Quad/Graphics Reports First Quarter 2013 Results

  Quad/Graphics Reports First Quarter 2013 Results

Company Reports Results In Line with Expectations, Reaffirms 2013 Guidance

Highlights:

  *Generated first quarter net sales of $1.1billion.
  *Achieved first quarter Adjusted EBITDA of $114million.
  *Produced $120million in first quarter Recurring Free Cash Flow.
  *Completed the acquisition of Vertis Holdings, Inc. ("Vertis") on January
    16, 2013.
  *Reaffirms 2013 annual guidance of $4.8billion to $5.0billion in revenue,
    $580million to $610million in Adjusted EBITDA, and Recurring Free Cash
    Flow in excess of $360million.

Business Wire

SUSSEX, Wis. -- May 7, 2013

Quad/Graphics, Inc. (NYSE: QUAD) (“Quad/Graphics” or the “Company”) today
reported results for its first quarter ending March31, 2013. The reported
results include Vertis from the day of acquisition on January 16, 2013. With
the exception of certain debt ratios, prior year financial results do not
include the acquisition of Vertis.

“Our first quarter results were in line with our expectations and we reaffirm
our previously released 2013 annual guidance,” said Joel Quadracci,
Quad/Graphics Chairman, President & CEO. “In addition, we are pleased with our
progress to date on the integration of Vertis. Our integration team has been
focused on cost-savings initiatives and improving the overall efficiency and
productivity of our platform, while also ensuring we continue to serve our
clients well. Going forward, we remain focused on improving productivity;
maintaining a strong and flexible balance sheet; investing in our existing
business as well as pursuing profitable investment opportunities; and creating
long-term value for our shareholders.”

Net sales for the first quarter 2013 were $1.1billion versus $990million for
the same period in 2012. First quarter 2013 Adjusted EBITDA was $114million
compared to $126million for the same period in 2012, and Adjusted EBITDA
margin was 10.1% compared to 12.7% for the same period in 2012. Recurring Free
Cash Flow was $120million versus $107 million for the same period in 2012.

“As expected, our Adjusted EBITDA margin was 10.1%. This reflects Vertis'
lower margin profile; continued pressure on Vertis' margins due to
pre-acquisition financial challenges, including its bankruptcy filing; the
seasonality of Vertis' business, which has volumes and profitability more
heavily weighted in the back half of the year; and ongoing industry pricing
pressures,” said John Fowler, Quad/Graphics Executive Vice President and Chief
Financial Officer. “The $160million increase in debt during the quarter is
attributable to the $237million in net cash paid for the Vertis acquisition.
Our leverage ratio of 2.54x is in line with our expectations for the quarter.
We continue to believe that operating in the 2.0x to 2.5x leverage range is
the appropriate target, but at times, like this quarter, we may go above that
range given economic changes, working capital seasonality, timing of
investments like Vertis, and growth opportunities. We remain confident in our
annual guidance, including strong, sustainable Recurring Free Cash Flow in
excess of $360million, which will allow us to continue to pay down debt and
drive future value.”

Quarterly Conference Call

Quad/Graphics (NYSE: QUAD) will hold a conference call at 10 a.m. ET / 9 a.m.
CT on Wednesday, May 8, to discuss first quarter 2013 results. To access the
conference call, it is recommended that you listen via computer at:
http://us.meeting-stream.com/quadgraphics_050813.

If for any reason you are unable to stream, you can listen to the audio via
the telephone by calling:

  *Toll-Free: (877) 217-9946 (US/Canada)
  *Toll: (702) 696-4824 (International)
  *Conference ID: 45757648

The replay will be available for 30 days following the conference call. To
access the replay via phone, please call (855) 859-2056 or (404) 537-3406 and
enter the Conference ID number 45757648. To access the replay via the
internet, please use the following link:
http://us.meeting-stream.com/quadgraphics_050813. Registration is required for
replay.

Forward-Looking Statements

This press release contains certain “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements regarding, among other things,
our current expectations about the Company's future results, financial
condition, goals, strategies, revenue, earnings, free cash flow, margins,
prospects and/or outlook and are indicated by words or phrases such as
“anticipate,” “estimate,” “expect,” “project,” “believe” and similar words or
phrases. These forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause actual results to be
materially different from those expressed in or implied by such
forward-looking statements. Forward-looking statements are based largely on
the Company's expectations and judgments and are subject to a number of risks
and uncertainties, many of which are unforeseeable and beyond our control.

The factors that could cause actual results to materially differ include,
among others: the impact of significant overcapacity in the highly competitive
commercial printing industry, which creates downward pricing pressure and
fluctuating demand for printing services; the inability of the Company to
reduce costs and improve operating efficiency rapidly enough to meet market
conditions; the impact of electronic media and similar technological changes
including digital substitution by consumers; the impact of changing future
economic conditions; the failure to renew long-term contracts with clients on
favorable terms or at all; the failure of clients to perform under long-term
contracts due to financial or other reasons or due to client consolidation;
the failure to successfully identify, manage, complete and integrate
acquisitions and investments, including the integration of the operations of
Vertis Holdings, Inc.; the impact of changes in postal rates, service levels
or regulations; the impact of fluctuations in costs and the availability of
raw materials; the impact of increased business complexity as a result of the
Company's entry into additional markets; the impact of regulatory matters and
legislative developments or changes in laws, including changes in privacy and
environmental laws; the ability of the Company to make the significant capital
expenditures needed to remain technologically and economically competitive;
the impact on Quad/Graphics class A common shareholders of a limited active
market for Quad/Graphics common stock and the inability to independently elect
directors or control decisions due to the class B common stock voting rights;
and the other risk factors identified in the Company's most recent Annual
Report on Form 10-K, as such may be amended or supplemented by subsequent
Quarterly Reports on Form 10-Q or other reports filed with theSecurities and
Exchange Commission.

Except as required by the federal securities laws, the Company undertakes no
obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.

About Quad/Graphics

Quad/Graphics (NYSE: QUAD), a leading global printer and media channel
integrator, is redefining print in today's multichannel media world by helping
marketers and publishers capitalize on print's ability to complement and
connect with other media channels. With consultative ideas, worldwide
capabilities, leading-edge technology and single-source simplicity,
Quad/Graphics has the resources and knowledge to help its clients maximize the
revenue they derive from their marketing spend through channel integration,
and minimize their total cost of production and distribution through a fully
integrated national distribution network. The Company provides a diverse range
of print solutions, media solutions and logistics services from multiple
locations throughout North America, Latin America and Europe.

                                                
QUAD/GRAPHICS,INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended March31, 2013 and 2012

(in millions, except per share data)

(UNAUDITED)
                                                  
                                                  
                                                  Three Months Ended March 31,
                                                  2013             2012
Net sales                                         $  1,129.5        $  989.6
                                                                    
Cost of sales                                     909.8             772.9
Selling, general and administrative expenses      105.9             92.0
Depreciation and amortization                     88.8              84.6
Restructuring, impairment and                     25.9             38.2     
transaction-related charges
Total operating expenses                          1,130.4           987.7
                                                                    
Operating income (loss) from continuing           $  (0.9     )     $  1.9
operations
                                                                    
Interest expense                                  21.9             21.4     
                                                                    
Loss from continuing operations before income
taxes and equity in earnings of unconsolidated    (22.8       )     (19.5    )
entities
                                                                    
Income tax benefit                                (8.5        )     (33.8    )
                                                                    
Earnings (loss) from continuing operations
before equity in earnings of unconsolidated       (14.3       )     14.3
entities
                                                                    
Equity in earnings of unconsolidated entities     0.2              1.1      
                                                                    
Net earnings (loss) from continuing operations    $  (14.1    )     $  15.4
                                                                    
Loss from discontinued operations, net of tax     —                 (3.2     )
(1)
Gain on disposal of discontinued operations,      —                35.3     
net of tax
                                                                    
Net earnings (loss)                               $  (14.1    )     $  47.5
                                                                    
Net (earnings) loss attributable to               0.1              (0.1     )
noncontrolling interests
                                                                    
Net earnings (loss) attributable to               $  (14.0    )     $  47.4  
Quad/Graphics common shareholders
                                                                    
Earnings (loss) per share attributable to
Quad/Graphics common shareholders:
Basic:
Continuing operations                             $  (0.31    )     $  0.33
Discontinued operations                           —                0.68     
Earnings (loss) per share attributable to         $  (0.31    )     $  1.01  
Quad/Graphics common shareholders
                                                                    
Diluted:
Continuing operations                             $  (0.31    )     $  0.33
Discontinued operations                           —                0.68     
Earnings (loss) per share attributable to         $  (0.31    )     $  1.01  
Quad/Graphics common shareholders
                                                                    
Weighted average number of common shares
outstanding:
Basic                                             46.8             46.8     
Diluted                                           46.8             46.9     
                                                                             

      Includes the results of the Canadian operations prior to the March 1,
(1)  2012 sale. Net earnings (loss) from continuing operations and its
      components exclude the Canadian operations.
      
      
      

QUAD/GRAPHICS,INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of March31, 2013 and December31, 2012

(in millions)

(UNAUDITED)
                                                               
                                                    March 31,     December 31,
                                                    2013          2012
ASSETS
Cash and cash equivalents                           $ 24.2        $  16.9
Receivables, less allowances for doubtful           661.8         585.1
accounts
Inventories                                         291.5         242.9
Prepaid expenses and other current assets           48.9          74.6
Deferred income taxes                               65.1          55.7
Short-term restricted cash                          11.7         14.8       
Total current assets                                1,103.2      990.0      
                                                                  
Property, plant and equipment—net                   2,012.9       1,926.4
Goodwill                                            768.2         768.6
Other intangible assets—net                         232.3         229.9
Long-term restricted cash                           44.6          45.7
Equity method investments in unconsolidated         67.1          72.0
entities
Other long-term assets                              65.7         66.3       
Total assets                                        $ 4,294.0    $  4,098.9 
                                                                  
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable                                    $ 376.8       $  285.8
Amounts owing in satisfaction of bankruptcy         2.6           9.3
claims
Accrued liabilities                                 323.3         334.0
Short-term debt and current portion of long-term    118.3         113.3
debt
Current portion of capital lease obligations        11.1         10.4       
Total current liabilities                           832.1        752.8      
                                                                  
Long-term debt                                      1,366.8       1,211.7
Unsecured notes to be issued                        19.6          23.8
Capital lease obligations                           14.1          15.3
Deferred income taxes                               365.3         363.9
Other long-term liabilities                         487.5        495.7      
Total liabilities                                   3,085.4       2,863.2
                                                                  
Quad/Graphics common stock and other equity
Preferred stock                                     —             —
Common stock                                        1.4           1.4
Additional paid-in capital                          975.4         985.6
Treasury stock, at cost                             (263.4    )   (279.3     )
Retained earnings                                   558.5         588.1
Accumulated other comprehensive loss                (63.5     )   (60.4      )
                                                                  
Quad/Graphics common stock and other equity         1,208.4       1,235.4
                                                                  
Noncontrolling interests                            0.2          0.3        
                                                                  
Total common stock and other equity and             1,208.6      1,235.7    
noncontrolling interests
                                                                  
Total liabilities and shareholders' equity          $ 4,294.0    $  4,098.9 
                                                                             
                                                                             
                                                                             

QUAD/GRAPHICS,INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March31, 2013 and 2012

(in millions)

(UNAUDITED)
                                                
                                                  
                                                  Three Months Ended March 31,
                                                  2013            2012
OPERATING ACTIVITIES
Net earnings (loss)                               $   (14.1  )     $  47.5
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization                     88.8             84.6
Impairment charges                                3.7              8.4
Deferred income taxes                             (8.0       )     (13.5    )
Gain on disposal of discontinued operations,      —                (35.3    )
net of tax
Other non-cash adjustments to net earnings        10.9             4.7
(loss)
Changes in operating assets and liabilities—net   40.1            14.2     
of acquisitions
                                                                   
Net Cash Provided by Operating Activities         121.4           110.6    
                                                                   
INVESTING ACTIVITIES
Purchases of property, plant and equipment        (28.3      )     (21.6    )
Cost investment in unconsolidated entities        (0.3       )     (18.1    )
Proceeds from the sale of property, plant and     5.4              2.4
equipment
Transfers from restricted cash                    4.2              7.5
Deposit refunded related to business exchange     —                50.0
transaction
Purchase price payments on business exchange      —                (4.2     )
transaction
Acquisition of Vertis—net of cash acquired        (237.4     )     —
Acquisition of other businesses—net of cash       (1.5       )     (6.6     )
acquired
                                                                   
Net Cash (Used in) Provided by Investing          (257.9     )     9.4      
Activities
                                                                   
FINANCING ACTIVITIES
Payments of long-term debt                        (10.2      )     (4.5     )
Payments of capital lease obligations             (2.6       )     (13.4    )
Borrowings on revolving credit facilities         487.2            40.2
Payments on revolving credit facilities           (314.4     )     (116.0   )
Bankruptcy claim payments on unsecured notes to   (4.2       )     (7.4     )
be issued
Proceeds from issuance of common stock            0.5              —
Payment of cash dividends                         (14.0      )     (11.7    )
                                                                   
Net Cash Provided by (Used in) Financing          142.3           (112.8   )
Activities
                                                                   
Effect of exchange rates on cash and cash         1.5             (5.7     )
equivalents
                                                                   
Net Increase in Cash and Cash Equivalents         7.3             1.5      
                                                                   
Cash and Cash Equivalents at Beginning of         16.9            25.6     
Period
                                                                   
Cash and Cash Equivalents at End of Period        $   24.2        $  27.1  
                                                                            

The condensed consolidated statements of cash flows include the cash flows of
the Canadian operations prior to the March1, 2012 sale.

                                                       
                                                           
                                                           
QUAD/GRAPHICS,INC.

SEGMENT FINANCIAL INFORMATION

For the Three Months Ended March31, 2013 and 2012

(in millions)

(UNAUDITED)
                                                           
                                                           Restructuring,

                                           Operating       Impairment and
                             Net Sales
                                           Income/(Loss)   Transaction-Related

                                                           Charges
Three months ended March
31, 2013
United States Print and      $ 1,009.2     $   22.1        $        15.7
Related Services
International                120.3        0.5            1.1
Total operating segments     1,129.5       22.6            16.8
Corporate                    —            (23.5      )    9.1
Total                        $ 1,129.5    $   (0.9   )    $        25.9
                                                           
Three months ended March
31, 2012
United States Print and      $ 863.3       $   33.7        $        14.3
Related Services
International                126.3        (8.2       )    10.5
Total operating segments     989.6         25.5            24.8
Corporate                    —            (23.6      )    13.4
Total                        $ 989.6      $   1.9        $        38.2
                                                                    

Results from the Canadian operations sold on March 1, 2012 are excluded from
the segment financial information presented above.

Restructuring, impairment and transaction-related charges are included in
Operating Income/(Loss) above.




QUAD/GRAPHICS,INC.

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin

For the Three Months Ended March31, 2013 and 2012

(in millions)

(UNAUDITED)
                                                
                                                  
                                                  Three Months Ended March 31,
                                                  2013           2012
Net earnings (loss) attributable to               $  (14.0  )     $  47.4
Quad/Graphics common shareholders
                                                                  
Interest expense                                  21.9            21.4
Income tax benefit                                (8.5      )     (33.8     )
Depreciation and amortization                     88.8           84.6      
                                                                  
EBITDA (Non-GAAP)                                 $  88.2         $  119.6
EBITDA Margin (Non-GAAP)                          7.8       %     12.1      %
                                                                  
Restructuring, impairment and                     25.9            38.2
transaction-related charges (1)
Loss from discontinued operations, net of tax     —               3.2
Gain on disposal of discontinued operations,      —              (35.3     )
net of tax
                                                                  
Adjusted EBITDA from continuing operations        $  114.1       $  125.7  
(Non-GAAP)
Adjusted EBITDA Margin from continuing            10.1      %     12.7      %
operations (Non-GAAP)
                                                                            

      Operating results from continuing operations for the three months ended
(1)  March 31, 2013 and 2012 were affected by the following restructuring,
      impairment and transaction-related charges:
      

                                                 Three Months Ended March 31,
                                                  2013            2012
Employee termination charges (a)                  $   3.4          $  10.4
Impairment charges (b)                            3.7              8.4
Transaction-related charges (c)                   3.0              1.5
Integration costs (d)                             5.4              11.9
Gain on collection of note receivable (e)         —                (2.4     )
Other restructuring charges, net (f)              10.4            8.4      
Restructuring, impairment and
transaction-related charges from continuing       $   25.9        $  38.2  
operations
                                                                            

              Employee termination charges were related to workforce
    (a)  reductions through facility consolidations and involuntary
              separation programs.
              Impairment charges were for certain buildings and equipment no
        (b)   longer being utilized in production as a result of facility
              consolidations.
        (c)   Transaction-related charges consisted of professional service
              fees related to business acquisition and divestiture activities.
              Integration costs were primarily related to preparing existing
        (d)   facilities to meet new production requirements resulting from
              work transferring from closed plants, as well as other costs
              related to the integration of the acquired companies.
              Gain on the collection of a note receivable for the three months
        (e)   ended March 31, 2012 was related to a settlement of a disputed
              pre-acquisition Worldcolor note receivable. These non-recurring
              gains were excluded from the calculation of Adjusted EBITDA.
              Other restructuring charges, net, were primarily from costs to
        (f)   maintain and exit closed facilities, as well as lease exit
              charges.
              

In addition to financial measures prepared in accordance with generally
accepted accounting principles (GAAP), this earnings announcement also
contains non-GAAP financial measures, specifically EBITDA, EBITDA Margin,
Adjusted EBITDA, Adjusted EBITDA Margin, Recurring Free Cash Flow and Adjusted
Diluted Earnings Per Share. They are presented to provide additional
information regarding Quad/Graphics' performance and because they are
important measures by which Quad/Graphics assesses the profitability and
liquidity of its business. These measures 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/GRAPHICS,INC.

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

RECURRING FREE CASH FLOW

For the Three Months Ended March31, 2013 and 2012

(in millions)

(UNAUDITED)
                                                
                                                  Three Months Ended March 31,
                                                  2013           2012
Net cash provided by operating activities         $  121.4        $  110.6
                                                                  
Add back non-recurring payments:
Restructuring payments, net (1)                   20.2            16.3
Worldcolor bankruptcy payments                    6.9            2.0       
                                                                  
Recurring cash flows provided by operating        148.5           128.9
activities
                                                                  
Less: purchases of property, plant and            (28.3     )     (21.6     )
equipment
                                                                  
Recurring Free Cash Flow                          $  120.2       $  107.3  
                                                                            

      Restructuring payments are shown net of cash receipts related to
      non-recurring restructuring transactions. For the three months ended
      March 31, 2012, restructuring payments were $31.0 million (consisting of
(1)  $30.1 million in payments for continuing operations and $0.9 million for
      Canadian discontinued operations) and were reduced for a $14.7 million
      non-recurring collection of a disputed pre-acquisition Worldcolor note
      receivable.
      

Recurring Free Cash Flow includes the cash flows of the Canadian operations
prior to the March1, 2012 sale.

In addition to financial measures prepared in accordance with generally
accepted accounting principles (GAAP), this earnings announcement also
contains non-GAAP financial measures, specifically EBITDA, EBITDA Margin,
Adjusted EBITDA, Adjusted EBITDA Margin, Recurring Free Cash Flow and Adjusted
Diluted Earnings Per Share. They are presented to provide additional
information regarding Quad/Graphics' performance and because they are
important measures by which Quad/Graphics assesses the profitability and
liquidity of its business. These measures 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/GRAPHICS,INC.

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

Adjusted Diluted Earnings Per Share

For the Three Months Ended March31, 2013 and 2012

(in millions, except per share data)

(UNAUDITED)
                                                
                                                  Three Months Ended March 31,
                                                  2013           2012
Loss from continuing operations before income
taxes and equity in earnings of unconsolidated    $  (22.8  )     $  (19.5  )
entities
                                                                  
Restructuring, impairment and                     25.9           38.2      
transaction-related charges
                                                  3.1             18.7
                                                                  
Income tax expense at 40% normalized tax rate     1.2            7.5       
                                                  1.9             11.2
                                                                  
Equity in earnings of unconsolidated entities     0.2             1.1
Net (earnings) loss attributable to               0.1            (0.1      )
noncontrolling interests
                                                                  
Adjusted net earnings from continuing             $  2.2         $  12.2   
operations (Non-GAAP)
                                                                  
Basic weighted average number of common shares    46.8            46.8
outstanding
Plus: effect of dilutive equity incentive         0.9            0.1       
instruments (Non-GAAP in 2013)
Diluted weighted average number of common         47.7           46.9      
shares outstanding (Non-GAAP in 2013)
                                                                  
Adjusted Diluted Earnings Per Share From          $  0.05        $  0.26   
Continuing Operations (Non-GAAP) (1)
                                                                  
                                                                  
Diluted Earnings (Loss) Per Share From            $  (0.31  )     $  0.33
Continuing Operations (GAAP)
Restructuring, impairment and                     0.54            0.81
transaction-related charges per share
Income tax benefit from condensed consolidated    (0.18     )     (0.72     )
statement of operations per share
Income tax expense at 40% normalized tax rate     (0.02     )     (0.16     )
per share
Allocation to participating securities per        0.01            —
share (2)
GAAP to Non-GAAP diluted impact per share         0.01           —         
Adjusted Diluted Earnings Per Share From          $  0.05        $  0.26   
Continuing Operations (Non-GAAP) (1)
                                                                            

              Adjusted Diluted Earnings Per Share excludes: (i) the results of
              the Canadian discontinued operations, (ii) the gain on disposal
    (1)  of the Canadian discontinued operations, (iii) restructuring,
              impairment and transaction-related charges and (iv) discrete
              income tax items.
              Represents the impact of dividends distributed to non-vested
        (2)   stock option holders in accordance with the two-class method of
              calculating GAAP earnings per share.

In addition to financial measures prepared in accordance with generally
accepted accounting principles (GAAP), this earnings announcement also
contains non-GAAP financial measures, specifically EBITDA, EBITDA Margin,
Adjusted EBITDA, Adjusted EBITDA Margin, Recurring Free Cash Flow and Adjusted
Diluted Earnings Per Share. They are presented to provide additional
information regarding Quad/Graphics' performance and because they are
important measures by which Quad/Graphics assesses the profitability and
liquidity of its business. These measures 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.

Contact:

Investor Relations Contact:
Quad/Graphics
Kelly Vanderboom
Vice President & Treasurer
414-566-2464
Kelly.Vanderboom@qg.com
or
Media Contact:
Quad/Graphics
Claire Ho
Director of Corporate Communications
414-566-2955
Claire.Ho@qg.com
 
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