~~ employees are more fully engaged in their day-to-day activities, producing better results for clients and advancing the Company’s strategic ~~goals, while~~priorities. Additionally, the Company engages employees and fosters corporate pride by supporting community activities, initiatives and organizations that impact the quality of life near Quad’s facilities and where employees work on site at client locations. As Quad continues to expand its integrated marketing platform, the Company believes this creates possibilities for each employee that are advantageously distinct from other employers.operations.

Enhance Financial Strength and Create Shareholder Value

Quad follows a disciplined approach to maintaining and enhancing financial strength to create shareholder value, which is essential given ongoing media disruption and printing industry challenges. This strategy is centered on the Company’s ability to maximize net earnings, Free Cash Flow and operating margins; maintain consistent financial policies to ensure a strong balance sheet, liquidity level and access to capital; and retain the financial flexibility needed to strategically allocate and deploy capital as circumstances change. The priorities for capital allocation and deployment are adjusted based on prevailing circumstances and what the Company thinks is best for shareholder value creation at any particular point in time. Those priorities currently include ~~the following: (1)~~ deleveraging the Company’s balance sheet through debt and pension liability ~~reductions; (2)~~reductions, and making compelling investments that drive profitable organic growth and productivity in the Company’s print manufacturing and distribution operations, as well as expansion into higher-growth marketing services, ~~that help accelerate Quad 3.0,~~ and pursuing value-driven industry ~~consolidation;~~consolidation. The Company’s Board of Directors proactively suspended the Company’s quarterly dividends beginning in the second quarter of 2020, and ~~(3)~~the Company is currently prohibited from making dividend payments through September 30, 2021. However, the Company remains committed to paying a dividend over the ~~long-term returning capital~~long term and will seek to ~~shareholders through dividends and share repurchases.~~resume a dividend following the stabilization of its operating environment.

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To provide ongoing improvement in manufacturing productivity, the Company applies holistic Continuous Improvement and Lean ~~Manufacturing~~Enterprise methodologies to simplify and streamline processes and to ultimately maximize operating margins. These same methodologies are applied to its selling, general and administrative functions to create a truly ~~Lean Enterprise.~~lean enterprise. The Company has been working diligently to lower its cost structure by consolidating its manufacturing ~~platform~~operations into its most efficient facilities, as well as realizing purchasing, mailing and logistics efficiencies by centralizing and consolidating print manufacturing volumes, and eliminating redundancies in its administrative and corporate operations. Quad believes that its focused efforts to be the high-quality, low-cost producer generates increased Free Cash Flow and allows the Company to maintain a strong balance sheet through debt and pension liability reduction. The Company’s disciplined financial approach also allows it to maintain sufficient liquidity and to reduce refinancing ~~risk, with the nearest significant debt maturity not occurring until May 2022.~~risk.

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Segments

The Company’s operating and reportable segments are aligned with how the chief operating decision maker of the Company currently manages the business. As a result of the decision to sell the Company’s United States Book business, all United States Print and Related Services segment amounts ~~have been recast to~~ exclude the Book business discontinued ~~operations.~~operations for the three months ended March 31, 2020. The Company’s operating and reportable segments, including their product and service offerings, and a “Corporate” category are summarized below.

•The United States Print and Related Services segment is predominantly comprised of the Company’s United States printing operations and is managed as one integrated platform. This includes retail inserts, publications, catalogs, special interest publications, journals, direct mail, directories, in-store marketing and promotion, packaging, newspapers, custom print products, other commercial and specialty printed products and global paper procurement, together with marketing and other complementary services, including consumer insights, audience targeting, personalization, media planning and placement, process optimization, campaign planning and creation, pre-media production, videography, photography, digital execution, print execution and logistics. This segment also includes the manufacture of ink. The United States Print and Related Services segment accounted for approximately 90% of the Company’s consolidated net sales during the three months ended March 31, ~~2020.~~2021.

•The International segment consists of the Company’s printing operations in Europe and Latin America, including operations in England, France, Germany, Poland, Argentina, Colombia, Mexico and Peru, as well as investments in printing operations in Brazil and India. This segment provides printed products and marketing and other complementary services consistent with the United States Print and Related Services segment. The International segment accounted for approximately 10% of the Company’s consolidated net sales during the three months ended March 31, ~~2020.~~2021.

•Corporate consists of unallocated general and administrative activities and associated expenses including, in part, executive, legal and finance, as well as certain expenses and income from frozen employee retirement plans, such as pension benefit plans.

Key Performance Metrics Overview

The Company’s management believes the ability to generate net sales growth, profit increases and positive cash flow, while maintaining the appropriate level of debt, are key indicators of the successful execution of the Company’s business strategy and will increase shareholder value. The Company uses period-over-period net sales growth, EBITDA, EBITDA margin, net cash provided by operating activities, Free Cash Flow and Debt Leverage Ratio as metrics to measure operating performance, financial condition and liquidity. EBITDA, EBITDA margin, Free Cash Flow and Debt Leverage Ratio are non-GAAP financial measures (see the definitions of EBITDA, EBITDA margin and the reconciliation of net earnings (loss) attributable to Quad common shareholders to EBITDA in the “Results of Operations” section below, and see the definitions of Free Cash Flow and Debt Leverage Ratio, the reconciliation of net cash provided by operating activities to Free Cash Flow, and the calculation of Debt Leverage Ratio in the “Liquidity and Capital Resources” section below).

Net sales growth. The Company uses period-over-period net sales growth as a key performance metric. The Company’s management assesses net sales growth based on the ability to generate increased net sales through increased sales to existing clients, sales to new clients, sales of new or expanded solutions to existing and new clients and opportunities to expand sales through strategic investments, including acquisitions.

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

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

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

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

The Company remains disciplined with its debt leverage. The Company’s consolidated debt and finance lease obligations ~~increased $80~~decreased by $36 million during the three months ended March 31, ~~2020,~~2021, primarily due to an increase in cash provided by operating activities and the ~~Company’s decision~~use of cash proceeds from the sale of the Riverside plant to increase borrowings by $100 million under the revolving credit facility to increase cash on hand to $207.8 million to ensure continued financial flexibility in response to the COVID-19 pandemic. Excluding cash, netreduce debt ~~decreased $49 million during the first quarter.~~obligations. Since the Company completed the World Color Press acquisition in July 2010, the Company has reduced debt and finance lease obligations by ~~$547~~$847 million and has reduced the obligations for pension, postretirement and MEPPs by ~~$447~~$476 million, for a total obligation reduction since July of 2010 of ~~approximately $1.0~~over $1.3 billion.

The Company believes that a disciplined approach for capital management and a strong balance sheet are critical to be able to invest in profitable growth opportunities and technological advances, thereby providing the highest return for shareholders. Management balances the use of cash between deleveraging the Company’s balance sheet (through reduction in debt and pension obligations), compelling investment opportunities (through capital expenditures, acquisitions and strategic investments) and returns to shareholders (through share repurchases and quarterly dividends). Due to uncertainty in client demand as a result of the COVID-19 pandemic, the Company’s Board of Directors made the proactive decision to temporarily suspend the Company’s quarterly dividend of $0.15 per share. The Company remains committed to paying a dividend over the long-term and will seek to resume the dividend following stabilization of its operating environment.

The Company is subject to seasonality in its quarterly results as net sales and operating income are higher in the third and fourth quarters of the calendar year as compared to the first and second quarters. The fourth quarter is typically the highest seasonal quarter for cash flows from operating activities and Free Cash Flow due to the reduction of working capital requirements that reach peak levels during the third quarter. Seasonality is driven by increased magazine advertising page counts, retail inserts, and catalogs primarily due to back-to-school and holiday-related advertising and promotions. The Company expects this seasonality impact to continue in future years. Due to the continued uncertainty surrounding ~~the timing and nature of~~ the COVID-19 pandemic, the Company anticipates this seasonality will be further impacted in ~~2020~~2021 and in future periods, as the Company is heavily dependent on consumer demand.

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Overview of Trends Affecting Quad

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

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

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Competition in the printing industry remains highly fragmented and intense, and the Company believes that there are indicators of heightened competitive pressures. The industry has excess manufacturing capacity created by continued declines in industry volumes, compounded by the COVID-19 pandemic, which, in turn, ~~has~~have created accelerated downward pricing pressures. ~~In addition,~~The Company faces competition due to the increased accessibility and quality of digital alternatives to traditional delivery of printed documents ~~and data, including~~through the online distribution and hosting of media content, and ~~mobile technologies, offer alternatives to traditional delivery~~the digital distribution of ~~printed documents. Increasing consumer acceptance of digital delivery of content has resulted in marketers~~documents and publishers allocating their marketing and advertising spend across the expanding selection of digital delivery options, which further reduces printing demand and contributes to print industry overcapacity.data. The Company ~~also~~ faces competition from print management and marketing consulting firms ~~which~~that look to streamline processes and reduce the overall print spend of the Company’s ~~clients, as well as from~~clients.

The Company believes that a disciplined approach for capital management and a strong balance sheet are critical to be able to invest in profitable growth opportunities and technological advances, thereby providing the highest return for shareholders. Management balances the use of cash between deleveraging the Company’s balance sheet (through reduction in debt and pension obligations), compelling investment opportunities (through capital expenditures, acquisitions and strategic ~~marketing firms focused on helping businesses integrate multiple channels into their marketing campaigns.~~investments) and returns to shareholders (through quarterly dividends and share repurchases).

The Company continues to make progress on integrating and streamlining all aspects of its business, thereby lowering its cost structure by consolidating its manufacturing platform into its most efficient facilities, as well as realizing purchasing, mailing and logistics efficiencies by centralizing and consolidating print manufacturing volumes and eliminating redundancies in its administrative and corporate operations. The Company has continued to evolve its manufacturing platform, equipping facilities to be product line agnostic, which enables the Company to maximize equipment utilization. Quad believes that the large plant size of certain of its key printing facilities allows the Company to drive savings in certain product lines (such as publications and catalogs) due to economies of scale and from investments in automation and technology. The Company continues to focus on proactively aligning its cost structure to the realities of the top-line pressures it faces in the printing industry through Lean Manufacturing and sustainable continuous improvement programs. Restructuring actions initiated by the Company beginning in 2010 have resulted in the announcement of 4650 plant closures through March 31, ~~2020.~~2021.

The Company believes it will continue to drive productivity improvements and sustainable cost reduction initiatives into the future through an engaged workforce and ongoing adoption of the latest manufacturing automation and technology. Through this strategy, the Company believes it can maintain the strongest, most efficient print manufacturing platform to remain a high-quality, low-cost producer.

Integrated distribution with the ~~postal service~~United States Postal Service (“USPS”) is an important component of the Company’s business. Any material change in the current service levels provided by the postal service could impact the demand that clients have for print services. The ~~United States Postal Service (“USPS”)~~USPS continues to experience financial problems. Without increased revenues or action by Congress to reform the USPS’ cost structure, these losses will continue into the future. ~~Because~~As a result of these financial difficulties, the USPS has come under increased pressure to adjust its postal rates and service levels. Additional price increases may result in clients reducing mail volumes and exploring the use of alternative methods for delivering a larger portion of their products, such as continued diversion to the internet and other alternative media channels in order to ensure that they stay within their expected postage budgets. There are also continued risks of delivery delays due to ongoing COVID-19 impacts on daily operational staffing at the USPS.

Current federal law limits postal rate increases (outside of an “exigent circumstance”) to the increase in the Consumer Price Index (“CPI”). This cap works to ensure funding stability and predictability for mailers. However, that same federalFederal statute requires the Postal Regulatory Commission (“PRC”) to conduct ~~a review~~reviews of the overall rate-making structure for the ~~USPS. The~~USPS to ensure funding stability. As a result of those reviews, the PRC ~~proposed~~has authorized a new five year rate-making structure that would provide the USPS with additional pricing flexibility over the current ~~CPI~~Consumer Price Index cap, ~~and~~ which may result in a substantially altered rate structure for mailers. ~~Any~~The newly revised ~~rates~~rate authority that ~~would be~~is effective ~~because~~as a result of new rules issued by the PRC ~~may include~~includes a higher overall rate cap ~~or potentially the elimination of a rate cap altogether, which will result in no restrictions~~ on the USPS’ ability to increase rates from year to year. This may lead to price spikes for mailers and may also reduce the incentive for the USPS to continue to take out costs and instead continue to rely on postage to cover the costs of an outdated postal service that does not reflect the industry’s ability or willingness to pay. The uncertainty as to the actual rate increases due to competing lawsuits from both industry and the USPS, as well as how much of the authority the USPS will use, also creates potential volume declines as rate predictability with respect to cost and timing is no longer known for mailers. The result may be

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

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The Company has invested significantly in its mail preparation and distribution capabilities to mitigate the impact of increases in postage costs, and to help clients successfully navigate the ever-changing postal environment. Through its data analytics, unique software to merge mail streams on a large scale, advanced finishing capabilities and technology, and in-house transportation and logistics operations, the Company manages the mail preparation and distribution of most of its clients’ products to maximize efficiency, to enable on-time and consistent delivery and to partially reduce these costs; however, the net impact of increasing postal costs may create a decrease in client demand for print and mail products.

The Company’s results of operations have been and continue to be adversely impacted as a result of the COVID-19 pandemic. Through the Company’s Crisis Management Team, including executive and operations leadership, the Company has been executing business continuity plans focused on protecting the health and well-being of our employees, while also continuing to service clients, and protect the long-term financial health of the Company as the COVID-19 pandemic ~~evolves. As a part of the business continuity plans,~~continues. In 2020, the Company ~~implemented cost reduction and cash conservation initiatives, including temporarily reduced salaries and unpaid furloughs~~amended its Senior Secured Credit Facility to provide for ~~salaried employees,~~certain financial covenant relief through the fiscal quarter ending September 30, 2021, which include reducing the base salary of the Company’s Chief Executive Officer by 50% and the other named executive officers by 35%; reduced retainer fees for the Company’s non-employee directors by 50%; suspended production at several manufacturing facilities where declining client volume or other effects of the pandemic have impacted the Company’s ability to operate; suspendedincludes suspending quarterly dividend payments ~~until further notice; and delayed capital spending projects.~~through the Covenant Relief Period The Company ~~continues~~is continuing to evaluate its cost structure and expects to implement additional cost reduction measures as ~~necessary due to economic challenges resulting from the COVID-19 pandemic.~~necessary. As the pandemic continues to ~~rapidly~~ evolve, the extent of the impact on the Company’s business, financial condition, cash flows, results of operations and supply chain will depend on future developments, all of which are still highly ~~uncertain and cannot be predicted.~~

uncertain.

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Results of Operations for the Three Months Ended March 31, ~~2020,~~2021, Compared to the Three Months Ended March 31, ~~2019~~2020

Summary Results

The Company’s operating income from continuing operations, operating margin, net ~~loss~~earnings (loss) attributable to Quad common shareholders (computed using a 25% normalized tax rate for all items subject to tax) and diluted ~~loss~~earnings (loss) per share attributable to Quad common shareholders for the three months ended March 31, ~~2020,~~2021, changed from the three months ended March 31, ~~2019,~~2020, as follows (dollars in millions, except margin and per share data):


		Operating Income from Continuing Operations		Operating Margin		Net Loss Attributable to Quad Common Shareholders		Diluted Loss Per Share Attributable to Quad Common Shareholders			Operating Income from Continuing Operations		Operating Margin		Net Earnings (Loss) Attributable to Quad Common Shareholders		Diluted Earnings (Loss) Per Share Attributable to Quad Common Shareholders
For the three months ended March 31, 2019		$	16.4	1.7	%	$	(22.5)	$	(0.45)
For the three months ended March 31, 2020										For the three months ended March 31, 2020	$	5.0	0.6	%	$	(12.4)	$	(0.25)
Restructuring, impairment and transaction-related charges ⁽¹⁾	Restructuring, impairment and transaction-related charges ⁽¹⁾	(15.2)		(2.0)	%	(11.4)		(0.23)		Restructuring, impairment and transaction-related charges (1)	20.2		2.4	%	15.1		0.30
Interest expense ⁽²⁾	Interest expense ⁽²⁾	N/A		N/A		2.8		0.06		Interest expense (2)	N/A		N/A		2.6		0.06
Net pension income⁽³⁾	Net pension income⁽³⁾	N/A		N/A		0.9		0.02		Net pension income (3)	N/A		N/A		1.1		0.02

2020 gain on debt extinguishment ⁽⁴⁾	2020 gain on debt extinguishment ⁽⁴⁾	N/A		N/A		0.4		0.01		2020 gain on debt extinguishment (4)	N/A		N/A		(0.5)		(0.02)
2019 loss on debt extinguishment ⁽⁴⁾		N/A		N/A		11.9		0.24
Income taxes ⁽⁵⁾	Income taxes ⁽⁵⁾	N/A		N/A		(3.5)		(0.07)		Income taxes (5)	N/A		N/A		3.5		0.07
Loss from discontinued operations, net of tax ⁽⁶⁾	Loss from discontinued operations, net of tax ⁽⁶⁾	N/A		N/A		6.3		0.12		Loss from discontinued operations, net of tax (6)	N/A		N/A		3.8		0.08
Investments in unconsolidated entity and noncontrolling interests, net of tax ⁽⁷⁾	Investments in unconsolidated entity and noncontrolling interests, net of tax ⁽⁷⁾	N/A		N/A		(0.2)		—		Investments in unconsolidated entity and noncontrolling interests, net of tax (7)	N/A		N/A		0.1		—
Operating income from continuing operations ⁽⁸⁾	Operating income from continuing operations ⁽⁸⁾	3.8		0.9	%	2.9		0.05		Operating income from continuing operations (8)	(4.2)		—	%	(3.1)		(0.07)
For the three months ended March 31, 2020		$	5.0	0.6	%	$	(12.4)	$	(0.25)
For the three months ended March 31, 2021										For the three months ended March 31, 2021	$	21.0	3.0	%	$	10.2	$	0.19

⁽¹⁾Restructuring, impairment and transaction-related charges ~~increased $15.2~~decreased $20.2 million ($~~11.4~~15.1 million, net of tax), to ~~$22.8~~$2.6 million during the three months ended March 31, 2021, and included the following:

a.A $7.9 million decrease in employee termination charges from $12.6 million during the three months ended March 31, 2020, ~~and included the following:~~

a.~~An $8.3 million increase in employee termination charges from $4.3~~to $4.7 million during the three months ended March 31, ~~2019, to $12.6 million during the three months ended March 31, 2020;~~2021;

b.~~An $0.8~~A $1.7 million ~~increase~~decrease in impairment charges from ~~$1.7 million during the three months ended March 31, 2019, to~~ $2.5 million during the three months ended March 31, ~~2020;~~

c.~~A $1.0 million decrease in transaction-related charges from $1.5 million during the three months ended March 31, 2019, to$0.5 million during the three months ended March 31, 2020;~~

d.~~A $0.1 million decrease in integration costs from~~2020, to $0.8 million during the three months ended March 31, ~~2019, to $0.7~~2021;

c.A $0.3 million decrease in transaction-related charges from $0.5 million during the three months ended March 31, ~~2020;~~2020, to $0.2 million during the three months ended March 31, 2021;

d.A $0.7 million decrease in integration costs from the three months ended March 31, 2020, to the three months ended March 31, 2021; and

e.A ~~$7.2~~$9.6 million ~~increase~~decrease in various other restructuring charges from ~~$0.7 million of income during the three months ended March 31, 2019, to~~ $6.5 million of expense during the three months ended March 31, ~~2020.~~2020, to $3.1 million of income during the three months ended March 31, 2021.

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

⁽²⁾Interest expense decreased ~~$3.7~~$3.6 million ($~~2.8~~2.6 million, net of tax) during the three months ended March 31, ~~2020,~~2021, to ~~$18.1~~$14.5 million. This change was due to a lower average debt levels and a lower weighted average interest rate on borrowings, partially offset by a $0.5 million increase in interest expense related to the interest rate swaps in the three months ended March 31, ~~2020,~~2021, as compared to the three months ended March 31, ~~2019.~~2020.

⁽³⁾Net pension income increased ~~$1.2~~$1.4 million ($~~0.9~~1.1 million, net of tax) during the three months ended March 31, ~~2020~~,2021, to ~~$2.7~~$4.1 million. This was due to a ~~$1.0~~$1.3 million decrease from interest cost on pension plan liabilities and a ~~$0.2~~$0.1 million increase from the expected long-term return on pension plan assets.

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⁽⁴⁾A $0.6 million gain on debt extinguishment ($~~0.4~~0.5 million, net of tax) was recognized during the three months ended March 31, 2020, primarily relating to Senior Unsecured Note repurchases, completed induring the first quarter of 2020. A $15.9 million loss on debt extinguishment ($11.9 million, net of tax) was recognized during the three months ended March 31, 2019, relating to the third amendment to the Company’s April 28, 2014 Senior Secured Credit Facility, completed on January 31, 2019.

⁽⁵⁾The $3.5 million ~~decrease~~increase in income tax benefit on continuing operations as calculated in the following table is primarily due to ~~the following: (a)~~ a ~~$5.5~~$4.5 million increase from decreased ~~income tax benefit~~valuation allowance reserves and a $1.6 million increase from equity award activity; (b) a $1.3 million decreased income tax benefit for preliminary 2019 return-to-provision adjustments; and (c) a $1.2 million decreased income tax benefit from increased losses in foreign jurisdictions where the Company does not receive an income tax benefit.activity. These ~~decreases~~increases were partially offset by a ~~$4.5~~$4.6 million income tax benefit related to the CARES Act net operating loss carry back ~~provisions:~~provisions in 2020 that did not repeat in 2021.

Three Months Ended March 31,
2020 2019 $ Change
Loss from continuing operations before income taxes and equity in loss of unconsolidated entity $ (9.8) $ (19.8) $ 10.0
Normalized tax rate 25.0 % 25.0 %
Income tax benefit at normalized tax rate (2.5) (5.0) 2.5
Income tax benefit from the condensed consolidated statements of operations (1.2) (7.2) 6.0
Impact of income taxes $ (1.3) $ 2.2 $ (3.5)


	Three Months Ended March 31,
	2021			2020			$ Change
Earnings (loss) from continuing operations before income taxes and equity in earnings of unconsolidated entity	$	10.6		$	(9.8)		$	20.4
Normalized tax rate	25.0		%	25.0		%
Income tax expense (benefit) at normalized tax rate	2.7			(2.5)			5.2

Income tax expense (benefit) from the condensed consolidated statements of operations	0.5			(1.2)			1.7

Impact of income taxes	$	2.2		$	(1.3)		$	3.5

⁽⁶⁾The ~~decrease in~~ loss from discontinued operations, net of tax, of ~~$6.3~~$3.8 million was recognized during the three months ended March 31, ~~2020, was primarily due to a $8.6 million decrease~~2020. The Company completed the sale of the Book business in ~~the operating loss from the discontinued operations due to productivity improvements and cost reduction activities, partially offset by a $2.3 million decrease in income tax benefit.~~2020.

⁽⁷⁾The ~~decrease~~increase in investments in unconsolidated entity and noncontrolling interests, net of tax, of ~~$0.2~~$0.1 million during the three months ended March 31, ~~2020,~~2021, was ~~primarily related~~due to ~~a $0.3 million decrease~~an increase in loss attributed to noncontrolling interests in the Company’s condensed consolidated statements of operations related to the Company’s 57% ownership of Rise, partially offset by a $0.1 million decrease in lossearnings at the Company’s investment in Plural Industria ~~Gráfica~~Grafica Ltda. ~~(“Plural”)~~, the Company’s Brazilian joint venture.

⁽⁸⁾Operating income from continuing operations, excluding restructuring, impairment and transaction-related charges, ~~increased $3.8~~decreased $4.2 million ($~~2.9~~3.1 million, net of tax impact) during the three months ended March 31, ~~2020,~~2021, primarily due to the following: (1) lower print volume; (2) a ~~$9.4~~$12.0 million ~~net~~ benefit in 2020 from a change in the hourly production employee vacation policy; ~~(2) an $8.0~~and (3) a $6.3 million ~~reduction~~net benefit in 2020 in the cost of worker’s compensation claims from improved production safety ~~initiatives;~~procedures. These decreases were partially offset by a $19.1 million decrease in selling, general and ~~(3)~~administrative expenses and savings from other cost reduction initiatives. These increases were partially offset by the following: (1) lower print volume, pricing and print service sales; (2) a $9.0 million decrease in paper byproduct recoveries; (3) a $4.4 million increase in production hourly wages in our most competitive labor markets; and (4) a $4.2 million increase in credit loss expense primarily due to specific client credit reviews.

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Operating Results from Continuing Operations

The following table sets forth certain information from the Company’s condensed consolidated statements of operations on an absolute dollar basis and as a relative percentage of total net sales for each noted period, together with the relative percentage change in such information between the periods set forth below:


		Three Months Ended March 31,																			Three Months Ended March 31,
		2020						2019											2021				2020
		(dollars in millions)																					(dollars in millions)
		Amount		% of Sales		Amount		% of Sales		$ Change		% Change			Amount		% of Sales		Amount		% of Sales		$ Change		% Change
Net sales:	Net sales:													Net sales:
Products	Products	$	645.0	78.4	%	$	761.4	79.2	%	$	(116.4)	(15.3)	%	Products	$	526.0	74.5	%	$	645.0	78.4	%	$	(119.0)	(18.4)	%
Services	Services	177.5		21.6	%	199.6		20.8	%	(22.1)		(11.1)	%	Services	179.8		25.5	%	177.5		21.6	%	2.3		1.3	%
Total net sales	Total net sales	822.5		100.0	%	961.0		100.0	%	(138.5)		(14.4)	%	Total net sales	705.8		100.0	%	822.5		100.0	%	(116.7)		(14.2)	%
Cost of sales:	Cost of sales:													Cost of sales:
Products	Products	523.7		63.6	%	646.2		67.2	%	(122.5)		(19.0)	%	Products	428.3		60.7	%	523.7		63.7	%	(95.4)		(18.2)	%
Services	Services	124.0		15.1	%	142.1		14.8	%	(18.1)		(12.7)	%	Services	131.5		18.6	%	124.0		15.1	%	7.5		6.0	%
Total cost of sales	Total cost of sales	647.7		78.7	%	788.3		82.0	%	(140.6)		(17.8)	%	Total cost of sales	559.8		79.3	%	647.7		78.8	%	(87.9)		(13.6)	%
Selling, general & administrative expenses	Selling, general & administrative expenses	99.6		12.1	%	94.5		9.8	%	5.1		5.4	%	Selling, general & administrative expenses	80.5		11.4	%	99.6		12.1	%	(19.1)		(19.2)	%
Depreciation and amortization	Depreciation and amortization	47.4		5.8	%	54.2		5.7	%	(6.8)		(12.5)	%	Depreciation and amortization	41.9		5.9	%	47.4		5.8	%	(5.5)		(11.6)	%
Restructuring, impairment and transaction-related charges	Restructuring, impairment and transaction-related charges	22.8		2.8	%	7.6		0.8	%	15.2		200.0	%	Restructuring, impairment and transaction-related charges	2.6		0.4	%	22.8		2.8	%	(20.2)		(88.6)	%
Total operating expenses	Total operating expenses	817.5		99.4	%	944.6		98.3	%	(127.1)		(13.5)	%	Total operating expenses	684.8		97.0	%	817.5		99.5	%	(132.7)		(16.2)	%
Operating income from continuing operations	Operating income from continuing operations	$	5.0	0.6	%	$	16.4	1.7	%	$	(11.4)	(69.5)	%	Operating income from continuing operations	$	21.0	3.0	%	$	5.0	0.5	%	$	16.0	320.0	%

Net Sales

Product sales decreased ~~$116.4~~$119.0 million, or ~~15.3%~~18.4%, for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, primarily due to the following: (1) a $59.5 ~~million decrease from pass-through paper sales; (2) a $42.0~~ million decrease in sales in the Company’s print product lines due to ongoing industry volume ~~and pricing pressures,~~pressure, including the ~~initial impact~~ongoing impacts from the COVID-19 pandemic; (2) a $52.4 million decrease from pass-through paper sales; and (3) ~~an $11.4~~a $7.5 million decrease in sales due to the divestiture of the Company’s Omaha packaging ~~plant; and (4) $3.5~~plant. These decreases were partially offset by $0.4 million in ~~unfavorable~~favorable foreign exchange impacts.

Service sales, which primarily consist of logistics, distribution, marketing services, imaging and medical services, ~~decreased $22.1~~increased $2.3 million, or ~~11.1%~~1.3%, for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, primarily due to ~~the following: (1)~~ a ~~$10.0~~$3.4 million ~~decrease~~increase in logistics ~~sales; (2)~~sales, partially offset by a ~~$5.9 million decrease in print imaging services; (3) a $4.9 million decrease of sales of marketing services; and (4) a $1.3~~$1.1 million decrease in sales of QuadMed external medical services.

Cost of Sales

Cost of product sales decreased ~~$122.5~~$95.4 million, or ~~19.0%~~18.2%, for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, primarily due to the following: (1) a decrease in pass-through paper costs; (2) lower print ~~volume;~~volume due to ongoing industry volume pressure, including the ongoing impacts from the COVID-19 pandemic; (3) the impact from the divestiture of the Omaha packaging plant; and (4) other cost reduction initiatives. These decreases were partially offset by a ~~$9.4~~$12.0 million ~~net~~ benefit in 2020 from a change in the hourly production employee vacation ~~policy; (5) an $8.0~~policy and a $6.3 million ~~reduction~~net benefit in 2020 in the cost of worker’s compensation claims from improved production safety initiatives; and (6) other cost reduction initiatives. These decreases were partially offset by a $9.0 million decrease in paper byproduct recoveries and a $4.4 million increase in production hourly wages in our most competitive labor market.procedures.

Cost of ~~product~~service sales ~~as a percentage of total net sales decreased to 63.6%~~increased $7.5 million, or 6.0%, for the three months ended March 31, ~~2020, from 67.2% for~~2021, compared to the three months ended March 31, ~~2019,~~2020, primarily due to ~~the reasons provided above.~~

increased freight costs.

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Cost of service sales decreased $18.1 million, or 12.7%, for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, primarily due to lower service sales and lower freight costs.

Cost of service sales as a percentage of total net sales increased to 15.1% for the three months ended March 31, 2020, from 14.8% for the three months ended March 31, 2019, primarily due to the reasons provided above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ~~increased $5.1~~decreased $19.1 million, or ~~5.4%~~19.2%, for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, primarily due to the following: (1) an $8.7 million decrease in employee-related costs; (2) a ~~$6.8~~$6.1 million ~~increase~~decrease from foreign ~~translation losses; (2)~~translations impacts; and (3) a ~~$4.2~~$4.4 million ~~increase~~decrease in credit loss expense primarily due to specific client credit ~~reviews; and (3) a $3.2 million increase in legal and environmental charges, partially offset by a $8.2 million decrease in employee-related costs and savings from other cost reduction initiatives.~~reviews. Selling, general and administrative expenses as a percentage of net sales ~~increased~~decreased to 11.4% for the three months ended March 31, 2021, from 12.1% for the three months ended March 31, ~~2020 from 9.8% for the three months ended March 31, 2019, primarily due to the reasons stated above.~~2020.

Depreciation and Amortization

Depreciation and amortization decreased ~~$6.8~~$5.5 million, or ~~12.5%~~11.6%, for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, due to a ~~$5.1~~$4.7 million decrease in depreciation expense primarily from property, plant and equipment becoming fully depreciated over the past year and a ~~$1.7~~decrease in purchases of property, plant and equipment, and a $0.8 million decrease in amortization expense.

Restructuring, Impairment and Transaction-Related Charges

Restructuring, impairment and transaction-related charges ~~increased $15.2~~decreased $20.2 million, for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, primarily due to the following:


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019		$ Change			2021		2020		$ Change
Employee termination charges	Employee termination charges	$	12.6	$	4.3	$	8.3	Employee termination charges	$	4.7	$	12.6	$	(7.9)
Impairment charges ^(a)	Impairment charges ^(a)	2.5		1.7		0.8		Impairment charges (a)	0.8		2.5		(1.7)
Transaction-related charges	Transaction-related charges	0.5		1.5		(1.0)		Transaction-related charges	0.2		0.5		(0.3)
Integration costs	Integration costs	0.7		0.8		(0.1)		Integration costs	—		0.7		(0.7)
Other restructuring charges (income)	Other restructuring charges (income)							Other restructuring charges (income)
Vacant facility carrying costs and lease exit charges	Vacant facility carrying costs and lease exit charges	2.7		1.3		1.4		Vacant facility carrying costs and lease exit charges	3.9		2.7		1.2
Equipment and infrastructure removal costs	Equipment and infrastructure removal costs	0.6		0.1		0.5		Equipment and infrastructure removal costs	0.8		0.6		0.2
Gains on the sale of facilities ^(b)	Gains on the sale of facilities ^(b)	(0.8)		(3.5)		2.7		Gains on the sale of facilities (b)	(7.8)		(0.8)		(7.0)
Other restructuring activities ^(c)	Other restructuring activities ^(c)	4.0		1.4		2.6		Other restructuring activities (c)	—		4.0		(4.0)
Other restructuring charges (income)	Other restructuring charges (income)	6.5		(0.7)		7.2		Other restructuring charges (income)	(3.1)		6.5		(9.6)
Total restructuring, impairment and transaction-related charges	Total restructuring, impairment and transaction-related charges	$	22.8	$	7.6	$	15.2	Total restructuring, impairment and transaction-related charges	$	2.6	$	22.8	$	(20.2)

^(a)Includes ~~$2.5~~$0.8 million and ~~$1.7~~$2.5 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction restructuring activities, during the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

^(b)Includes a $7.6 million gain on the sale of the Riverside, California facility during the three months ended March 31, 2021; and includes a $0.8 million gain on the sale of the Shakopee, Minnesota facility during the three months ended March 31, ~~2020, and a $3.5 million gain on the sale of the Hazleton, Pennsylvania facility during the three months ended March 31, 2019.~~2020.

^(c)Includes a $2.9 million loss on the sale of a business during the three months ended March 31, 2020.

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EBITDA and EBITDA Margin—Consolidated

EBITDA and EBITDA margin for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, were as follows:

Three Months Ended March 31,
2020 2019
Amount % of Net Sales Amount % of Net Sales
(dollars in millions)
EBITDA and EBITDA margin (non-GAAP) $ 51.9 6.3 % $ 46.3 4.8 %


	Three Months Ended March 31,
	2021				2020
	Amount		% of Net Sales		Amount		% of Net Sales
	(dollars in millions)
EBITDA and EBITDA margin (non-GAAP)	$	67.1	9.5	%	$	51.9	6.3	%

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EBITDA increased ~~$5.6~~$15.2 million for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, primarily due to the following: (1) $20.2 million of decreased restructuring, impairment and transaction-related charges; (2) a ~~$9.4~~$19.1 million ~~net benefit from a change~~decrease in ~~the hourly production employee vacation policy; (2) an $8.0 million reduction in the cost of worker’s compensation claims from improved production safety initiatives;~~selling, general and administrative expenses; (3) a ~~$6.3~~$3.8 million decrease in loss from discontinued operations, net of tax; and (4) savings from other cost reduction initiatives. These increases were partially offset by the following: (1) lower print ~~volume, pricing~~volume; (2) a $12.0 million net benefit in 2020 from a change in the hourly production employee vacation policy; and ~~print service sales; (2) $15.2 million of increased restructuring, impairment and transaction-related charges;~~ (3) a ~~$9.0~~$6.3 million ~~decrease~~net benefit in ~~paper byproduct recoveries; (4) a $4.4 million increase~~2020 in the cost of worker’s compensation claims from improved production ~~hourly wages in our most competitive labor markets; and (4) a $4.2 million increase in credit loss expense primarily due to specific client credit reviews.~~safety procedures.

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

A reconciliation of EBITDA to net ~~loss~~earnings (loss) attributable to Quad common shareholders for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, was as follows:


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019			2021		2020
		(dollars in millions)							(dollars in millions)
Net loss attributable to Quad common shareholders ⁽¹⁾		$	(12.4)	$	(22.5)
Net earnings (loss) attributable to Quad common shareholders (1)						Net earnings (loss) attributable to Quad common shareholders (1)	$	10.2	$	(12.4)
Interest expense	Interest expense	18.1		21.8		Interest expense	14.5		18.1
Income tax benefit		(1.2)		(7.2)
Income tax expense (benefit)						Income tax expense (benefit)	0.5		(1.2)
Depreciation and amortization	Depreciation and amortization	47.4		54.2		Depreciation and amortization	41.9		47.4
EBITDA (non-GAAP)	EBITDA (non-GAAP)	$	51.9	$	46.3	EBITDA (non-GAAP)	$	67.1	$	51.9

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

a.Restructuring, impairment and transaction-related charges of ~~$22.8~~$2.6 million and ~~$7.6~~$22.8 million for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively;

b.Net pension income of ~~$2.7~~$4.1 million and ~~$1.5~~$2.7 million for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively;

c.Gain on debt extinguishment of $0.6 million for the three months ended March 31, ~~2020, and loss on debt extinguishment of $15.9 million for the three months ended March 31, 2019;~~2020;

d.Equity in ~~loss~~earnings of unconsolidated entity of $0.1 million for the three months ended March 31, ~~2019;~~2021; and

e.Loss from discontinued operations, net of tax, of $3.8 million ~~and $10.1 million~~ for the three months ended March 31, ~~2020 and 2019, respectively; and~~

f.~~Net loss attributable to noncontrolling interests of $0.3 million for the three months ended 2019.~~2020.

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United States Print and Related Services

The following table summarizes net sales, operating income from continuing operations, operating margin and certain items impacting comparability within the United States Print and Related Services segment:


		Three Months Ended March 31,														Three Months Ended March 31,
		2020			2019								2021			2020
		(dollars in millions)																	(dollars in millions)
		Amount			Amount			$ Change		% Change			Amount			Amount			$ Change		% Change
Net sales:	Net sales:											Net sales:
Products	Products	$	563.6		$	659.6		$	(96.0)	(14.6)	%	Products	$	459.9		$	563.6		$	(103.7)	(18.4)	%
Services	Services	173.0			195.4			(22.4)		(11.5)	%	Services	174.7			173.0			1.7		1.0	%
Operating income from continuing operations (including restructuring, impairment and transaction-related charges)	Operating income from continuing operations (including restructuring, impairment and transaction-related charges)	16.3			29.3			(13.0)		(44.4)	%	Operating income from continuing operations (including restructuring, impairment and transaction-related charges)	32.5			16.3			16.2		99.4	%
Operating margin	Operating margin	2.2		%	3.4		%	N/A		N/A		Operating margin	5.1		%	2.2		%	N/A		N/A
Restructuring, impairment and transaction-related charges	Restructuring, impairment and transaction-related charges	$	20.8		$	4.5		$	16.3	362.2	%	Restructuring, impairment and transaction-related charges	$	1.1		$	20.8		$	(19.7)	(94.7)	%

Net Sales

Product sales for the United States Print and Related Services segment decreased ~~$96.0~~$103.7 million, or ~~14.6%~~18.4%, for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, primarily due to the following: (1) a ~~$50.2 million decrease in pass-through paper sales; (2) a $34.4~~$51.4 million decrease in sales in the Company’s print product lines due to ongoing industry volume ~~and pricing pressures from excess capacity in the printing industry,~~pressure, including the ~~initial impact~~ongoing impacts from the COVID-19 pandemic; ~~and~~(2) a $47.8 million decrease from pass-through paper sales; (3) ~~an $11.4~~a $7.5 million decrease in sales due to the divestiture of the Company’s Omaha packaging plant.

Service sales for the United States Print and Related Services segment ~~decreased $22.4~~increased $1.7 million, or ~~11.5%~~1.0%, for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, primarily due to ~~the following: (1)~~ a ~~$10.3~~$2.7 million ~~decrease~~increase in logistics ~~sales; (2)~~sales, partially offset by a ~~$5.9 million decrease in print imaging services; (3) a $4.9 million decrease of sales of marketing services; and (4) a $1.3~~$1.1 million decrease in sales of QuadMed external medical services.

Operating Income from Continuing Operations

Operating income from continuing operations for the United States Print and Related Services segment ~~decreased $13.0~~increased $16.2 million, or ~~44.4%~~99.4%, for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, primarily due to a $19.7 million decrease in restructuring, impairment and transaction-related charges and savings from other cost reduction initiatives. These increases were partially offset by the following: (1) lower print volume ~~and pricing~~ due to ongoing industry pressures, including the ~~initial impact~~ongoing impacts from the COVID-19 pandemic; (2) a $16.3 million increase in restructuring, impairment and transaction-related charges; (3) a $9.0 million decrease in paper byproduct recoveries; (4) a $4.4 million increase in production hourly wages in our most competitive labor markets; and (5) lower print service sales. These decreases were partially offset by: (1) a $9.6$12 million net benefit in 2020 from a change in the hourly production employee vacation policy; ~~(2) an $8.0~~and (3) a $6.3 million ~~reduction~~net benefit in 2020 in the cost of worker’s compensation claims from improved production safety ~~initiatives; and (3) savings from other cost reduction initiatives.~~procedures.

Operating margin for the United States Print and Related Services segment ~~decreased~~increased to 5.1% for the three months ended March 31, 2021, compared to 2.2% for the three months ended March 31, 2020, ~~compared to 3.4% for the three months ended March 31, 2019,~~ primarily due to the reasons provided above.

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Restructuring, Impairment and Transaction-Related Charges

Restructuring, impairment and transaction-related charges for the United States Print and Related Services segment ~~increased $16.3~~decreased $19.7 million for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, primarily due to the following:


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019		$ Change			2021		2020		$ Change
Employee termination charges	Employee termination charges	$	12.1	$	4.1	$	8.0	Employee termination charges	$	3.7	$	12.1	$	(8.4)
Impairment charges ^(a)	Impairment charges ^(a)	2.5		1.7		0.8		Impairment charges (a)	0.8		2.5		(1.7)

Transaction-related charges								Transaction-related charges	—		—		—
Integration costs	Integration costs	0.7		0.8		(0.1)		Integration costs	—		0.7		(0.7)

Other restructuring charges (income) ^(b)	Other restructuring charges (income) ^(b)	5.5		(2.1)		7.6		Other restructuring charges (income) (b)	(3.4)		5.5		(8.9)
Total restructuring, impairment and transaction-related charges	Total restructuring, impairment and transaction-related charges	$	20.8	$	4.5	$	16.3	Total restructuring, impairment and transaction-related charges	$	1.1	$	20.8	$	(19.7)

(b)Includes a $7.6 million gain on the sale of the Riverside, California facility during the three months ended March 31, ~~2019, respectively.~~

^(b)~~Includes~~2021; and includes a $2.9 million loss on the sale of a business, net of a $0.8 million gain on the sale of the Shakopee, Minnesota facility during the three months ended March 31, ~~2020, and a $3.5 million gain on the sale of the Hazleton, Pennsylvania facility during the three months ended March 31, 2019.~~2020.

International

The following table summarizes net sales, operating income (loss) from continuing operations, operating margin, certain items impacting comparability and equity in loss of unconsolidated entity within the International segment:


		Three Months Ended March 31,														Three Months Ended March 31,
		2020			2019								2021			2020
		(dollars in millions)																	(dollars in millions)
		Amount			Amount			$ Change		% Change			Amount			Amount			$ Change		% Change
Net sales:	Net sales:											Net sales:
Products	Products	$	81.4		$	101.8		$	(20.4)	(20.0)	%	Products	$	66.1		$	81.4		$	(15.3)	(18.8)	%
Services	Services	4.5			4.2			0.3		7.1	%	Services	5.1			4.5			0.6		13.3	%
Operating income from continuing operations (including restructuring, impairment and transaction-related charges)	Operating income from continuing operations (including restructuring, impairment and transaction-related charges)	0.3			1.9			(1.6)		(84.2)	%	Operating income from continuing operations (including restructuring, impairment and transaction-related charges)	1.5			0.3			1.2		nm
Operating margin	Operating margin	0.3		%	1.8		%	N/A		N/A		Operating margin	2.1		%	0.3		%	N/A		N/A
Restructuring, impairment and transaction-related charges	Restructuring, impairment and transaction-related charges	$	1.3		$	1.6		$	(0.3)	(18.8)	%	Restructuring, impairment and transaction-related charges	$	0.8		$	1.3		$	(0.5)	(38.5)	%
Equity in loss of unconsolidated entity		—			0.1			0.1		nm
Equity in earnings of unconsolidated entity												Equity in earnings of unconsolidated entity	(0.1)			—			0.1		—	%

Net Sales

Product sales for the International segment decreased ~~$20.4~~$15.3 million, or ~~20.0%~~18.8%, for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, primarily due to a ~~$9.3~~$11.1 million decrease in volume, primarily in Mexico, Peru and Europe, including the ongoing impacts from the COVID-19 pandemic and a $4.6 million decrease in pass-through paper sales, ~~a $7.6 million decrease in volume, primarily in Peru and Colombia, including the initial impact from the COVID-19 pandemic, and $3.5~~partially offset by $0.4 million in ~~unfavorable~~favorable foreign exchange impacts, primarily in ~~Argentina.~~Europe.

Service sales for the International segment increased ~~$0.3~~$0.6 million, or ~~7.1%~~13.3%, for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, primarily due to ana increase in logistics sales in Europe.

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Operating Income from Continuing Operations

Operating income from continuing operations for the International segment ~~decreased $1.6~~increased $1.2 million, ~~or 84.2%,~~ for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, primarily due to a ~~$1.9~~$0.7 million ~~decrease~~increase in operating income ~~primarily in Europe, partially offset by~~from cost saving initiatives and a ~~$0.3~~$0.5 million decrease in restructuring, impairment and transaction-related charges.

Restructuring, Impairment and Transaction-Related Charges

Restructuring, impairment and transaction-related charges for the International segment decreased ~~$0.3~~$0.5 million, or ~~18.8%~~38.5%, for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, primarily due to the following:


		Three Months Ended March 31,							Three Months Ended March 31,
		2020		2019		$ Change			2021		2020		$ Change
Employee termination charges	Employee termination charges	$	0.3	$	0.3	$	—	Employee termination charges	$	0.5	$	0.3	$	0.2

Other restructuring charges	Other restructuring charges	1.0		1.3		(0.3)		Other restructuring charges	0.3		1.0		(0.7)
Total restructuring, impairment and transaction-related charges	Total restructuring, impairment and transaction-related charges	$	1.3	$	1.6	$	(0.3)	Total restructuring, impairment and transaction-related charges	$	0.8	$	1.3	$	(0.5)

Equity in ~~Loss~~Earnings of Unconsolidated Entity

Investments in entities where Quad has the ability to exert significant influence, but not control, are accounted for using the equity method of accounting. The Company holds a 49% ownership interest in Plural Industria Gráfica Ltda., a commercial printer based in São Paulo, Brazil. The equity in ~~loss~~earnings of unconsolidated entity in the International segment ~~decreased~~was $0.1 million for the three months ended March 31, ~~2020,~~2021, compared to the zero for the three months ended March 31, ~~2019, due to an increase in earnings at the Company’s investment in Plural.~~2020.

Unrestricted Subsidiaries

As of March 31, ~~2020,~~2021, the Company has no unrestricted subsidiaries as defined in the Senior Unsecured Notes indenture.

Corporate

The following table summarizes unallocated operating expenses presented as Corporate:


		Three Months Ended March 31,											Three Months Ended March 31,
		2020		2019							2021		2020
		(dollars in millions)													(dollars in millions)
		Amount		Amount		$ Change		% Change			Amount		Amount		$ Change		% Change
Operating expenses (including restructuring, impairment and transaction-related charges)	Operating expenses (including restructuring, impairment and transaction-related charges)	$	11.6	$	14.8	$	(3.2)	(21.6)	%	Operating expenses (including restructuring, impairment and transaction-related charges)	$	13.0	$	11.6	$	1.4	12.1	%
Restructuring, impairment and transaction-related charges	Restructuring, impairment and transaction-related charges	0.7		1.5		(0.8)		(53.3)	%	Restructuring, impairment and transaction-related charges	0.7		0.7		—		—	%

Operating Expenses

Corporate operating expenses ~~decreased $3.2~~increased $1.4 million, or ~~21.6%~~12.1%, for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, primarily due to an $0.8 million increase in professional fees and a ~~$1.9~~$0.6 million ~~decrease~~increase in employee-related ~~costs and a $0.8 million decrease in restructuring, impairment and transaction-related charges.~~costs.

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Restructuring, Impairment and Transaction-Related Charges

Corporate restructuring, impairment and transaction-related charges ~~decreased $0.8~~were $0.7 million for both the three months ended March 31, ~~2020, compared to the three months ended March 31, 2019, primarily due to the following:~~2021 and 2020.

Three Months Ended March 31,
2020 2019 $ Change
Employee termination charges $ 0.2 $ (0.1) $ 0.3
Transaction-related charges 0.5 1.5 (1.0)
Other restructuring charges — 0.1 (0.1)
Total restructuring, impairment and transaction-related charges $ 0.7 $ 1.5 $ (0.8)

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Liquidity and Capital Resources

The Company utilizes cash flows from operating activities and borrowings under its credit facilities to satisfy its liquidity and capital requirements. The Company had total liquidity of ~~$843.3~~$543.7 million as of March 31, ~~2020,~~2021, which consisted of up to ~~$635.5~~$463.1 million of unused capacity under its revolving credit arrangement, net of ~~$34.5~~$36.9 million of issued letters of credit, and cash and cash equivalents of ~~$207.8~~$80.6 million. Total liquidity is reduced to ~~$281.7~~$426.9 million under the Company’s most restrictive debt covenants, and consists of ~~$207.8 million in cash and cash equivalents and $73.9~~$346.3 million available under its revolving credit ~~arrangement. Borrowings~~arrangement and $80.6 million in cash and cash equivalents. There were no borrowings under the ~~$800.0~~$500.0 million revolving credit facility ~~were $130.0 million as of March 31, 2020, and peak borrowings were $150.0 million~~ during the three months ended March 31, ~~2020.~~2021.

The Company implemented cost reduction and cash conservation initiatives ~~as previously described herein~~ in response to the impact of the COVID-19 pandemic on its business. These actions include, among many others, delaying capital spending projects and temporarily suspending the Company’s ~~quarter~~quarterly dividend. The Company believes ~~that~~ its expected future cash flows from operating activities, cost reduction and cash preservation initiatives, ~~combined with~~and its current liquidity and capital resources, are sufficient to fund ongoing operating requirements and service debt and pension requirements.

Net Cash Provided by ~~(Used in)~~ Operating Activities

Three Months Ended March 31, ~~2020,~~2021, Compared to Three Months Ended March 31, ~~2019~~2020

Net cash provided by operating activities increased ~~$103.3~~$28.2 million, from ~~$58.6~~$44.7 million ~~used in operating activities~~ for the three months ended March 31, ~~2019,~~2020, to ~~$44.7~~$72.9 million ~~provided by operating activities~~ for the three months ended March 31, ~~2020.~~2021. This increase was due to a ~~$92.7~~$35.0 million increase in cash flows provided by changes in operating assets and liabilities, ~~and~~partially offset by a ~~$10.6~~$6.8 million ~~increase~~decrease in cash from earnings.

Net Cash (Used in) Provided by ~~(Used in)~~ Investing Activities

Three Months Ended March 31, ~~2020,~~2021, Compared to Three Months Ended March 31, ~~2019~~2020

Net cash ~~provided by investing activities increased $172.5 million, from $158.2 million~~ used in investing activities ~~for the three months ended March 31, 2019, to~~increased $20.3 million, from $14.3 million provided by investing activities for the three months ended March 31, ~~2020.~~2020, to $6.0 million used in investing activities for the three months ended March 31, 2021. The increase was primarily due to the following: (1) a ~~$119.4~~$41.3 million decrease ~~from cash used in the acquisition of businesses; (2) a $41.3 million increase~~ in proceeds from the sale of business; (2) a $0.3 million increase in cost investment in an unconsolidated entity; and (3) a ~~$16.3~~$0.2 million increase in cash used in other investing activities. These increases were partially offset by: (1) a $12.1 million decrease in purchases of property, plant and ~~equipment. These increases were partially offset by~~equipment; (2) a ~~$4.2~~$7.8 million ~~decrease~~increase in proceeds from the sale of property, plant, and ~~equipment~~equipment; and (3) a ~~$0.3~~$1.6 million decrease in ~~proceeds from property insurance claims.~~cash used in the acquisition of businesses.

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Net Cash (Used in) Provided by Financing Activities

Three Months Ended March 31, ~~2020,~~2021, Compared to Three Months Ended March 31, ~~2019~~2020

Net cash used in financing activities increased $112.1 million, from $70.7 million provided by financing activities ~~decreased $87.0 million, from $157.7 million~~ for the three months ended March 31, ~~2019,~~2020, to ~~$70.7~~$41.4 million used in financing activities for the three months ended March 31, ~~2020.~~2021. The ~~decrease~~increase was primarily due to a ~~$122.6~~$117.1 million decrease in net borrowings of debt and lease obligations in ~~2020~~2021 as compared to ~~2019. This decrease was partially offset by the following: (1) a $20.2 million decrease in payments of debt issuance costs and financing fees;~~2020; (2) a ~~$9.7~~$3.0 million ~~decrease~~increase in ~~payments of~~ cash ~~dividends;~~used in other financing activities; and (3) a ~~$5.6~~$0.1 million ~~decrease~~increase in equity awards redeemed to pay employees’ tax obligations. These increases were partially offset by a $8.1 million decrease in payments of cash dividends.

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Free Cash Flow

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

The Company’s management assesses Free Cash Flow as a measure to quantify cash available for (1) strengthening the balance sheet (debt reduction), (2) strategic capital allocation and deployment through investments in the business (acquisitions and strategic investments) and (3) returning capital to the shareholders (dividends and share repurchases). The priorities for capital allocation and deployment will change as circumstances dictate for the business, and Free Cash Flow can be significantly impacted by the Company’s restructuring activities and other unusual items.

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

Free Cash Flow for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, was as follows:

Three Months Ended March 31,
2020 2019
(dollars in millions)
Net cash provided by (used in) operating activities $ 44.7 $ (58.6)
Less: purchases of property, plant and equipment (29.0) (45.3)
Plus: LSC-related payments ⁽¹⁾
— 3.3
Free Cash Flow (Non-GAAP) $ 15.7 $ (100.6)

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


	Three Months Ended March 31,
	2021		2020
	(dollars in millions)
Net cash provided by operating activities	$	72.9	$	44.7

Less: purchases of property, plant and equipment	(16.9)		(29.0)


Free Cash Flow (Non-GAAP)	$	56.0	$	15.7

Free Cash Flow increased ~~$116.3~~$40.3 million for the three months ended March 31, ~~2020,~~2021, compared to the three months ended March 31, ~~2019,~~2020, primarily due to a ~~$103.3~~$28.2 million increase in net cash provided by operating activities, and a ~~$16.3~~$12.1 million decrease in capital ~~expenditures, partially offset by a $3.3 million decrease in LSC-related payments.~~expenditures. See the “Net Cash Provided by ~~(Used in)~~ Operating Activities” section above for further explanations of the change in operating cash flows and the “Net Cash (Used in) Provided by ~~(Used in)~~ Investing Activities” section above for further explanations of the changes in purchases of property, plant and equipment. The above calculation of Free Cash Flow includes the cash flows related to the Book business for ~~all periods presented.~~the three months ended March 31, 2020.

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Debt Leverage Ratio

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

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

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

The Debt Leverage Ratio calculated below differs from the Total Leverage Ratio, the Total Net Leverage Ratio and the Senior Secured Leverage Ratio included in the Company’s debt covenant calculations (see Note 11, “Debt,” to the condensed consolidated financial statements in Item 1, “Condensed Consolidated Financial Statements (Unaudited),” of this Quarterly Report on Form 10-Q for further information on debt covenants). The Total Leverage Ratio included in the Company’s debt covenants includes interest rate swap liabilities, letters of credit and surety bonds as debt, excludes non-cash stock-based compensation expense from EBITDA and includes net income (loss) attributable to noncontrolling interests in EBITDA. The Total Net Leverage Ratio includes and excludes the same adjustments as the Total Leverage Ratio, in addition to netting domestic unrestricted cash with debt. Similarly, the Senior Secured Leverage Ratio includes and excludes the same adjustments as the Total Leverage Ratio, in addition to the exclusion of the outstanding balance of the Senior Unsecured Notes and surety bonds from debt and netting domestic unrestricted cash with debt.

The Debt Leverage Ratio at March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, was as follows:

March 31,
2020 December 31,
2019
(dollars in millions)
Total debt and finance lease obligations on the condensed consolidated balance sheets $ 1,192.5 $ 1,112.2
Divided by: trailing twelve months Adjusted EBITDA (Non-GAAP) $ 331.9 $ 334.9
Debt Leverage Ratio (Non-GAAP) 3.59 x 3.32 x
Debt Leverage Ratio—net of excess cash (Non-GAAP) ⁽¹⁾
3.00 x 3.12 x

⁽¹⁾The Company had $208 million and $79 million in cash and cash equivalents at March 31, 2020, and December 31, 2019, respectively. Based on the Company’s typical year-end cash balance of approximately $10 million, Quad had $198 million and $69 million of excess cash at March 31, 2020, and December 31, 2019, respectively. If the excess cash was used to further pay down debt, the Debt Leverage Ratio would have been 3.00x and 3.12x at March 31, 2020, and December 31, 2019, respectively.


	March 31, 2021			December 31, 2020
	(dollars in millions)
Total debt and finance lease obligations on the condensed consolidated balance sheets	$	892.6		$	928.2
Less: Cash and cash equivalents	80.6			55.2
Net Debt (non-GAAP)	$	812.0		$	873.0

Divided by: Adjusted EBITDA (Non-GAAP)	$	250.8		$	260.4

Debt Leverage Ratio—Debt (Non-GAAP)	3.24		x	3.35		x

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The calculation of Adjusted EBITDA for the trailing twelve months ended March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, was as follows:


				Add		Subtract		Trailing Twelve Months Ended						Add			Subtract			Trailing Twelve Months Ended
		Year Ended		Three Months Ended										Year Ended			Three Months Ended						Trailing Twelve Months Ended
		December 31, 2019 ⁽¹⁾		March 31, 2020		March 31, 2019				March 31, 2020			December 31, 2020 (1)			March 31, 2021			March 31, 2020			March 31, 2021
Net loss attributable to Quad common shareholders		$	(156.3)	$	(12.4)	$	(22.5)	$	(146.2)
Net earnings (loss) attributable to Quad common shareholders										Net earnings (loss) attributable to Quad common shareholders	$	(128.3)		$	10.2		$	(12.4)		$	(105.7)
Interest expense	Interest expense	90.0		18.1		21.8		86.3		Interest expense	68.8			14.5			18.1			65.2
Income tax benefit		(24.4)		(1.2)		(7.2)		(18.4)
Income tax expense (benefit)										Income tax expense (benefit)	0.3			0.5			(1.2)			2.0
Depreciation and amortization	Depreciation and amortization	209.5		47.4		54.2		202.7		Depreciation and amortization	181.6			41.9			47.4			176.1
EBITDA (Non-GAAP)	EBITDA (Non-GAAP)	$	118.8	$	51.9	$	46.3	$	124.4	EBITDA (Non-GAAP)	$	122.4		$	67.1		$	51.9		$	137.6
Restructuring, impairment and transaction-related charges	Restructuring, impairment and transaction-related charges	89.4		22.8		7.6		104.6		Restructuring, impairment and transaction-related charges	124.1			2.6			22.8			103.9
Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	100.6		3.8		10.1		94.3		Loss from discontinued operations, net of tax	21.9			—			3.8			18.1
Net pension income	Net pension income	(6.0)		(2.7)		(1.5)		(7.2)		Net pension income	(10.5)			(4.1)			(2.7)			(11.9)

(Gain) loss on debt extinguishment		30.5		(0.6)		15.9		14.0
Loss on debt extinguishment										Loss on debt extinguishment	1.8			—			(0.6)			2.4
Other ⁽²⁾	Other ⁽²⁾	1.6		0.2		—		1.8		Other (2)	0.7			0.2			0.2			0.7
Adjusted EBITDA (Non-GAAP)	Adjusted EBITDA (Non-GAAP)	$	334.9	$	75.4	$	78.4	$	331.9	Adjusted EBITDA (Non-GAAP)	$	260.4		$	65.8		$	75.4		$	250.8

⁽¹⁾Financial information for the year ended December 31, ~~2019,~~2020, is included as reported in the Company’s ~~2019~~2020 Annual Report on Form 10-K filed with the SEC on February ~~19, 2020.~~24, 2021.

⁽²⁾Other is comprised of equity in (earnings) loss of unconsolidated entity, Adjusted EBITDA for unconsolidated equity method investments and net earnings (loss) attributable to noncontrolling interests.

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The Debt Leverage Ratio ~~net of excess cash, as of December 31, 2019, decreased 0.12x~~ at March 31, ~~2020,~~2021, decreased 0.11x, compared to December 31, ~~2019,~~2020, primarily due to a ~~$48.8~~$61.0 million decrease in ~~debt and finance lease obligations, net of excess cash, and~~Net Debt, partially offset by a ~~$16.3~~$9.6 million ~~decrease~~reduction in ~~purchases of property, plant and equipment.~~trailing twelve months Adjusted EBITDA. The Debt Leverage Ratio ~~net of excess cash,~~ at March 31, ~~2020,~~2021, is above management’s desired target Debt Leverage Ratio range of 2.0x to 2.5x; however, the Company ~~operates~~expects to operate above the Debt Leverage Ratio target range due to the ongoing impacts from the COVID-19 pandemic. The Company will also operate at times above the Debt Leverage Ratio target range depending on the timing of compelling strategic investment opportunities, as well as seasonal working capital needs.

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Debt Obligations

~~Master Note and Security Agreement Tender~~

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

~~Senior Unsecured Notes Repurchases~~

The Company repurchased $4.7 million of its outstanding unsecured 7.0% senior notes due May 1, 2022 (the “Senior Unsecured Notes”) in the open market, resulting in a net gain on debt extinguishment of $0.8 million during the three months ended March 31, 2020. All repurchased Senior Unsecured Notes were canceled. The Company used cash flows from operating activities and borrowings under its revolving credit facility to fund the repurchases. These repurchases were primarily completed to reallocate debt to the lower interest rate revolving credit facility and thereby reduce interest expense based on current LIBOR rates.

As of March 31, ~~2020,~~2021, the Company utilized a combination of debt instruments to fund cash requirements, including the following:

•Senior Secured Credit Facility:

◦Revolving credit facility ~~($130.0 million~~(none outstanding as of March 31, ~~2020)~~2021); and

◦Term Loan A ($~~768.3~~627.0 million outstanding as of March 31, ~~2020)~~2021);

•Senior Unsecured Notes ($238.7 million outstanding as of March 31, ~~2020)~~2021); and

•Master Note and Security Agreement ($~~31.3~~14.6 million outstanding as of March 31, ~~2020)~~2021).

Covenants and Compliance

•Maximum Total Net Leverage Ratio.On a rolling twelve-month basis, the Maximum Total Net Leverage Ratio, defined as consolidated total indebtedness, net of no more than $75.0 million of unrestricted cash, to consolidated EBITDA, shall not exceed (i) 4.50 to 1.00 for the quarter ending March 31, 2021, (ii) 4.25 to 1.00 for the quarter ending June 30, 2021, and (iii) 4.125 to 1.00 for the quarter ending September 30, 2021 (for the twelve months ended March 31, 2021, the Company’s Maximum Total Net Leverage Ratio was 3.18 to 1.00). After the Covenant Relief Period, the Company will be required to comply with the Total Leverage Ratio covenant, defined as consolidated total indebtedness to consolidated EBITDA which shall not exceed 3.75 to 1.00 (for the twelve months ended March 31, 2020, the Company’s Total Leverage Ratio was 3.53 to 1.00). The calculation of the Total Leverage Ratio does not take into consideration the excess cash held as of March 31, 2020.1.00.

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The Company was in compliance with all financial covenants in its debt agreements as of March 31, ~~2020.~~2021. While the Company currently expects to be in compliance in future periods with all of the financial covenants, there can be no assurance that these covenants will continue to be met. The Company’s failure to maintain compliance with the covenants could prevent the Company from borrowing additional amounts and could result in a default under any of the debt agreements. Such default could cause the outstanding indebtedness to become immediately due and payable, by virtue of cross-acceleration or cross-default provisions.

•If the Company’s Senior Secured Leverage Ratio is greater than 3.00 to 1.00 or the Company’s Total Net Leverage Ratio is greater than 3.50 to 1.00, the Company is prohibited from voluntarily prepaying any of the Senior Unsecured Notes and from voluntarily prepaying any other unsecured or subordinated indebtedness, with certain exceptions (including any mandatory prepayments on the Senior Unsecured Notes or any other unsecured or subordinated debt). If the ~~senior~~Senior Secured Leverage Ratio is less than 3.00 to 1.00 and the Total Net Leverage Ratio is less than 3.50 to 1.00, there are no such restrictions. The limitations described above are currently not applicable, as the Company’s Senior Secured Leverage Ratio was ~~2.24~~2.26 to 1.00 and Total Net Leverage Ratio was ~~2.95~~3.18 to 1.00, as of March 31, ~~2020.~~2021.

Risk Management

For a discussion of the Company’s exposure to market risks and management of those market risks, see Item 3, “Quantitative and Qualitative Disclosures About Market Risk,” of this Quarterly Report on Form 10-Q.

Contractual Obligations and Off-Balance Sheet Arrangements

As of March 31, ~~2020,~~2021, the ~~Company's~~Company’s contractual obligations and off-balance sheet arrangements have not changed materially from that listed in the “Contractual Obligations and Other Commitments” table and related notes to the table listed in the ~~Company's~~Company’s Annual Report on Form 10-K filed ~~filed~~ on February ~~19, 2020.~~

~~Application of Critical Accounting Policies and Estimates~~

The Company’s condensed consolidated financial statements are prepared in accordance with GAAP. The Company’s most critical accounting policies are those that are most important to the portrayal of its financial condition and results of operations, and which require the Company to make its most difficult and subjective estimates. Management is required to make judgments and estimates that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the statements, and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.

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The Company’s management believes that such judgments and estimates are made with consistent and appropriate methods based on information available at the time, and that any reasonable deviation from those judgments and estimates would not have a material impact on the Company’s consolidated financial position or results of operations. Actual results may differ from these estimates under different assumptions or conditions. To the extent that the estimates used differ from actual results, adjustments to the consolidated statements of operations and corresponding consolidated balance sheets would be necessary. These adjustments would be made in future statements.

~~The Company has identified the following updates to its critical accounting policies and estimates during the three months ended March 31, 2020.~~

~~Impairment of Goodwill~~

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination and is assigned to specific reporting units. Changes in management’s estimates or judgments, including changes based on actual results differing from the estimates and judgments used in the purchase price allocation process, could result in an impairment charge, and such a charge could have a material adverse effect on the Company's results of operations. In accordance with accounting guidance, the Company performs an annual impairment test for goodwill as of October 31 or more frequently if events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is below its carrying value.

Due to the decline in the Company’s stock price and the uncertainty and impacts of the COVID-19 pandemic, the Company performed an interim assessment of the Core Print and Related Services reporting unit’s goodwill for impairment. The fair value of the reporting unit was estimated using both an income valuation model (discounted cash flow) and a market approach.

Within the United States Print and Related Services Segment, the Company has identified three reporting units: (1) Core Print and Related Services; (2) Specialty Print and Related Services; and (3) Other United States Products and Services. As of March 31, 2020, goodwill totaled $103.0 million and was allocated to the Core Print and Related Services. The Specialty Print and Related Services reporting unit and the Other United States Products and Services reporting unit have no goodwill allocated to them. Additionally, there is no goodwill in the International segment on the consolidated balance sheets.

In determining the fair value of the Core Print and Related Services reporting unit as of March 31, 2020, the Company used an equal weighting of both the income and market approaches. Significant assumptions used under the income approach included: estimated future cash flows including expected future revenue growth, profit margins, capital expenditures, working capital levels, terminal value multiples and an 10.2% after-tax weighted average cost of capital for the Core Print and Related Services. Estimated future cash flows were based on the Company's internal projection models, industry projections and other assumptions deemed reasonable by management. Significant assumptions used under the market approach included: a control premium based on similar transactions, selection of the guideline public companies and selected market multiples. This fair value determination was categorized as Level 3 in the fair value hierarchy (see Note 13, “Financial Instruments and Fair Value Measurements,” to the condensed consolidated financial statements in Part I, Item 1, “Condensed Consolidated Financial Statements (Unaudited),” of this Quarterly Report on Form 10-K for the definition of Level 3 inputs).

After completing the interim evaluation, the estimated fair value of the Core Print and Related Services reporting unit in the United States Print and Related Services segment was determined to exceed the carrying value of the reporting unit. In addition, the Company performed a sensitivity analysis as of March 31, 2020, on the material assumptions used in the discounted cash flow valuation models. In performing the interim goodwill impairment assessment, the percentage by which estimated fair value exceeded carrying value in the Core Print and Related Services reporting unit was more than 20%. As such, management concluded that no impairment existed as of March 31, 2020.24, 2021.

New Accounting Pronouncements

See Note 21, “New Accounting Pronouncements,” to the condensed consolidated financial statements in Item 1, “Condensed Consolidated Financial Statements (Unaudited),” of this Quarterly Report on Form 10-Q.

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Summarized Financial Information of Subsidiary Guarantors Indebtedness

On April 28, 2014, Quad completed an offering of the Senior Unsecured Notes (see Note 11, “Debt,” for further details on the Senior Unsecured Notes). Each of the Company’s existing and future domestic subsidiaries that is a borrower or guarantees indebtedness under the Company’s Senior Secured Credit Facility or that guarantees certain of the Company’s other indebtedness or indebtedness of the Company’s restricted subsidiaries (other than intercompany indebtedness) fully and unconditionally guarantee or, in the case of future subsidiaries, will guarantee, on a joint and several basis, the Senior Unsecured Notes (the “Guarantor Subsidiaries”). All of the current Guarantor Subsidiaries are 100% owned by the Company. Guarantor Subsidiaries will be automatically released from these guarantees upon the occurrence of certain events, including the following:

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

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

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

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


		Three Months Ended		Year Ended			Three Months Ended		Year Ended
Statement of Operations Financial Information	Statement of Operations Financial Information	March 31, 2020		December 31, 2019		Statement of Operations Financial Information	March 31, 2021		December 31, 2020
Net sales	Net sales	$	720.5	$	3,452.9	Net sales	$	641.3	$	2,660.6
Cost of sales	Cost of sales	565.7		2,813.9		Cost of sales	508.5		2,114.4
Gross Profit	Gross Profit	154.8		639.0		Gross Profit	132.8		546.2

Net earnings (loss) from continuing operations	Net earnings (loss) from continuing operations	(4.3)		(66.9)		Net earnings (loss) from continuing operations	7.2		(106.5)
Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	(3.8)		(100.6)		Loss from discontinued operations, net of tax	—		(21.9)
Net earnings (loss)	Net earnings (loss)	(8.1)		(167.5)		Net earnings (loss)	7.2		(128.4)
Less: net earnings (loss) attributable to noncontrolling interests		—		—
Less: net loss attributable to noncontrolling interests						Less: net loss attributable to noncontrolling interests	—		(0.2)
Net earnings (loss) attributable to Quad common shareholders	Net earnings (loss) attributable to Quad common shareholders	$	(8.1)	$	(167.5)	Net earnings (loss) attributable to Quad common shareholders	$	7.2	$	(128.2)

Balance Sheet Financial Information	Balance Sheet Financial Information	March 31, 2020		December 31, 2019		Balance Sheet Financial Information	March 31, 2021		December 31, 2020
Total current assets	Total current assets	$	777.9	$	755.4	Total current assets	$	547.0	$	580.0
Total long-term assets	Total long-term assets	1,817.5		1,859.3		Total long-term assets	1,516.7		1,555.5
Total current liabilities	Total current liabilities	640.7		704.8		Total current liabilities	561.0		598.1
Total long-term liabilities	Total long-term liabilities	1,400.8		1,327.6		Total long-term liabilities	1,098.4		1,143.3
Noncontrolling interests	Noncontrolling interests	—		—		Noncontrolling interests	0.7		0.7

Included in long-term assets in the table above are ~~$52.0 million and $57.0~~$11.6 million of current intercompany loan receivables due to Quad from the Non-Guarantor Subsidiaries as of March 31, ~~2020,~~2021 and December 31, ~~2019, respectively.~~2020. Also included in long-term assets are ~~$535.5~~$428.9 million and ~~$534.9~~$428.8 million of intercompany investments by Quad and the Guarantor Subsidiaries in the Non-Guarantor Subsidiaries. Included in current liabilities are ~~$29.1~~$7.2 million and ~~$37.5~~$2.9 million of current intercompany payables due to the Non-Guarantor Subsidiaries from Quad and the Guarantor Subsidiaries as of March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, respectively.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

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

Interest Rate Risk

The Company is exposed to interest rate risk on variable rate debt obligations and price risk on fixed rate debt and finance leases. The variable rate debt outstanding at March 31, ~~2020,~~2021, was primarily comprised of ~~$130.0 million outstanding on the revolving credit facility and $768.3~~$627.0 million outstanding on the Term Loan A. In order to reduce the variability of cash flows from interest payments related to a portion of Quad’s variable-rate debt, the Company entered into a $250.0 million interest rate swap in February 2017 and a $130.0 million interest rate swap in March 2019, and has classified $380.0 million of the Company’s variable rate debt as fixed rate debt. Including the impact of the $380.0 million interest rate swap of variable rate to fixed rate debt, Quad had variable rate debt outstanding of ~~$516.2~~$246.7 million at a current weighted average interest rate of ~~4.0%~~3.3% and fixed rate debt and finance leases outstanding of ~~$676.3~~$645.9 million at a current weighted average interest rate of ~~5.4%~~5.5% as of March 31, ~~2020.~~2021. A hypothetical 10% increase in the market interest rates impacting the Company’s current weighted average interest rate on variable rate debt obligations would not have a material impact on the Company’s interest expense. A hypothetical 10% change in market interest rates would change the fair value of fixed rate debt at March 31, ~~2020,~~2021, by approximately $6$2 million.

Foreign Currency Risk and Translation Exposure

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

Although operating in local currencies may limit the impact of currency rate fluctuations on the results of operations of the Company’s non-United States subsidiaries and business units, rate fluctuations may impact the consolidated financial position as the assets and liabilities of its foreign operations are translated into United States dollars in preparing the Company’s condensed consolidated balance sheets. As of March 31, ~~2020,~~2021, the Company’s foreign subsidiaries (excluding Argentina due to the economy’s status as highly inflationary) had net current assets (defined as current assets less current liabilities) subject to foreign currency translation risk of ~~$26.8~~$34.1 million. The potential decrease in net current assets as of March 31, ~~2020,~~2021, from a hypothetical 10% adverse change in quoted foreign currency exchange rates, would be approximately ~~$2.7~~$3.4 million. This sensitivity analysis assumes a parallel shift in all major foreign currency exchange rates versus the United States dollar. Exchange rates rarely move in the same direction relative to the United States dollar due to positive and negative correlations of the various global currencies. This assumption may overstate or understate the impact of changing exchange rates on individual assets and liabilities denominated in a foreign currency.

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

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

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The Company has considered the economy in Argentina to be highly inflationary, effective June 30, 2018. In accordance with ASC 830 — Foreign Currency Matters, a highly inflationary economy is one that has experienced cumulative inflation of approximately 100 percent or more over a three-year period. An entity is required to apply the revised accounting guidance in the reporting period following when the economy was deemed to be highly inflationary. As a result of this classification, the functional currency of the Company’s Argentina Subsidiaries was changed from the local currency to the United States Dollar, beginning July 1, 2018, and impacts from the change in the value of the local currency for monetary assets and liabilities is now reflected in the condensed consolidated statements of operations. The total impact from foreign currency losses was $0.3 million during the three months ended March 31, ~~2020.~~2021. The Company’s operations in Argentina represented less than ~~2.0%~~1.0% of total consolidated assets as of March 31, ~~2020,~~2021, and less than ~~2.0%~~1.0% of total consolidated net sales for the three months ended March 31, ~~2020.~~2021.

Credit Risk

Credit risk is the possibility of loss from a client’s failure to make payments according to contract terms. Prior to granting credit, each client is evaluated in an underwriting process, taking into consideration the prospective client’s financial condition, past payment experience, credit bureau information and other financial and qualitative factors that may affect the client’s ability to pay. Specific credit reviews and standard industry credit scoring models are used in performing this evaluation. Clients’ financial condition is continuously monitored as part of the normal course of business. Some of the Company’s clients are highly leveraged or otherwise subject to their own operating and regulatory risks. Based on those client account reviews and the continued uncertainty of the global economy, the Company has established an allowance for credit losses of ~~$37.1~~$33.3 million as of March 31, ~~2020,~~2021, and ~~$25.0~~$33.8 million as of December 31, ~~2019.~~2020.

The Company has a large, diverse client base and does not have a high degree of concentration with any single client account. During the three months ended March 31, ~~2020,~~2021, the Company’s largest client accounted for less than 5% of the Company’s net sales. Even if the Company’s credit review and analysis mechanisms work properly, the Company may experience financial losses in its dealings with clients and other parties. Any increase in nonpayment or nonperformance by clients could adversely impact the Company’s results of operations and financial condition. Economic disruptions, including the impacts from the COVID-19 pandemic, could result in significant future charges. The Company is continuing to actively monitor the situation and related risks around the COVID-19 pandemic.

Commodity Risk

The primary raw materials that Quad uses in its print business are paper, ink and energy. At this time, the Company’s supply of raw materials is readily available from numerous vendors; however, based on market conditions, that could change in the future. The Company generally buys these raw materials based upon market prices that are established with the vendor as part of the procurement process.

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

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

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

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

ITEM 4. Controls and Procedures

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report and has concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the fiscal quarter ended March 31, ~~2020,~~2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, which was filed with the SEC on February ~~19, 2020, other than the following.~~

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

The COVID-19 pandemic has resulted in national, state and local government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, border closings, restrictions on public gatherings, quarantining of people who may have been exposed to the virus, shelter-in-place restrictions, and limitations or shutdowns of business operations. These measures have impacted and may further impact the Company’s workforce and operations, the operations of its clients, and those of its suppliers. Quad has significant operations in the United States and in certain other countries, and each of these countries has been affected by the outbreak and taken measures to try to contain it, resulting in disruptions at some of the Company’s printing facilities and support operations. There is considerable uncertainty regarding the impact, and expected duration, of such measures and potential future measures, and restrictions on the Company’s access to its facilities or on its support operations or workforce, or similar limitations for Quad’s suppliers. There is no certainty that measures taken by governmental authorities will be sufficient to mitigate the risks posed by the virus, and the Company’s ability to perform critical functions could be harmed.

The COVID-19 pandemic has significantly increased economic and demand uncertainty. The pandemic has caused an economic slowdown that is likely to continue, and it is possible that it could cause an extended global recession.

The COVID-19 pandemic has weakened demand for the Company’s products and services, which has resulted in a decline in sales, and it remains uncertain what impact this weakened demand will have on future sales once conditions begin to improve. The pandemic could also continue to disrupt the Company’s supply chain.

In recent weeks, the spread of COVID-19 has led to disruption and volatility in the global capital markets, which may adversely affect Quad’s and its client’s and suppliers’ liquidity, cost of capital and ability to access the capital markets. As a result, the continued spread of COVID-19 could adversely affect the Company’s liquidity as well as the ability of the Company’s clients to perform, including in making timely payments to Quad, which could further adversely impact the Company’s business, financial condition, cash flows and results of operations.

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The COVID-19 pandemic has had, and will continue to have, a negative impact on the Company’s business, financial condition, cash flows, results of operations and supply chain, although the full extent is uncertain. As the pandemic continues to rapidly evolve, the extent of the impact on the Company’s business, financial condition, cash flows, results of operations and supply chain will depend on future developments, including, but not limited to, the duration and spread of the pandemic (including any relapses), its severity, the actions to contain the virus and/or treat its impact, related restrictions on travel, the duration, timing and severity of the impact on client spending and consumer demand (including any recession resulting from the pandemic), and how quickly and to what extent normal economic and operating conditions can resume, all of which are highly uncertain and cannot be predicted.

In addition, the COVID-19 pandemic will or may have additional impacts on the following risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 19, 2020: “The Company’s debt facilities include various covenants imposing restrictions that may affect the Company’s ability to operate its business;” “The Company may be required to make capital expenditures to sustain its platforms and processes, in part to keep pace with industry developments and client expectations, and to remain technologically and economically competitive, which may increase its costs, reduce its profits, disrupt its operations or adversely affect its ability to implement its business strategy;” “An other than temporary decline in operating results and enterprise value could lead to non-cash impairment charges due to the impairment of property, plant and equipment, goodwill and other intangible assets;” “Changes in postal rates, postal regulations and postal services may adversely impact customers’ demand for print products and services;” “The Company may be adversely affected by increases in its operating costs, including the cost and availability of raw materials, labor-related costs, fuel and other energy costs and freight rates;” “The Company’s business depends substantially on customer contract renewals and/or customer retention. Any contract non-renewals, renewals on different terms and conditions or decline in the Company’s customer retention or expansion could materially adversely affect the Company’s results of operations, financial condition and cash flows;” “There are risks associated with the Company’s operations outside of the United States;” “The Company has significant liabilities with respect to defined benefit pension plans that could cause the Company to incur additional costs;” “Significant downward pricing pressure and decreasing demand for printing services caused by factors outside of the Company’s control may adversely affect the Company;” “Future declines in economic conditions may adversely affect the Company’s results of operations;” “Failure to attract and retain qualified talent across the enterprise could materially adversely affect the Company’s business, competitive position, financial condition and results of operations;” and “The Company may be adversely affected by strikes and other labor protests, and catastrophic events.”24, 2021.

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 March 31, ~~2020,~~2021, was as follows:

Issuer Purchases of Equity Securities
Period
Total Number of Shares Purchased⁽¹⁾
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽¹⁾
Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
January 1, 2020 to January 31, 2020 — — — $ 100,000,000
February 1, 2020 to February 29, 2020 — — — 100,000,000
March 1, 2020 to March 31, 2020 221,305
⁽³⁾
— — 100,000,000
Total 221,305 —


	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)
January 1, 2021 to January 31, 2021	—		—	—	$	100,000,000
February 1, 2021 to February 28, 2021	—		—	—	100,000,000
March 1, 2021 to March 31, 2021	258,670	(3)	—	—	100,000,000
Total	258,670			—

⁽¹⁾Represents shares of the Company’s class A common stock.

⁽²⁾On July 30, 2018, the Company’s Board of Directors authorized a share repurchase program of up to $100.0 million of the Company’s outstanding class A common stock. Under the authorization, share repurchases may be made at the Company’s discretion, from time to time, in the open market and/or in privately negotiated transactions as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchase will depend on economic and market conditions, share price, trading volume, applicable legal requirements and other factors. The program may be suspended or discontinued at any time. The Company is currently prohibited from repurchasing capital stock through the Covenant Relief Period, in accordance with the fourth amendment to the April 28, 2014 Senior Secured Credit Facility, completed on June 29, 2020 (see Note 11. “Debt,” to the condensed consolidated financial statements in Item 1, “Condensed Consolidated Financial Statements (Unaudited),” of this Quarterly Report on Form 10-Q for more details on the amendment and timing of the Covenant Relief Period). There were no shares

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repurchased during the three months ended March 31, ~~2020.~~2021. As of March 31, ~~2020,~~2021, there were $100.0 million of authorized repurchases remaining under the program.

⁽³⁾Represents ~~221,305~~258,670 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 Company’s Omnibus ~~Plan~~Incentive Plans during the month of March ~~2020.~~2021.

See Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Covenants and Compliance,” of this Quarterly Report on Form 10-Q, for a discussion of covenants under the Company’s debt agreements that may restrict the Company’s ability to pay dividends.

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ITEM 6. Exhibits

The exhibits listed in the exhibit index below are filed as part of this Quarterly Report on Form 10-Q.

EXHIBIT INDEX


Exhibit Number						Exhibit Description

(2 210 )						A lternative Form of 2021 Cash Long-Te rm Incentive Plan Net Lever age Ratio Award Agreement under the Quad/Graphics, Inc. 2020 Om nibus Incentive Pl an

(22)						Guarantor Subsidiaries of Quad/Graphics, Inc.’s Senior Unsecured Notes.

(31.1)						Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.

(31.2)						Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.

(32)						Written Statement of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

(101)						Financial statements from the Quarterly Report on Form 10-Q of Quad/Graphics, Inc. for the quarter ended March 31, ~~2020~~2021 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the Condensed Consolidated Statements of Operations (Unaudited), (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss) (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.

(104)						Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

QUAD/GRAPHICS, INC.

Date:

May ~~6, 2020~~5, 2021

By:

/s/ J. Joel Quadracci

J. Joel Quadracci

Chairman, President and Chief Executive Officer

(Principal Executive Officer)

Date:

May ~~6, 2020~~5, 2021

By:

/s/ David J. Honan

David J. Honan

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)


	March 31, 2020		December 31, 2019
Receivables—net	$	16.1	$	19.6
Inventories	12.9		14.0
Prepaid expenses and other current assets	23.3		23.0
Current assets of discontinued operations	52.3		56.6

Property, plant and equipment—net	—		—
Operating lease right-of-use assets—net	—		0.2

Other long-term assets	—		0.3
Long-term assets of discontinued operations	—		0.5

Accounts payable	8.0		7.0
Accrued liabilities	5.9		8.5
Current portion of finance lease obligations	—		0.1
Current portion of operating lease obligations	—		0.2
Current liabilities of discontinued operations	13.9		15.8

Finance lease obligations	—		—


Other long-term liabilities	0.6		0.6
Long-term liabilities of discontinued operations	0.6		0.6


	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⁾
January 1, 2020 to January 31, 2020	—		—	—	$	100,000,000
February 1, 2020 to February 29, 2020	—		—	—	100,000,000
March 1, 2020 to March 31, 2020	221,305	⁽³⁾	—	—	100,000,000
Total	221,305			—