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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to
Commission File Number 001-34806
Updated Quad Logo 2023.jpg
Quad/Graphics, Inc.
(Exact name of registrant as specified in its charter)
Wisconsin39-1152983
(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 classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock,
par value $0.025 per share		QUADThe 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.
ClassOutstanding as of October 27, 2023
Class A Common Stock37,751,509
Class B Common Stock13,556,858
Class C Common Stock—


QUAD/GRAPHICS, INC.
FORM 10-Q INDEX
For the Quarter Ended September 30, 2023
Page No.



2
PART I — FINANCIAL INFORMATION

ITEM 1.    Condensed Consolidated Financial Statements (Unaudited)

QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(UNAUDITED)
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net sales
Products$547.0 $652.0 $1,714.8 $1,826.8 
Services153.2 177.9 455.0 505.0 
Total net sales700.2 829.9 2,169.8 2,331.8 
Cost of sales
Products464.7 556.5 1,457.4 1,563.4 
Services96.1 117.0 290.7 347.8 
Total cost of sales560.8 673.5 1,748.1 1,911.2 
Operating expenses
Selling, general and administrative expenses82.5 90.8 255.0 256.8 
Depreciation and amortization32.0 34.8 97.7 106.6 
Restructuring, impairment and transaction-related charges11.2 5.6 46.8 12.4 
Total operating expenses686.5 804.7 2,147.6 2,287.0 
Operating income13.7 25.2 22.2 44.8 
Interest expense17.7 12.1 51.0 32.3 
Net pension income(0.5)(3.2)(1.3)(9.5)
Earnings (loss) before income taxes(3.5)16.3 (27.5)22.0 
Income tax expense (benefit)(0.8)2.6 5.9 4.0 
Net earnings (loss)$(2.7)$13.7 $(33.4)$18.0 
Earnings (loss) per share
Basic$(0.06)$0.27 $(0.68)$0.35 
Diluted$(0.06)$0.27 $(0.68)$0.34 
Weighted average number of common shares outstanding
Basic48.0 50.1 48.8 51.2 
Diluted48.0 51.6 48.8 53.0 

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


3
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(UNAUDITED)
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net earnings (loss)$(2.7)$13.7 $(33.4)$18.0 
Other comprehensive income (loss)
Translation adjustments(4.4)(7.0)8.4 (12.2)
Interest rate derivatives adjustments0.9 0.7 3.2 2.8 
Pension benefit plan adjustments0.2 — 0.4 — 
Other comprehensive income (loss), before tax(3.3)(6.3)12.0 (9.4)
Income tax impact related to items of other comprehensive income (loss)(0.3)(0.1)(0.8)(0.5)
Other comprehensive income (loss), net of tax(3.6)(6.4)11.2 (9.9)
Comprehensive income (loss)$(6.3)$7.3 $(22.2)$8.1 
    

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



4
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
(UNAUDITED)
September 30,
2023		December 31,
2022
ASSETS
Cash and cash equivalents$11.0 $25.2 
Receivables, less allowance for credit losses of $27.2 million at September 30, 2023, and $26.4 million at December 31, 2022
348.2 372.6 
Inventories234.4 260.7 
Prepaid expenses and other current assets41.8 46.0 
Total current assets635.4 704.5 
Property, plant and equipment—net648.0 672.1 
Operating lease right-of-use assets—net93.8 111.1 
Goodwill86.4 86.4 
Other intangible assets—net27.9 46.9 
Other long-term assets77.8 80.8 
Total assets$1,569.3 $1,701.8 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable$411.9 $456.6 
Other current liabilities192.2 249.1 
Short-term debt and current portion of long-term debt154.0 61.1 
Current portion of finance lease obligations2.8 0.8 
Current portion of operating lease obligations24.4 27.8 
Total current liabilities785.3 795.4 
Long-term debt431.6 506.7 
Finance lease obligations6.3 1.6 
Operating lease obligations74.5 87.1 
Deferred income taxes6.2 9.3 
Other long-term liabilities122.0 128.8 
Total liabilities1,425.9 1,528.9 
Commitments and contingencies (Note 6)
Shareholders’ equity
Preferred stock— — 
Common stock, Class A1.0 1.0 
Common stock, Class B0.4 0.4 
Common stock, Class C— — 
Additional paid-in capital841.1 841.8 
Treasury stock, at cost(30.1)(23.5)
Accumulated deficit(551.9)(518.5)
Accumulated other comprehensive loss(117.1)(128.3)
Total shareholders’ equity143.4 172.9 
Total liabilities and shareholders’ equity$1,569.3 $1,701.8 

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


5
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(UNAUDITED)
Nine Months Ended September 30,
20232022
OPERATING ACTIVITIES
Net earnings (loss)$(33.4)$18.0 
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization97.7 106.6 
Impairment charges15.8 0.6 
Amortization of debt issuance costs and original issue discount1.5 1.7 
Stock-based compensation4.6 4.9 
Gain on the sale or disposal of property, plant and equipment, net(0.5)(1.7)
Deferred income taxes— 3.2 
Changes in operating assets and liabilities—net of divestitures(44.6)(163.6)
Net cash provided by (used in) operating activities41.1 (30.3)
INVESTING ACTIVITIES
Purchases of property, plant and equipment(59.5)(49.5)
Cost investment in unconsolidated entities(0.7)(2.9)
Proceeds from the sale of property, plant and equipment7.9 4.0 
Loan to an unconsolidated entity(0.6)— 
Other investing activities(4.5)1.8 
Net cash used in investing activities(57.4)(46.6)
FINANCING ACTIVITIES
Payments of current and long-term debt(37.5)(228.1)
Payments of finance lease obligations(1.8)(1.8)
Borrowings on revolving credit facilities1,136.1 669.7 
Payments on revolving credit facilities(1,082.8)(516.1)
Proceeds from issuance of long-term debt0.6 2.1 
Purchases of treasury stock(10.2)(10.0)
Equity awards redeemed to pay employees’ tax obligations(1.7)(2.5)
Payment of cash dividends(0.1)(1.4)
Other financing activities(0.5)(0.5)
Net cash provided by (used in) financing activities2.1 (88.6)
Effect of exchange rates on cash and cash equivalents— (0.4)
Net decrease in cash and cash equivalents(14.2)(165.9)
Cash and cash equivalents at beginning of period25.2 179.9 
Cash and cash equivalents at end of period$11.0 $14.0 

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


6
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions)
(UNAUDITED)

Condensed Consolidated Statement of Shareholders’ Equity For the Nine Months Ended September 30, 2023
Common StockAdditional
Paid-in
Capital		Treasury StockAccumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Quad’s
Shareholders’
Equity
SharesAmountSharesAmount
Balance at December 31, 202256.6 $1.4 $841.8 (3.9)$(23.5)$(518.5)$(128.3)$172.9 
Net loss— — — — — (24.6)— (24.6)
Foreign currency translation adjustments— — — — — — 6.5 6.5 
Interest rate derivatives adjustments, net of tax— — — — — — 0.6 0.6 
Pension benefit plan liability adjustments, net of tax— — — — — — 0.1 0.1 
Stock-based compensation— — 1.0 — — — — 1.0 
Purchases of treasury stock— — — (0.1)(0.3)— — (0.3)
Issuance of share-based awards, net of other activity— — (4.3)1.4 4.3 — — — 
Equity awards redeemed to pay employees’ tax obligations— — — (0.3)(1.7)— — (1.7)
Balance at March 31, 202356.6 $1.4 $838.5 (2.9)$(21.2)$(543.1)$(121.1)$154.5 
Net loss— — — — — (6.1)— (6.1)
Foreign currency translation adjustments— — — — — — 6.3 6.3 
Interest rate derivatives adjustments, net of tax— — — — — — 1.2 1.2 
Pension benefit plan liability adjustments, net of tax— — — — — — 0.1 0.1 
Stock-based compensation— — 2.3 — — — — 2.3 
Purchases of treasury stock— — — (1.3)(4.7)— — (4.7)
Issuance of share-based awards, net of other activity— — (1.0)0.2 1.0 — — — 
Balance at June 30, 202356.6 $1.4 $839.8 (4.0)$(24.9)$(549.2)$(113.5)$153.6 
Net loss— — — — — (2.7)— (2.7)
Foreign currency translation adjustments— — — — — — (4.4)(4.4)
Interest rate derivatives adjustments, net of tax— — — — — — 0.7 0.7 
Pension benefit plan liability adjustments, net of tax— — — — — — 0.1 0.1 
Stock-based compensation— — 1.3 — — — — 1.3 
Purchases of treasury stock— — — (1.0)(5.2)— — (5.2)
Balance at September 30, 202356.6 $1.4 $841.1 (5.0)$(30.1)$(551.9)$(117.1)$143.4 



7
Condensed Consolidated Statement of Shareholders’ Equity For the Nine Months Ended September 30, 2022
Common StockAdditional
Paid-in
Capital		Treasury StockAccumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Quad’s
Shareholders’
Equity
SharesAmountSharesAmount
Balance at December 31, 202155.7 $1.4 $839.3 (1.4)$(14.9)$(527.8)$(161.2)$136.8 
Net loss— — — — — (1.0)— (1.0)
Foreign currency translation adjustments— — — — — — 0.8 0.8 
Interest rate derivatives adjustments, net of tax— — — — — — 1.1 1.1 
Stock-based compensation— — 1.7 — — — — 1.7 
Issuance of share-based awards, net of other activity0.9 — (2.4)0.8 2.8 — — 0.4 
Equity awards redeemed to pay employees’ tax obligations— — — (0.4)(2.5)— — (2.5)
Balance at March 31, 202256.6 $1.4 $838.6 (1.0)$(14.6)$(528.8)$(159.3)$137.3 
Net earnings— — — — — 5.3 — 5.3 
Foreign currency translation adjustments— — — — — — (6.0)(6.0)
Interest rate derivatives adjustments, net of tax— — — — — — 0.6 0.6 
Stock-based compensation— — 1.9 — — — — 1.9 
Purchases of treasury stock— — — (0.3)(0.9)— — (0.9)
Issuance of share-based awards, net of other activity— — (0.9)0.2 1.0 — — 0.1 
Balance at June 30, 202256.6 $1.4 $839.6 (1.1)$(14.5)$(523.5)$(164.7)$138.3 
Net earnings— — — — — 13.7 — 13.7 
Foreign currency translation adjustments— — — — — — (7.0)(7.0)
Interest rate derivatives adjustments, net of tax— — — — — — 0.6 0.6 
Stock-based compensation— — 1.1 — — — — 1.1 
Purchases of treasury stock— — — (2.8)(9.1)— — (9.1)
Issuance of share-based awards, net of other activity— — (0.1)— 0.2 — — 0.1 
Balance at September 30, 202256.6 $1.4 $840.6 (3.9)$(23.4)$(509.8)$(171.1)$137.7 

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


8


QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(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, 2022, and notes thereto included in the Company’s latest Annual Report on Form 10-K filed with the SEC on February 27, 2023.

The Company is subject to seasonality in its quarterly results as net sales and operating income are higher in the second half of the calendar year as compared to the first half of the calendar year. 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 catalogs and retail inserts primarily due to back-to-school and holiday-related advertising and promotions. The Company expects seasonality impacts to continue in future years.

The financial information contained herein reflects all adjustments, in the opinion of management, necessary for a fair presentation of the Company’s results of operations for the three and nine months ended September 30, 2023 and 2022. 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.

Economic Impacts and Response - Macroeconomic conditions have weakened demand for the Company’s products and services, disrupted the Company’s supply chain and resulted in rising inflationary cost and labor pressures, distribution challenges and recessionary concerns. The Company continues to evaluate the current economic environment and may implement additional cost reduction measures as necessary.



9


QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(In millions, except share and per share data and unless otherwise indicated)
Note 2. Revenue Recognition

Revenue Disaggregation

The following tables provide information about disaggregated revenue by the Company’s operating segments and major products and services offerings for the three and nine months ended September 30, 2023 and 2022:
United States Print
and Related Services		InternationalTotal
Three months ended September 30, 2023
Catalog, publications, retail inserts and directories$339.5 $62.4 $401.9 
Direct mail and other printed products117.8 25.0 142.8 
Other2.2 0.1 2.3 
Total products459.5 87.5 547.0 
Logistics services64.1 3.8 67.9 
Marketing services and medical services84.4 0.9 85.3 
Total services148.5 4.7 153.2 
Total net sales$608.0 $92.2 $700.2 
Three months ended September 30, 2022
Catalog, publications, retail inserts and directories$375.5 $77.3 $452.8 
Direct mail and other printed products161.9 34.5 196.4 
Other2.6 0.2 2.8 
Total products540.0 112.0 652.0 
Logistics services81.3 4.6 85.9 
Marketing services and medical services91.8 0.2 92.0 
Total services173.1 4.8 177.9 
Total net sales$713.1 $116.8 $829.9 



10


QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(In millions, except share and per share data and unless otherwise indicated)
United States Print
and Related Services		InternationalTotal
Nine months ended September 30, 2023
Catalog, publications, retail inserts and directories$1,014.3 $191.4 $1,205.7 
Direct mail and other printed products393.4 109.7 503.1 
Other5.6 0.4 6.0 
Total products1,413.3 301.5 1,714.8 
Logistics services183.6 12.3 195.9 
Marketing services and medical services257.2 1.9 259.1 
Total services440.8 14.2 455.0 
Total net sales$1,854.1 $315.7 $2,169.8 
Nine months ended September 30, 2022
Catalog, publications, retail inserts and directories$1,049.0 $205.5 $1,254.5 
Direct mail and other printed products467.6 96.7 564.3 
Other7.3 0.7 8.0 
Total products1,523.9 302.9 1,826.8 
Logistics services224.2 14.7 238.9 
Marketing services and medical services265.5 0.6 266.1 
Total services489.7 15.3 505.0 
Total net sales$2,013.6 $318.2 $2,331.8 

Nature of Products and Services

The Company recognizes its products and services revenue based on when the transfer of control passes to the client or when the service is completed and accepted by the client.
The products offering is predominantly comprised of the Company’s print operations which includes retail inserts, publications, catalogs, special interest publications, journals, direct mail, directories, in-store marketing and promotion, packaging, newspapers, custom print products, other commercial and specialty printed products and global paper procurement.
The Company considers its logistic operations as services, which include the delivery of printed material. The services offering also includes revenues related to the Company’s marketing services operations, which include data and analytics, technology solutions, media services, creative and content solutions, managed services and execution in non-print channels (e.g., digital and broadcast), as well as medical services.



11


QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(In millions, except share and per share data and unless otherwise indicated)
Costs to Obtain Contracts

In accordance with Accounting Standards Codification 606 — Revenue from Contracts with Customers, the Company capitalizes certain sales incentives of the sales compensation packages for costs that are directly attributed to being awarded a client contract or renewal and would not have been incurred had the contract not been obtained. The Company also defers certain contract acquisition costs paid to the client at contract inception. Costs to obtain contracts with a duration of less than one year are expensed as incurred. For all contract costs with contracts over one year, the Company amortizes the costs to obtain contracts on a straight-line basis over the estimated life of the contract and reviews quarterly for impairment. Activity impacting costs to obtain contracts for the nine months ended September 30, 2023, was as follows:
Costs to Obtain Contracts
Balance at December 31, 2022$3.3 
Costs to obtain contracts0.6 
Amortization of costs to obtain contracts(1.7)
Balance at September 30, 2023$2.2 

Note 3. Restructuring, Impairment and Transaction-Related Charges

The Company recorded restructuring, impairment and transaction-related charges for the three and nine months ended September 30, 2023 and 2022, as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Employee termination charges$1.6 $1.2 $16.6 $2.8 
Impairment charges5.2 0.5 15.8 0.6 
Transaction-related charges0.5 0.3 1.1 0.8 
Integration costs— 0.4 1.0 0.4 
Other restructuring charges3.9 3.2 12.3 7.8 
Total$11.2 $5.6 $46.8 $12.4 

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

Restructuring Charges

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

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

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


12


QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(In millions, except share and per share data and unless otherwise indicated)
•Other restructuring charges consisted of the following during the three and nine months ended September 30, 2023 and 2022:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Vacant facility carrying costs and lease exit charges$3.8 $2.0 $11.2 $4.1 
Equipment and infrastructure removal costs0.1 0.1 0.6 0.1 
Other restructuring activities— 1.1 0.5 3.6 
Other restructuring charges$3.9 $3.2 $12.3 $7.8 

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 $5.2 million and $15.8 million during the three and nine months ended September 30, 2023, which consisted of $4.4 million for software licensing and related implementation costs from a terminated project, $0.6 million and $1.6 million, respectively, for property, and $0.2 million and $9.8 million, respectively, for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction activities.

The Company recognized impairment charges of $0.5 million and $0.6 million during the three and nine months ended September 30, 2022, which consisted primarily of machinery and equipment no longer being utilized in production as a result of facility consolidations.

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

Transaction-Related Charges

The Company incurs transaction-related charges primarily consisting of professional service fees related to business acquisition and divestiture activities. Transaction-related charges of $0.5 million and $1.1 million were recorded during the three and nine months ended September 30, 2023, respectively, and $0.3 million and $0.8 million were recorded during the three and nine months ended September 30, 2022, respectively.


13


QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(In millions, except share and per share data and unless otherwise indicated)
Restructuring Reserves

Activity impacting the Company’s restructuring reserves for the nine months ended September 30, 2023, was as follows:
Employee
Termination
Charges		Impairment
Charges		Transaction-Related
Charges		Integration
Costs		Other
Restructuring
Charges		Total
Balance at December 31, 2022$2.9 $— $1.5 $— $5.2 $9.6 
Expense, net16.6 15.8 1.1 1.0 12.3 46.8 
Cash payments, net(16.9)— (1.7)(1.0)(13.9)(33.5)
Non-cash adjustments/reclassifications— (15.8)— — 1.3 (14.5)
Balance at September 30, 2023$2.6 $— $0.9 $— $4.9 $8.4 

The Company’s restructuring reserves at September 30, 2023, included a short-term and a long-term component. The short-term portion included $3.4 million in other current liabilities and $1.2 million in accounts payable in the condensed consolidated balance sheets as the Company expects these reserves to be settled within the next twelve months. The long-term portion of $3.8 million is included in other long-term liabilities in the condensed consolidated balance sheets.

Note 4. Receivables

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

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

The Company has recorded credit loss expense of $0.6 million and $2.1 million during the three and nine months ended September 30, 2023, respectively, and $0.8 million and $2.3 million during the three and nine months ended September 30, 2022, respectively, which is included in selling, general and administrative expenses in the condensed consolidated statements of operations.

Activity impacting the allowance for credit losses for the nine months ended September 30, 2023, was as follows:
Allowance for Credit Losses
Balance at December 31, 2022$26.4 
Provisions2.1 
Write-offs(1.2)
Translation(0.1)
Balance at September 30, 2023$27.2 



14


QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(In millions, except share and per share data and unless otherwise indicated)
Note 5. Inventories

The components of inventories at September 30, 2023, and December 31, 2022, were as follows:
September 30,
2023		December 31,
2022
Raw materials and manufacturing supplies$136.2 $173.7 
Work in process43.2 38.3 
Finished goods55.0 48.7 
Total$234.4 $260.7 

Note 6. Commitments and Contingencies

Litigation

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

Environmental Reserves

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

Note 7. Debt

Senior Secured Credit Facility

The Company completed the seventh amendment to the Senior Secured Credit Facility on January 24, 2023, which transitioned the Company’s reference rate from London Interbank Offered Rate (“LIBOR”) to Secured Overnight Financing Rate (“SOFR”) effective February 1, 2023. The Company elected the practical expedient outlined in Accounting Standards Update (“ASU”) 2020-04 and ASU 2021-01 which allowed the Company to prospectively adjust the effective interest rate after the reference rate change. The transition from LIBOR to SOFR did not have a material impact on the condensed consolidated financial statements.

Senior Unsecured Notes

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

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



15


QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(In millions, except share and per share data and unless otherwise indicated)
Note 8. Income Taxes

The Company records income tax expense on an interim basis. For the nine months ended September 30, 2023, the Company’s income tax expense was recorded using an actual effective income tax rate for the year-to-date period. Based on the Company’s current operating results, the Company believes the actual effective tax rate for the year-to-date period is the best estimate of the annual effective tax rate. The actual effective income tax rate differs from the statutory tax rate primarily due to non-deductible expenses and net increases in valuation allowance reserves. The effective income tax rate for the current interim period differs further from the statutory tax rate due to items discrete to the interim period primarily related to an increase in income tax payable for an anticipated audit settlement and additional increases to valuation allowance reserves from change in judgement on realizability of certain foreign deferred tax assets.

For the nine months ended September 30, 2022, the Company used an estimated annual effective income tax rate to record its income tax expense. The estimated annual effective income tax rate differs from the statutory tax rate primarily from decreases in valuation allowance reserves.

The Company currently has various open tax audits in multiple jurisdictions. From time to time, the Company will receive tax assessments as part of the process. Based on the information available as of September 30, 2023, the Company has recorded its best estimate of the potential settlements of these audits. Actual results could differ from the estimated amounts.

The Company’s liability for unrecognized tax benefits as of September 30, 2023 was $11.5 million, an increase of $0.4 million from $11.1 million as of December 31, 2022. The Company anticipates a $4.3 million decrease to its liability for unrecognized tax benefits within the next twelve months due to the resolution of income tax audits or statute expirations.

Note 9. Financial Instruments and Fair Value Measurements

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

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

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

Level 3:    Unobservable inputs for the asset or liability. There were no Level 3 recurring measurements of assets or liabilities as of September 30, 2023.



16


QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(In millions, except share and per share data and unless otherwise indicated)
Interest Rate Swap

The Company currently holds one interest rate swap contract. The purpose of entering into the contract was to reduce the variability of cash flows from interest payments related to a portion of Quad’s variable-rate debt. The interest rate swap was previously designated as a cash flow hedge as it effectively converted the notional value of the Company’s variable rate debt based on one-month LIBOR to a fixed rate, including a spread on underlying debt, and a monthly reset in the variable interest rate. However, the Company amended its Senior Secured Credit Facility during the second quarter of 2020, which added a 0.75% LIBOR floor to the Company’s variable rate debt, changing the critical terms of the hedged instrument. Due to this change in critical terms, the Company had elected to de-designate the swap as a cash flow hedge, 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 swap as of June 30, 2020 was then amortized to interest expense on a straight-line basis over the remaining life of the swap contract. The Company expects to reclassify $1.3 million of this balance to interest expense over the next six months. Due to the Company’s transition from LIBOR to SOFR during the first quarter of 2023, the interest rate swap’s fixed swap rate was amended to be based on one-month term SOFR.

The key terms of the interest rate swap is as follows:
March 19, 2019
Interest Rate Swap
Effective dateMarch 29, 2019
Termination dateMarch 28, 2024
Term5 years
Notional amount$130.0
Fixed swap rate2.40%

The Company classifies interest rate swaps as Level 2 because the inputs into the valuation model are observable or can be derived or corroborated utilizing observable market data at commonly quoted intervals. The fair value of the interest rate swap classified as Level 2 as of September 30, 2023, and December 31, 2022, were as follows:
Balance Sheet LocationSeptember 30, 2023December 31, 2022
Interest rate swap assetPrepaid expenses and other current assets$1.9 $3.8 

Prior to the Company’s de-designation of the interest rate swap as a cash flow hedge, the interest rate swap was considered highly effective, with no amount of ineffectiveness recorded into earnings. The change in the fair value of the interest rate swap is recorded as an adjustment to interest expense in the condensed consolidated statements of operations. The cash flows associated with the interest rate swap have been recognized as an adjustment to interest expense in the condensed consolidated statements of operations:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Cash Flow Impacts
Net interest paid (received)$(0.9)$0.1 $(2.4)$2.1 
Impacts with Swap as Nonhedging Instrument
(Income) loss recognized in interest expense excluded from hedge effectiveness assessments0.9 (2.1)1.9 (8.8)
Amounts reclassified out of accumulated other comprehensive loss to interest expense0.6 0.7 2.0 2.8 
Net interest expense(0.9)0.1 (2.4)2.1 
Total impact of swap to interest expense$0.6 $(1.3)$1.5 $(3.9)


17


QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(In millions, except share and per share data and unless otherwise indicated)
Interest Rate Collars

The Company has entered into two interest rate collar contracts, both effective February 1, 2023. The purpose of entering into the contracts is to reduce the variability of cash flows from interest payments related to a portion of Quad’s variable-rate debt. The interest rate collars have been designated as cash flow hedges as they effectively convert the notional value of the Company’s variable rate debt based on one-month term SOFR to a fixed rate if that month’s interest rate is outside of the collars’ floor and ceiling rates, including a spread on underlying debt, and a monthly reset in the variable interest rate.

The key terms of the interest rate collars are as follows:
December 12, 2022
Interest Rate Collar		December 14, 2022
Interest Rate Collar
Effective dateFebruary 1, 2023February 1, 2023
Termination dateOctober 30, 2026October 31, 2025
Term45 Months33 Months
Notional amount$75.0$75.0
Floor Rate2.09%2.25%
Ceiling Rate5.00%5.00%
The Company classifies interest rate collars 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 collars classified as Level 2 as of September 30, 2023, and December 31, 2022, were as follows:
Balance Sheet LocationSeptember 30, 2023December 31, 2022
Interest rate collar assetsPrepaid expenses and other current assets$1.2 $— 

The interest rate collars were highly effective as of September 30, 2023. No amount of ineffectiveness has been recorded into earnings related to these cash flow hedges. The cash flows associated with the interest rate collars 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 collars have been included in other comprehensive income (loss) in the condensed consolidated statements of comprehensive income (loss):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net interest received$(0.1)$— $(0.1)$— 
Gain recognized in other comprehensive income (loss)$(0.3)$— $(1.2)$— 

Foreign Exchange Contracts

The Company has operations in countries that have transactions outside their functional currencies and periodically enters into foreign exchange contracts. These contracts are used to hedge the net exposures of changes in foreign currency exchange rates and are designated as either cash flow hedges or fair value hedges. Gains or losses on net foreign currency hedges are intended to offset losses or gains on the underlying net exposures in an effort to reduce the earnings volatility resulting from fluctuating foreign currency exchange rates. As of September 30, 2023, there were two open foreign currency exchange contracts designated as cash flow hedges, with a total notional value of $0.7 million.

Natural Gas Forward Contracts

The Company periodically enters into natural gas forward purchase contracts to hedge against increases in commodity costs. The Company’s commodity contracts qualified for the exception related to normal purchases and sales during the nine months ended September 30, 2023 and 2022, as the Company takes delivery in the normal course of business.


18


QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(In millions, except share and per share data and unless otherwise indicated)
Debt

The Company measures fair value on its debt instruments using interest rates available to the Company for borrowings with similar terms and maturities and is categorized as Level 2. Based upon the interest rates available to the Company for borrowings with similar terms and maturities, the fair value of the Company’s total debt was approximately $0.6 billion at September 30, 2023 and December 31, 2022.

Nonrecurring Fair Value Measurements

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

Other Estimated Fair Value Measurements

The Company records the fair value of its forward contracts and pension plan assets on a recurring basis. The fair value of cash and cash equivalents, receivables, inventories, accounts payable and other current liabilities approximate their carrying values as of September 30, 2023, and December 31, 2022.

Note 10. Employee Retirement Plans

Defined Contribution Plans

The Quad/Graphics, Inc. Employee Stock Ownership Plan (“ESOP”) holds profit sharing contributions of Company stock, which are made at the discretion of the Company’s Board of Directors. There were no profit sharing contributions during the nine months ended September 30, 2023 and 2022.

Pension Plans

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

The components of net pension income for the three and nine months ended September 30, 2023 and 2022, were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Interest cost$(4.4)$(2.4)$(13.2)$(7.2)
Expected return on plan assets5.0 5.6 15.0 16.7 
  Net periodic pension income0.6 3.2 1.8 9.5 
Amortization of actuarial loss(0.1)— (0.5)— 
Net pension income$0.5 $3.2 $1.3 $9.5 

The Company made $0.6 million in benefit payments to its non-qualified defined benefit pension plans and made no contributions to its qualified defined benefit pension plans during the nine months ended September 30, 2023.


19


QUAD/GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(In millions, except share and per share data and unless otherwise indicated)
Multiemployer Pension Plans (“MEPPs”)

The Company has withdrawn from all significant MEPPs and replaced these union sponsored “promise to pay in the future” defined benefit plans with a Company sponsored “pay as you go” defined contribution plan. The two MEPPs, the Graphic Communications International Union – Employer Retirement Fund (“GCIU”) and the Graphic Communications Conference of the International Brotherhood of Teamsters National Pension Fund (“GCC”), are significantly underfunded, and require the Company to pay a withdrawal liability to fund its pro rata share of the underfunding as of the plan year the full withdrawal was completed. As a result of the decision to withdraw, the Company accrued a withdrawal liability based on information provided by each plan’s trustee. The Company has reserved $25.1 million for the total MEPPs withdrawal liability as of September 30, 2023, of which $22.1 million was recorded in other long-term liabilities and $3.0 million was recorded in other current liabilities in the condensed consolidated balance sheets. The Company is scheduled to make payments to the GCIU and GCC until April 2032 and February 2024, respectively. The Company made payments totaling $4.6 million for the nine months ended September 30, 2023 and 2022.

Note 11. Earnings (Loss) Per Share

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

Equity incentive instruments for which the total employee proceeds from exercise exceed the average fair value of the same equity incentive instrument over the period have an anti-dilutive effect on earnings per share during periods with net earnings, and accordingly, the Company excludes them from the calculation. Due to the net loss incurred during the three and nine months ended September 30, 2023, the assumed exercise of all equity incentive instruments was anti-dilutive and therefore, not included in the diluted loss per share calculation. Anti-dilutive equity instruments excluded from the computation of diluted net earnings per share were 0.3 million for the nine months ended September 30, 2022. There were no anti-dilutive equity instruments excluded from the computation of diluted net earnings per share for the three months ended September 30, 2022.

Reconciliations of the numerator and the denominator of the basic and diluted per share computations for the Company’s common stock for the three and nine months ended September 30, 2023 and 2022, are summarized as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Numerator
Net earnings (loss)$(2.7)$13.7 $(33.4)$18.0 
Denominator
Basic weighted average number of common shares outstanding for all classes of common stock48.0 50.1 48.8 51.2 
Plus: effect of dilutive equity incentive instruments— 1.5 — 1.8 
Diluted weighted average number of common shares outstanding for all classes of common shares48.0