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Quad/Graphics Reports Second Quarter And Year-To-Date June 2012 Results

Quad/Graphics 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/Graphics' filings with the United States Securities and Exchange Commission 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 press release. Except to the extent required by the federal securities laws, Quad/Graphics 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) is a global provider of print and related multichannel solutions for consumer magazines, special interest publications, catalogs, retail inserts/circulars, direct mail, books, directories, and commercial and specialty products, including in-store signage. Headquartered in Sussex, Wis. (just west of Milwaukee), the Company has approximately 22,000 full-time equivalent employees working from more than 50 print-production facilities as well as other support locations throughout North America, Latin America and Europe. As a printing industry innovator, Quad/Graphics ( www.QG.com) is redefining the power of print in today's multimedia world by helping its clients use print as the foundation of multichannel communications strategies to drive their top-line revenues.

 
QUAD/GRAPHICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended June 30, 2012 and 2011

(in millions, except per share data)

(UNAUDITED)

 
Three Months Ended June 30,
2012   2011
Net sales $ 934.2 $ 977.2
 
Cost of sales 740.8 756.6
Selling, general and administrative expenses 80.6 104.6
Depreciation and amortization 84.7 83.5
Restructuring, impairment and transaction-related charges 37.7   21.6  
Total operating expenses 943.8 966.3
 
Operating income (loss) from continuing operations (9.6 ) 10.9
 
Interest expense 20.7   29.3  
 
Loss from continuing operations before income taxes and equity in earnings (loss) of unconsolidated entities (30.3 ) (18.4 )
 
Income tax benefit (10.3 ) (3.7 )
 
Loss from continuing operations before equity in earnings (loss) of unconsolidated entities (20.0 ) (14.7 )
 
Equity in earnings (loss) of unconsolidated entities (0.8 ) 0.3  
 
Net loss from continuing operations $ (20.8 ) $ (14.4 )
 
Earnings from discontinued operations, net of tax (1)   4.2  
 
Net loss $ (20.8 ) $ (10.2 )
 
Net earnings attributable to noncontrolling interests   (0.1 )
 
Net loss attributable to Quad/Graphics common shareholders $ (20.8 ) $ (10.3 )
 
Earnings (loss) per share attributable to Quad/Graphics common shareholders:
Basic and diluted:
Continuing operations $ (0.44 ) $ (0.31 )
Discontinued operations   0.09  
Earnings (loss) per share attributable to Quad/Graphics common shareholders $ (0.44 ) $ (0.22 )
 
Weighted average number of common shares outstanding:
Basic and diluted 46.8   47.3  

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

 
QUAD/GRAPHICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Six Months Ended June 30, 2012 and 2011

(in millions, except per share data)

(UNAUDITED)

 
Six Months Ended June 30,
2012   2011
Net sales $ 1,923.8 $ 1,999.6
 
Cost of sales 1,513.7 1,540.3
Selling, general and administrative expenses 172.6 202.5
Depreciation and amortization 169.3 170.8
Restructuring, impairment and transaction-related charges 75.9   50.3  
Total operating expenses 1,931.5 1,963.9
 
Operating income (loss) from continuing operations (7.7 ) 35.7
 
Interest expense 42.1   59.1  
 
Loss from continuing operations before income taxes and equity in earnings of unconsolidated entities (49.8 ) (23.4 )
 
Income tax benefit (44.1 ) (10.9 )
 
Loss from continuing operations before equity in earnings of unconsolidated entities (5.7 ) (12.5 )
 
Equity in earnings of unconsolidated entities 0.3   1.1  
 
Net loss from continuing operations $ (5.4 ) $ (11.4 )
 
Loss from discontinued operations, net of tax (1) (3.2 ) (6.1 )
Gain on disposal of discontinued operations, net of tax 35.3    
 
Net earnings (loss) $ 26.7 $ (17.5 )
 
Net earnings attributable to noncontrolling interests (0.1 ) (0.1 )
 
Net earnings (loss) attributable to Quad/Graphics common shareholders $ 26.6   $ (17.6 )
 
Earnings (loss) per share attributable to Quad/Graphics common shareholders:
Basic and diluted:
Continuing operations $ (0.12 ) $ (0.24 )
Discontinued operations 0.69   (0.13 )
Earnings (loss) per share attributable to Quad/Graphics common shareholders $ 0.57   $ (0.37 )
 
Weighted average number of common shares outstanding:
Basic and diluted 46.8   47.3  

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

   
QUAD/GRAPHICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended June 30, 2012 and 2011

(in millions, except per share data)

(UNAUDITED)

 
Three Months Ended June 30, Three Months Ended June 30,
2012 2011
Consolidated  

Discontinued Operations (1)

 

Continuing Operations

Consolidated  

Discontinued Operations (1)

 

Continuing Operations

 
Net sales $ 934.2 $ $ 934.2 $ 1,070.5 $ 93.3 $ 977.2
 
Cost of sales 740.8 740.8 832.0 75.4 756.6
Selling, general and administrative expenses 80.6 80.6 112.0 7.4 104.6
Depreciation and amortization 84.7 84.7 87.7 4.2 83.5
Restructuring, impairment and transaction-related charges 37.7     37.7   23.4   1.8   21.6  
Total operating expenses 943.8 943.8 1,055.1 88.8 966.3
 
Operating income (loss) (9.6 ) (9.6 ) 15.4 4.5 10.9
 
Interest expense 20.7     20.7   29.5   0.2   29.3  
 
Earnings (loss) before income taxes and equity in earnings of unconsolidated entities (30.3 ) (30.3 ) (14.1 ) 4.3 (18.4 )
 
Income tax (benefit) expense (10.3 )   (10.3 ) (3.6 ) 0.1   (3.7 )
 
Earnings (loss) before equity in earnings of unconsolidated entities (20.0 ) (20.0 ) (10.5 ) 4.2 (14.7 )
 
Equity in earnings (loss) of unconsolidated entities (0.8 )   (0.8 ) 0.3     0.3  
 
Net earnings (loss) $ (20.8 ) $ $ (20.8 ) $ (10.2 ) $ 4.2 $ (14.4 )
 
Net earnings attributable to noncontrolling interests       (0.1 )   (0.1 )
 
Net earnings (loss) attributable to Quad/Graphics common shareholders $ (20.8 ) $   $ (20.8 ) $ (10.3 ) $ 4.2   $ (14.5 )
 
Earnings (loss) per share attributable to Quad/Graphics common shareholders:
Basic and diluted $ (0.44 ) $   $ (0.44 ) $ (0.22 ) $ 0.09   $ (0.31 )
 
Weighted average number of common shares outstanding:
Basic and diluted 46.8   46.8   46.8   47.3   47.3   47.3  

(1) The Canadian operations sold on March 1, 2012 are presented as discontinued operations. This schedule is presented to provide the full income statement for consolidated, discontinued and continuing results of operations.

   
QUAD/GRAPHICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Six Months Ended June 30, 2012 and 2011

(in millions, except per share data)

(UNAUDITED)

 
Six Months Ended June 30, Six Months Ended June 30,
2012 2011
Consolidated  

Discontinued Operations (1)

 

Continuing Operations

Consolidated  

Discontinued Operations (1)

 

Continuing Operations

 
Net sales $ 1,956.0 $ 32.2 $ 1,923.8 $ 2,172.8 $ 173.2 $ 1,999.6
 
Cost of sales 1,544.5 30.8 1,513.7 1,685.4 145.1 1,540.3
Selling, general and administrative expenses 175.5 2.9 172.6 221.0 18.5 202.5
Depreciation and amortization 169.3 169.3 178.2 7.4 170.8
Restructuring, impairment and transaction-related charges 77.6   1.7   75.9   58.2   7.9   50.3  
Total operating expenses 1,966.9 35.4 1,931.5 2,142.8 178.9 1,963.9
 
Operating income (loss) (10.9 ) (3.2 ) (7.7 ) 30.0 (5.7 ) 35.7
 
Interest expense 42.1     42.1   59.4   0.3   59.1  
 
Loss before income taxes and equity in earnings of unconsolidated entities (53.0 ) (3.2 ) (49.8 ) (29.4 ) (6.0 ) (23.4 )
 
Income tax (benefit) expense (44.1 )   (44.1 ) (10.8 ) 0.1   (10.9 )
 
Loss before equity in earnings of unconsolidated entities (8.9 ) (3.2 ) (5.7 ) (18.6 ) (6.1 ) (12.5 )
 
Equity in earnings of unconsolidated entities 0.3 0.3 1.1 1.1
Gain on disposal of discontinued operations, net of tax 35.3   35.3          
 
Net earnings (loss) $ 26.7 $ 32.1 $ (5.4 ) $ (17.5 ) $ (6.1 ) $ (11.4 )
 
Net earnings attributable to noncontrolling interests (0.1 )   (0.1 ) (0.1 )   (0.1 )
 
Net earnings (loss) attributable to Quad/Graphics common shareholders $ 26.6   $ 32.1   $ (5.5 ) $ (17.6 ) $ (6.1 ) $ (11.5 )
 
Earnings (loss) per share attributable to Quad/Graphics common shareholders:
Basic and diluted $ 0.57   $ 0.69   $ (0.12 ) $ (0.37 ) $ (0.13 ) $ (0.24 )
 
Weighted average number of common shares outstanding:
Basic and diluted 46.8   46.8   46.8   47.3   47.3   47.3  

(1) The Canadian operations sold on March 1, 2012 are presented as discontinued operations. This schedule is presented to provide the full income statement for consolidated, discontinued and continuing results of operations.

   
QUAD/GRAPHICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of June 30, 2012 and December 31, 2011

(in millions)

(UNAUDITED)

 
June 30, 2012 December 31, 2011
ASSETS
Cash and cash equivalents $ 17.6 $ 25.6
Receivables, less allowances for doubtful accounts 531.9 656.1
Inventories 252.5 249.5
Prepaid expenses and other current assets 75.7 142.3
Deferred income taxes 70.6 86.7
Short-term restricted cash 17.2 8.5
Current assets of discontinued operations (1)   72.6  
 
Total current assets 965.5   1,241.3  
 
Property, plant and equipment—net 2,023.2 2,123.3
Goodwill 787.3 787.1
Other intangible assets—net 262.1 295.6
Long-term restricted cash 47.3 67.4
Equity method investments in unconsolidated entities 68.2 69.4
Other long-term assets 49.0 46.2
Long-term assets of discontinued operations (1)   104.9  
 
Total assets $ 4,202.6   $ 4,735.2  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 266.2 $ 301.9
Amounts owing in satisfaction of bankruptcy claims 10.4 19.5
Accrued liabilities 341.0 393.9
Purchase price payable on business exchange transaction 62.4
Short-term debt and current portion of long-term debt 98.7 82.1
Current portion of capital lease obligations 10.3 20.7
Current liabilities of discontinued operations (1)   48.4  
 
Total current liabilities 726.6   928.9  
 
Long-term debt 1,208.7 1,342.8
Unsecured notes to be issued 27.6 38.7
Capital lease obligations 20.5 24.9
Deferred income taxes 432.4 471.9
Other long-term liabilities 470.9 521.5
Long-term liabilities of discontinued operations (1)   99.6  
 
Total liabilities 2,886.7 3,428.3
 
Redeemable equity 3.5 3.5
 
Quad/Graphics common stock and other equity
Preferred stock
Common stock 1.4 1.4
Additional paid-in capital 979.4 984.2
Treasury stock, at cost (283.7 ) (295.4 )
Retained earnings 650.6 650.2
Accumulated other comprehensive loss (36.0 ) (37.7 )
 
Quad/Graphics common stock and other equity 1,311.7 1,302.7
 
Noncontrolling interests 0.7   0.7  
 
Total common stock and other equity and noncontrolling interests 1,312.4   1,303.4  
 
Total liabilities and shareholders' equity $ 4,202.6   $ 4,735.2  

(1) December 31, 2011 balance sheet includes the assets and liabilities of the Canadian operations sold on March 1, 2012.

 
QUAD/GRAPHICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2012 and 2011

(in millions)

(UNAUDITED)

 
Six Months Ended June 30,
2012   2011
OPERATING ACTIVITIES
Net earnings (loss) $ 26.7 $ (17.5 )
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization 169.3 178.2
Impairment charges 14.1
Deferred income taxes (25.5 ) 9.4
Gain on disposal of discontinued operations, net of tax (35.3 )
Other non-cash adjustments to net earnings (loss) 9.0 10.5
Changes in operating assets and liabilities—net of acquisitions 12.2   (63.9 )
 
Net Cash Provided by Operating Activities 170.5   116.7  
 
INVESTING ACTIVITIES
Purchases of property, plant and equipment (54.2 ) (98.5 )
Investment in ManipalTech (18.1 )
Proceeds from the sale of property, plant and equipment 10.0 8.2
Transfers from restricted cash 11.4 17.3
Deposit refunded related to business exchange transaction 50.0
Purchase price payments on business exchange transaction (4.2 )
Acquisition of business—net of cash acquired (6.6 )  
 
Net Cash Used in Investing Activities (11.7 ) (73.0 )
 
FINANCING ACTIVITIES
Payments of long-term debt (35.9 ) (43.6 )
Payments of capital lease obligations (15.9 ) (8.8 )
Borrowings on revolving credit facilities 65.1 389.5
Payments on revolving credit facilities (142.6 ) (360.9 )
Bankruptcy claim payments on unsecured notes to be issued (11.1 ) (8.0 )
Proceeds from issuance of common stock 1.6
Tax benefit on exercise of stock options 0.8
Payment of cash dividends (23.4 ) (9.4 )
Payment of tax distributions   (4.2 )
 
Net Cash Used in Financing Activities (163.8 ) (43.0 )
 
Effect of exchange rates on cash and cash equivalents (3.0 ) (4.6 )
 
Net Decrease in Cash and Cash Equivalents (8.0 ) (3.9 )
 
Cash and Cash Equivalents at Beginning of Period 25.6   20.5  
 
Cash and Cash Equivalents at End of Period $ 17.6   $ 16.6  

The condensed consolidated statements of cash flows include the cash flows of the Canadian operations prior to the March 1, 2012 sale.

     
QUAD/GRAPHICS, INC.

SEGMENT FINANCIAL INFORMATION

For the Three and Six Months Ended June 30, 2012 and 2011

(in millions)

(UNAUDITED)

 
Net Sales

Operating Income/(Loss)

Restructuring, Impairment and Transaction-Related Charges

Three months ended June 30, 2012
United States Print and Related Services $ 808.6 $ 22.7 $ 18.1
International 125.6   (9.8 ) 7.6
Total operating segments 934.2 12.9 25.7
Corporate   (22.5 ) 12.0
Total $ 934.2   $ (9.6 ) $ 37.7
 
Three months ended June 30, 2011
United States Print and Related Services $ 859.5 $ 40.7 $ 9.4
International 117.7   (6.0 ) 0.9
Total operating segments 977.2 34.7 10.3
Corporate   (23.8 ) 11.3
Total $ 977.2   $ 10.9   $ 21.6
 
Six months ended June 30, 2012
United States Print and Related Services $ 1,671.9 $ 56.4 $ 32.4
International 251.9   (18.0 ) 18.1
Total operating segments 1,923.8 38.4 50.5
Corporate   (46.1 ) 25.4
Total $ 1,923.8   $ (7.7 ) $ 75.9
 
Six months ended June 30, 2011
United States Print and Related Services $ 1,766.7 $ 87.4 $ 30.8
International 232.9   (10.8 ) 2.4
Total operating segments 1,999.6 76.6 33.2
Corporate   (40.9 ) 17.1
Total $ 1,999.6   $ 35.7   $ 50.3

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

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