Strong 2016 Operating Performance Leads to Increased Earnings
and Cash Flow Generation; Company Provides 2017 Outlook
Quad/Graphics, Inc. (NYSE: QUAD) (“Quad/Graphics” or the
“Company”), today reported fourth quarter and full-year 2016
results.
Earnings Highlights
- Delivered fourth quarter 2016 net sales
of $1.2 billion and full-year 2016 net sales of
$4.3 billion.
- Reported fourth quarter 2016 GAAP net
earnings of $38 million and full-year 2016 GAAP net earnings
of $45 million.
- Achieved fourth quarter 2016 Adjusted
EBITDA of $140 million and Adjusted EBITDA margin of
11.7%.
- Increased full-year 2016 Adjusted
EBITDA by $11 million to $480 million and increased
Adjusted EBITDA margin by 90 basis points to 11.1%.
- Increased full-year 2016 Adjusted
Diluted Earnings Per Share by $0.85 per share to
$1.52 per share.
Cash Flow & Balance Sheet Highlights
- Increased full-year 2016 GAAP cash flow
from operations by $4 million to $353 million, and
increased full-year 2016 Free Cash Flow by $31 million to
$246 million.
- Reduced debt and capital leases by
$218 million during 2016.
- Amended and extended the Company’s
$1.1 billion revolving credit facility and Term Loan A to
2021, and swapped $250 million of variable-rate debt into
fixed-rate debt to lock in 62% of the Company’s debt as fixed-rate
debt.
Other Financial Highlights
- Declares quarterly dividend of
$0.30 per share.
- Provides 2017 financial guidance ranges
for net sales of $4.1 billion to $4.3 billion, Adjusted
EBITDA of $440 million to $480 million, and Free Cash
Flow of $225 million to $275 million.
“We are pleased with our fourth quarter and full-year 2016
results, which exceeded our expectations and show that we more than
accomplished what we set out to achieve at the start of the year,”
said Joel Quadracci, Quad/Graphics Chairman, President & Chief
Executive Officer. “Throughout 2016, we continued to transform both
our business and the industry through strategic investment in our
assets and through the creation of new and innovative solutions
designed to drive greater value for our clients. We also continued
to implement sustainable cost reductions and productivity
improvements while maintaining our focus on revenue to drive EBITDA
enhancement.”
Quadracci added: “As we look forward to 2017, we plan to
continue to take advantage of our unique position in the industry
as both a global printer and a marketing services provider. We will
leverage our growing BlueSoho integrated marketing agency, as well
as our strategic investment in Rise Interactive, to create
innovative, end-to-end solutions for our customers that will allow
them to improve both the efficiency and effectiveness of their
media spend across multiple channels. Further, we will remain
diligent in our aggressive management of costs and productivity to
hold the line on Adjusted EBITDA margins. This will allow us to
meet our goal of being the industry’s high-quality, low-cost
producer, and generate strong Free Cash Flow to support
value-creating opportunities as part of our company’s ongoing
transformation as a global marketing services provider.”
Summary Results
Net sales for the three months ended December 31, 2016, were
$1.2 billion, an 8.8% decrease from the three months ended
December 31, 2015. Organic sales decreased 6.3% due to ongoing
industry volume and pricing pressures, after excluding foreign
exchange (-0.3% impact) and pass-through paper sales (-2.2%). The
organic sales decrease is consistent with the Company’s previous
guidance. GAAP net earnings improved to $38 million and GAAP
diluted earnings per share improved to $0.73 per share during
the three months ended December 31, 2016. The improvement in
earnings and diluted earnings per share was due to better operating
performance from ongoing improvements in manufacturing productivity
and labor management, sustainable cost reductions, lower
depreciation and amortization expense and lower restructuring and
non-cash impairment charges. Fourth quarter 2016 Adjusted EBITDA
decreased $14 million to $140 million compared to
$154 million in 2015 due to lower net sales, and Adjusted
EBITDA margin remained flat at 11.7% year-over-year due to lower
cost of sales and selling, general and administrative expenses
driven by enhanced efficiency and sustainable cost reductions.
Net sales for the year ended December 31, 2016, were
$4.3 billion, a 5.8% decrease from the year ended December 31,
2015. Organic sales declined 4.5% due to ongoing industry volume
and pricing pressures, after excluding acquisitions (1.4% impact),
foreign exchange (-0.6% impact) and pass-through paper sales (-2.1%
impact). GAAP net earnings improved to $45 million and GAAP
diluted earnings per share improved to $0.90 per share during
the year ended December 31, 2016. Full-year 2016 Adjusted EBITDA
increased $11 million to $480 million compared to
$469 million in 2015, and Adjusted EBITDA margin increased to
11.1% in 2016 compared to 10.2% for the previous year. Adjusted
Diluted Earnings Per Share improved by $0.85 per share during
the year ended December 31, 2016 to $1.52 per share. The
increases in Adjusted EBITDA, Adjusted EBITDA margin and Adjusted
Diluted Earnings Per Share primarily reflect enhanced efficiency
and sustainable cost reductions and, for Adjusted Diluted Earnings
Per Share, lower depreciation and amortization.
GAAP net cash provided by operating activities was
$353 million for the year ended December 31, 2016, an increase
of $4 million, or 1%, over 2015. Free Cash Flow was
$246 million compared to $215 million for the previous
year. The $31 million, or 14% increase over the prior year was
due to lower capital expenditures, increased earnings, and
sustainable ongoing improvement in working capital levels.
“Quad/Graphics continues to generate significant Free Cash Flow,
which is important to maintaining a strong and flexible balance
sheet that supports our disciplined capital deployment strategy,”
said Dave Honan, Quad/Graphics Executive Vice President & Chief
Financial Officer. “Our strong Adjusted EBITDA and Free Cash Flow
throughout 2016 allowed us to reduce debt by $218 million and
improve our year-end Debt Leverage Ratio to 2.36x, which is well
within our long-term targeted range of 2.0x to 2.5x. In addition,
the significant Free Cash Flow allows the Company to continue to
strategically invest in our business and maintain an affordable and
sustainable annual dividend of $1.20 per share, representing
approximately 25% of Free Cash Flow.”
Debt Capital Structure Update
The Company amended and extended its $1.1 billion revolving
credit facility and Term Loan A on February 10, 2017, to extend the
Company’s debt maturity profile by two years to 2021, while
maintaining the Company’s current cost of borrowing and covenant
structure. The amendment included the lowering of the maximum
borrowing capacity under the revolving credit facility to
$725 million (previously was $850 million) and replacing
its current Term Loan A with a new $375 million Term Loan
A.
Additionally, the Company also entered into a 5-year interest
rate swap in February 2017, to swap $250 million of
variable-rate debt into fixed-rate debt at 3.9%. The swap locks in
62% of the Company’s debt rate structure as fixed-rate debt with an
overall blended average interest rate of 5.0%.
“The amendment to our credit facility and interest rate swap has
allowed us to extend our maturities out to 2021, maintain our
current covenant package and reduce interest rate risk to maintain
an advantageous 5% total cost of borrowings,” said Honan. “We
believe that locking in a portion of our variable-rate debt
structure at a low fixed interest rate is a prudent way of taking
additional risk off our balance sheet in a potentially rising
interest rate environment. These transactions and our continued
focus on reducing debt levels is consistent with our ongoing
disciplined approach to maintain a strong and flexible balance
sheet.”
Outlook
Quad/Graphics provides the following 2017 financial
guidance:
U.S. $ 2017 Guidance Range Net Sales
$4.1 billion – $4.3 billion Adjusted EBITDA
$440 million – $480 million Free Cash Flow
$225 million – $275 million
Honan concluded: “We expect 2017 Adjusted EBITDA margin and Free
Cash Flow to be flat with 2016 at the midpoints of our guidance
ranges due to our ongoing efforts to implement permanent
improvements to Quad/Graphics’ cost structure and working capital
levels. We believe these results will give us the ability to
continue to invest in our business and accelerate the
transformation of our go-to-market strategy, as well as continuing
to return capital to our shareholders through our quarterly
dividend, among other priorities.”
Quad/Graphics’ next quarterly dividend of $0.30 per share
will be payable on March 10, 2017, to shareholders of record as of
February 27, 2017.
Quarterly Conference Call
Quad/Graphics (NYSE: QUAD) will hold a conference call at 10
a.m. ET / 9 a.m. CT on Wednesday, February 22. The call will be
hosted by Joel Quadracci, Quad/Graphics Chairman, President &
Chief Executive Officer, and Dave Honan, Executive Vice President
& Chief Financial Officer. The full earnings release and slide
presentation will be concurrently available on the Investors
section of Quad/Graphics’ website at http://investors.qg.com.
Participants can pre-register for the webcast by navigating to
http://dpregister.com/10078532.
Participants will be given a unique PIN to gain immediate access to
the call on February 22, bypassing the live operator. Participants
may pre-register at any time, including up to and after the call
start time.
Alternatively, participants without internet access may dial in
on the day of the call as follows:
- U.S. Toll-Free: 1-877-328-5508
- International Toll: 1-412-317-5424
Telephone playback will be available following the conference
call and will be accessible as follows:
- U.S. Toll-Free: 1-877-344-7529
- International Toll: 1-412-317-0088
- Replay Access Code: 10078532
The playback will be available until March 23, 2017.
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, revenue, earnings, free cash
flow, margins, objectives, goals, strategies, beliefs, intentions,
plans, estimates, prospects, projections and outlook of the Company
and can generally be identified by the use of words or phrases such
as "may," "will," "expect," "intend," "estimate," "anticipate,"
"plan," "foresee," "project," "believe," "continue" or the
negatives of these terms, variations on them and other similar
expressions. 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 decreasing demand for printed
materials and significant overcapacity in the highly competitive
commercial printing industry creates downward pricing pressures;
the impact of electronic media and similar technological changes,
including digital substitution by consumers; the inability of the
Company to reduce costs and improve operating efficiency rapidly
enough to meet market conditions; the impact of changing future
economic conditions; the failure of clients to perform under
contracts or to renew contracts with clients on favorable terms or
at all; the failure to attract and retain qualified production
personnel; the impact of increased business complexity as a result
of the Company's entry into additional markets; the impact of
fluctuations in costs (including labor and labor-related costs,
energy costs, freight rates and raw materials) and the impact of
fluctuations in the availability of raw materials; the failure to
successfully identify, manage, complete and integrate acquisitions
and investments; the impact of risks associated with the operations
outside of the United States, including costs incurred or
reputational damage suffered due to improper conduct of its
employees, contractors or agents; the impact of changes in postal
rates, service levels or regulations; the impact of regulatory
matters and legislative developments or changes in laws, including
changes in cyber-security, privacy and environmental laws; the
fragility and decline in overall distribution channels, including
newspaper distribution channels; the impact of the various
restrictive covenants in the Company's debt facilities on the
Company's ability to operate its business; significant capital
expenditures may be needed to maintain the Company's platform and
processes and to remain technologically and economically
competitive; the impact on the holders of Quad/Graphics class A
common stock of a limited active market for such shares and the
inability to independently elect directors or control decisions due
to the voting power of the class B common stock; the impact of an
other than temporary decline in operating results and enterprise
value that could lead to non-cash impairment charges due to the
impairment of property, plant and equipment and other intangible
assets; and the 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 the Securities and Exchange Commission.
Except to the extent 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.
Non-GAAP Financial Measures
This press release contains financial measures not prepared in
accordance with generally accepted accounting principles (referred
to as Non-GAAP), specifically Adjusted EBITDA, Adjusted EBITDA
Margin, Free Cash Flow, Debt Leverage Ratio and Adjusted Diluted
Earnings Per Share. Adjusted EBITDA is defined as net earnings
(loss) plus interest expense, income tax expense (if applicable),
depreciation and amortization, restructuring, impairment and
transaction-related charges, non-cash goodwill impairment charges,
and equity in loss of unconsolidated entities, and less gain on
debt extinguishment and income tax benefit (if applicable).
Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net
sales. Free Cash Flow is defined as net cash provided by operating
activities less purchases of property, plant and equipment. Debt
Leverage Ratio is defined as total debt and capital lease
obligations divided by the last twelve months of Adjusted EBITDA.
Adjusted Diluted Earnings Per Share is defined as net earnings
(loss) excluding restructuring, impairment and transaction-related
charges, non-cash goodwill impairment charges, gain on debt
extinguishment, equity in loss of unconsolidated entities and
discrete income tax items, divided by diluted weighted average
number of common shares outstanding.
The Company believes that these Non-GAAP measures, when
presented in conjunction with comparable GAAP measures, provide
additional information for evaluating Quad/Graphics' performance
and are important measures by which Quad/Graphics' management
assesses the profitability and liquidity of its business. These
Non-GAAP measures should be considered in addition to, not as a
substitute for or superior to, net earnings (loss) as a measure of
operating performance or to cash flows provided by operating
activities as a measure of liquidity. These Non-GAAP measures may
be different than Non-GAAP financial measures used by other
companies. Reconciliation to the GAAP equivalent of these Non-GAAP
measures are contained in tabular form on the attached unaudited
financial statements.
About Quad/Graphics
Quad/Graphics (NYSE: QUAD) is a global marketing services
provider that helps brand owners market their products, services
and content more efficiently and effectively by using its strong
print foundation in combination with other media channels. With a
consultative approach, worldwide capabilities, leading-edge
technology and single-source simplicity, the Company has the
resources and knowledge to help a wide variety of clients in
multiple vertical industries, including retail, publishing and
healthcare. Quad/Graphics provides a diverse range of print and
related products, services and solutions from multiple locations
throughout North America, South America and Europe, and strategic
partnerships in Asia and other parts of the world.
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
For the Three Months Ended
December 31, 2016 and 2015
(in millions, except per share data)
(UNAUDITED)
Three Months Ended December 31, 2016
2015 Net sales $ 1,198.3 $ 1,313.6 Cost of
sales 945.4 1,037.3 Selling, general and administrative expenses
112.7 122.1 Depreciation and amortization 59.7 79.6 Restructuring,
impairment and transaction-related charges 18.2 84.9 Goodwill
impairment — 10.0 Total operating
expenses 1,136.0 1,333.9
Operating income (loss)
$ 62.3 $ (20.3 ) Interest
expense 18.3 22.0 Earnings
(loss) before income taxes and equity in (earnings) loss of
unconsolidated entities 44.0 (42.3 ) Income tax expense
(benefit) 7.4 (33.1 ) Earnings (loss)
before equity in (earnings) loss of unconsolidated entities 36.6
(9.2 ) Equity in (earnings) loss of unconsolidated entities
(0.9 ) 0.2
Net earnings (loss)
$ 37.5 $ (9.4 )
Earnings (loss) per share Basic $ 0.77 $ (0.20 )
Diluted $ 0.73 $ (0.20 )
Weighted average number
of common shares outstanding Basic 48.7
48.0 Diluted 51.3 48.0
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
For the Years Ended December 31, 2016
and 2015
(in millions, except per share data)
(UNAUDITED)
Year Ended December 31, 2016
2015 Net sales $ 4,329.5 $ 4,597.1 Cost of sales
3,394.8 3,680.3 Selling, general and administrative expenses 454.6
448.3 Depreciation and amortization 277.1 325.3 Restructuring,
impairment and transaction-related charges 80.6 164.9 Goodwill
impairment — 808.3 Total operating expenses 4,207.1
5,427.1
Operating income (loss) $ 122.4
$ (830.0 ) Interest expense 77.2 88.4
Gain on debt extinguishment (14.1 ) — Earnings (loss)
before income taxes and equity in loss of unconsolidated entities
59.3 (918.4 ) Income tax expense (benefit) 13.0
(282.8 ) Earnings (loss) before equity in loss of
unconsolidated entities 46.3 (635.6 ) Equity in loss of
unconsolidated entities 1.4 6.3
Net
earnings (loss) $ 44.9 $
(641.9 ) Earnings (loss) per share
Basic $ 0.94 $ (13.40 ) Diluted $ 0.90 $ (13.40 )
Weighted average number of common shares outstanding
Basic 47.9 47.9 Diluted 49.8 47.9
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of December 31, 2016 and 2015
(in millions)
(UNAUDITED)
December 31,
2016
December 31,
2015
ASSETS Cash and cash equivalents $ 9.0 $ 10.8 Receivables,
less allowances for doubtful accounts 563.6 648.7 Inventories 265.4
280.1 Prepaid expenses and other current assets 54.4 38.2
Restricted cash 10.2 13.5 Total current assets 902.6
991.3 Property, plant and equipment—net 1,519.9 1,675.8
Intangible assets—net 59.7 110.5 Equity method investments in
unconsolidated entities 3.6 4.4 Other long-term assets 84.3
65.5 Total assets $ 2,570.1 $ 2,847.5
LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $
323.5 $ 358.8 Amounts owing in satisfaction of bankruptcy claims
2.3 1.4 Accrued liabilities 356.7 347.5 Short-term debt and current
portion of long-term debt 84.7 94.6 Current portion of capital
lease obligations 7.4 5.1 Total current liabilities
774.6 807.4 Long-term debt 1,019.8 1,239.9 Unsecured notes
to be issued 5.4 7.1 Capital lease obligations 18.9 9.7 Deferred
income taxes 35.3 59.0 Other long-term liabilities 274.6
300.5 Total liabilities 2,128.6 2,423.6 Shareholders'
Equity Preferred stock — — Common stock 1.4 1.4 Additional paid-in
capital 912.4 956.7 Treasury stock, at cost (113.3 ) (193.6 )
Accumulated deficit (206.4 ) (188.1 ) Accumulated other
comprehensive loss (152.6 ) (152.5 ) Total shareholders' equity
441.5 423.9 Total liabilities and shareholders'
equity $ 2,570.1 $ 2,847.5
QUAD/GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
For the Years Ended December 31, 2016
and 2015
(in millions)
(UNAUDITED)
Year Ended December 31, 2016
2015 OPERATING ACTIVITIES Net earnings (loss) $ 44.9
$ (641.9 ) Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities: Depreciation and amortization
277.1 325.3 Impairment charges 26.8 95.3 Goodwill impairment —
808.3 Gain on debt extinguishment (14.1 ) — Stock-based
compensation 15.2 7.2 Settlement loss on pension benefit plans 7.0
— Gain on sale or disposal of property, plant and equipment (9.0 )
(4.1 ) Deferred income taxes (26.6 ) (292.5 ) Foreign exchange
losses on sale of investment — 6.0 Other non-cash adjustments to
net earnings (loss) 5.6 10.7 Changes in operating assets and
liabilities—net of acquisitions 25.6 33.8 Net cash
provided by operating activities 352.5 348.1
INVESTING
ACTIVITIES Purchases of property, plant and equipment (106.1 )
(133.0 ) Cost investment in unconsolidated entities (9.9 ) (1.2 )
Proceeds from the sale of property, plant and equipment 25.9 29.2
Proceeds from the sale of investments 1.3 14.0 Transfers from
restricted cash 4.4 17.7 Acquisition of businesses—net of cash
acquired — (143.4 ) Net cash used in investing activities
(84.4 ) (216.7 )
FINANCING ACTIVITIES Proceeds from
issuance of long-term debt 19.7 — Payments of long-term debt (192.0
) (90.9 ) Payments of capital lease obligations (9.5 ) (5.0 )
Borrowings on revolving credit facilities 871.9 1,462.5 Payments on
revolving credit facilities (918.0 ) (1,435.5 ) Payments of debt
financing fees (0.1 ) — Bankruptcy claim payments on unsecured
notes to be issued (0.3 ) (0.1 ) Purchases of treasury stock (8.8 )
— Sale of stock for options exercised 30.3 2.2 Equity awards
redeemed to pay employees' tax obligations (1.4 ) (1.6 ) Tax
benefit on equity award activity — 2.8 Payment of cash dividends
(61.1 ) (62.3 ) Net cash used in financing activities (269.3 )
(127.9 ) Effect of exchange rates on cash and cash
equivalents (0.6 ) (2.3 ) Net increase (decrease) in cash
and cash equivalents (1.8 ) 1.2 Cash and cash equivalents at
beginning of year 10.8 9.6 Cash and cash
equivalents at end of year $ 9.0 $ 10.8
QUAD/GRAPHICS, INC.
SEGMENT FINANCIAL INFORMATION
For the Three Months and Years Ended
December 31, 2016 and 2015
(in millions)
(UNAUDITED)
Net Sales
Operating
Income (Loss)
Restructuring,
Impairment and
Transaction-Related
Charges (1)
Goodwill
Impairment (1)
Three months ended December 31, 2016 United States Print and
Related Services $ 1,093.1 $ 71.5 $ 18.9 $ — International 105.2
6.0 (1.8 ) — Total operating segments 1,198.3 77.5
17.1 — Corporate — (15.2 ) 1.1 — Total $ 1,198.3
$ 62.3 $ 18.2 $ —
Three months ended
December 31, 2015 United States Print and Related Services $
1,207.9 $ 6.5 $ 69.9 $ 3.3 International 105.7 2.3
(2.6 ) 6.7 Total operating segments 1,313.6 8.8 67.3 10.0 Corporate
— (29.1 ) 17.6 — Total $ 1,313.6 $ (20.3 ) $
84.9 $ 10.0
Year ended December 31, 2016
United States Print and Related Services $ 3,927.0 $ 186.1 $ 59.3 $
— International 402.5 13.5 (1.1 ) — Total operating
segments 4,329.5 199.6 58.2 — Corporate — (77.2 ) 22.4
— Total $ 4,329.5 $ 122.4 $ 80.6 $ —
Year ended December 31, 2015 United States Print and
Related Services $ 4,208.6 $ (706.1 ) $ 101.4 $ 778.3 International
388.5 (63.4 ) 38.8 30.0 Total operating segments
4,597.1 (769.5 ) 140.2 808.3 Corporate — (60.5 ) 24.7
— Total $ 4,597.1 $ (830.0 ) $ 164.9 $ 808.3
______________________________
(1) Restructuring, impairment and
transaction-related charges and non-cash goodwill impairment
charges are included within operating income (loss).
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO NON-GAAP
MEASURES
EBITDA, EBITDA MARGIN, ADJUSTED EBITDA AND
ADJUSTED EBITDA MARGIN
For the Three Months Ended
December 31, 2016 and 2015
(in millions)
(UNAUDITED)
Three Months Ended December 31, 2016
2015 Net earnings (loss) $ 37.5 $ (9.4 ) Interest
expense 18.3 22.0 Income tax expense (benefit) 7.4 (33.1 )
Depreciation and amortization 59.7 79.6 EBITDA
(Non-GAAP) $ 122.9 $ 59.1 EBITDA Margin (Non-GAAP) 10.3 % 4.5 %
Restructuring, impairment and transaction-related charges
(1) 18.2 84.9 Goodwill impairment — 10.0 Equity in (earnings) loss
of unconsolidated entities (2) (0.9 ) 0.2
Adjusted EBITDA
(Non-GAAP) $ 140.2 $ 154.2
Adjusted EBITDA Margin (Non-GAAP) 11.7
% 11.7 %
______________________________
(1)
Operating results for the three months
ended December 31, 2016 and 2015 were affected by the following
restructuring, impairment and transaction-related charges:
Three Months Ended December 31, 2016
2015 Employee termination charges (a) $ 4.8 $ 20.6
Impairment charges (b) 9.1 55.4 Transaction-related charges (c) 0.3
0.6 Integration costs (d) — 0.7 Other restructuring charges (e) 4.0
7.6 Restructuring, impairment and transaction-related
charges $ 18.2 $ 84.9
______________________________
(a)
Employee termination charges were related
to workforce reductions through facility consolidations and
involuntary separation programs.
(b)
Impairment charges were primarily for
certain property, plant and equipment no longer being utilized in
production as a result of facility consolidations, as well as other
capacity reduction restructuring initiatives.
(c)
Transaction-related charges consisted of
professional service fees related to business acquisition and
divestiture activities.
(d)
Integration costs were primarily related
to preparing existing facilities to meet new production
requirements resulting from work transferring from closed plants,
as well as other costs related to the integration of acquired
companies.
(e)
Other restructuring charges were primarily
from costs to maintain and exit closed facilities, as well as lease
exit charges.
(2)
The equity in (earnings) loss of
unconsolidated entities includes the results of operations for
investments in entities where Quad/Graphics has the ability to
exert significant influence, but not control, which are accounted
for using the equity method of accounting.
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings (Loss) Per Share. The Company
believes that these Non-GAAP measures, when presented in
conjunction with comparable GAAP measures, provide additional
information for evaluating Quad/Graphics' performance and are
important measures by which Quad/Graphics' management assesses the
profitability and liquidity of its business. These Non-GAAP
measures should be considered in addition to, not as a substitute
for or superior to, net earnings (loss) as a measure of operating
performance or to cash flows provided by operating activities as a
measure of liquidity. These Non-GAAP measures may be different than
Non-GAAP financial measures used by other companies.
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO NON-GAAP
MEASURES
EBITDA, EBITDA MARGIN, ADJUSTED EBITDA AND
ADJUSTED EBITDA MARGIN
For the Years Ended December 31, 2016
and 2015
(in millions)
(UNAUDITED)
Year Ended December 31, 2016
2015 Net earnings (loss) $ 44.9 $ (641.9 ) Interest expense
77.2 88.4 Income tax expense (benefit) (1) 13.0 (282.8 )
Depreciation and amortization 277.1 325.3 EBITDA
(Non-GAAP) $ 412.2 $ (511.0 ) EBITDA Margin (Non-GAAP) 9.5 % (11.1
)% Restructuring, impairment and transaction-related charges
(2) 80.6 164.9 Goodwill impairment (1) — 808.3 Gain on debt
extinguishment (3) (14.1 ) — Equity in loss of unconsolidated
entities (4) 1.4 6.3
Adjusted EBITDA
(Non-GAAP) $ 480.1 $ 468.5
Adjusted EBITDA Margin (Non-GAAP) 11.1
% 10.2 %
______________________________
(1)
Non-cash goodwill impairment charges of
$808.3 million ($542.4 million after a non-cash income tax benefit
of $265.9 million) were recorded during the year ended December 31,
2015, of which $778.3 million relates to the United States Print
and Related Services segment and $30.0 million relates to the
International segment.
(2)
Operating results for the years ended
December 31, 2016 and 2015 were affected by the following
restructuring, impairment and transaction-related charges:
Year Ended December 31, 2016
2015 Employee termination charges (a) $ 12.9 $ 42.1
Impairment charges (b) 26.8 95.3 Transaction-related charges (c)
2.2 3.3 Courier termination fee (d) — (10.0 ) Integration costs (e)
0.1 5.1 Other restructuring charges (f) 38.6 29.1
Restructuring, impairment and transaction-related charges $ 80.6
$ 164.9
__________________________________
(a)
Employee termination charges were related
to workforce reductions through facility consolidations and
involuntary separation programs.
(b)
Impairment charges were primarily for
certain property, plant and equipment no longer being utilized in
production as a result of facility consolidations, and, for the
year ended December 31, 2015, included charges related to the
Argentina subsidiaries' restructuring proceedings and the Chile
equity method investment.
(c)
Transaction-related charges consisted of
professional service fees related to business acquisition and
divestiture activities.
(d)
Quad/Graphics received $10.0 million from
Courier Corporation ("Courier") during the year ended December 31,
2015, as a result of the termination of the acquisition of Courier
by Quad/Graphics. This non-recurring gain was excluded from the
calculation of Adjusted EBITDA.
(e)
Integration costs were primarily related
to preparing existing facilities to meet new production
requirements resulting from work transferring from closed plants,
as well as other costs related to the integration of acquired
companies.
(f)
Other restructuring charges were primarily
from costs to maintain and exit closed facilities and lease exit
charges. The Company recorded an $11.2 million adjustment to its
multiemployer pension plans withdrawal liability and a $7.0 million
non-cash pension settlement charge related to lump-sum pension
payments during the year ended December 31, 2016. A $6.0 million
non-cash expense to recognize accumulated foreign exchange losses
on the sale of the Chile equity method investment was recorded
during the year ended December 31, 2015.
(3)
The $14.1 million gain on debt
extinguishment recorded during the year ended December 31,
2016, primarily relates to the $56.5 million repurchase of
unsecured 7.0% senior notes due May 1, 2022.
(4)
The equity in loss of unconsolidated
entities includes the results of operations for investments in
entities where Quad/Graphics has the ability to exert significant
influence, but not control, which are accounted for using the
equity method of accounting.
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings (Loss) Per Share. The Company
believes that these Non-GAAP measures, when presented in
conjunction with comparable GAAP measures, provide additional
information for evaluating Quad/Graphics' performance and are
important measures by which Quad/Graphics' management assesses the
profitability and liquidity of its business. These Non-GAAP
measures should be considered in addition to, not as a substitute
for or superior to, net earnings (loss) as a measure of operating
performance or to cash flows provided by operating activities as a
measure of liquidity. These Non-GAAP measures may be different than
Non-GAAP financial measures used by other companies.
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO NON-GAAP
MEASURES
FREE CASH FLOW
For the Years Ended December 31, 2016
and 2015
(in millions)
(UNAUDITED)
Year Ended December 31, 2016
2015 Net cash provided by operating activities $ 352.5 $
348.1 Less: purchases of property, plant and equipment
(106.1 ) (133.0 )
Free Cash Flow (Non-GAAP) $
246.4 $ 215.1
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings (Loss) Per Share. The Company
believes that these Non-GAAP measures, when presented in
conjunction with comparable GAAP measures, provide additional
information for evaluating Quad/Graphics' performance and are
important measures by which Quad/Graphics' management assesses the
profitability and liquidity of its business. These Non-GAAP
measures should be considered in addition to, not as a substitute
for or superior to, net earnings (loss) as a measure of operating
performance or to cash flows provided by operating activities as a
measure of liquidity. These Non-GAAP measures may be different than
Non-GAAP financial measures used by other companies.
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO NON-GAAP
MEASURES
DEBT LEVERAGE RATIO
As of December 31, 2016 and 2015
(in millions, except ratio)
(UNAUDITED)
December 31,
2016
December 31,
2015
Total debt and capital lease obligations on the condensed
consolidated balance sheets $ 1,130.8 $ 1,349.3 Divided by:
Adjusted EBITDA for the year ended (Non-GAAP) 480.1 468.5
Debt Leverage Ratio (Non-GAAP) 2.36
x 2.88 x
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings (Loss) Per Share. The Company
believes that these Non-GAAP measures, when presented in
conjunction with comparable GAAP measures, provide additional
information for evaluating Quad/Graphics' performance and are
important measures by which Quad/Graphics' management assesses the
profitability and liquidity of its business. These Non-GAAP
measures should be considered in addition to, not as a substitute
for or superior to, net earnings (loss) as a measure of operating
performance or to cash flows provided by operating activities as a
measure of liquidity. These Non-GAAP measures may be different than
Non-GAAP financial measures used by other companies.
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO NON-GAAP
MEASURES
ADJUSTED DILUTED EARNINGS PER SHARE
For the Three Months Ended
December 31, 2016 and 2015
(in millions, except per share data)
(UNAUDITED)
Three Months Ended December 31, 2016
2015 Earnings (loss) before income taxes and equity
in (earnings) loss of unconsolidated entities $ 44.0 $ (42.3 )
Restructuring, impairment and transaction-related charges
18.2 84.9 Goodwill impairment — 10.0 62.2 52.6
Income tax expense at 40% normalized tax rate 24.9 21.0
Adjusted net earnings (Non-GAAP) $ 37.3 $ 31.6
Basic weighted average number of common shares outstanding
48.7 48.0 Plus: effect of dilutive equity incentive instruments
(Non-GAAP) 2.6 0.9 Diluted weighted average number of
common shares outstanding (Non-GAAP) 51.3 48.9
Adjusted Diluted Earnings Per Share (Non-GAAP) (1)
$ 0.73 $ 0.65
Diluted Earnings (Loss) Per Share (GAAP) $ 0.73 $ (0.20 )
Restructuring, impairment and transaction-related charges per share
0.36 1.74 Goodwill impairment per share — 0.20 Income tax expense
(benefit) from condensed consolidated statement of operations per
share 0.14 (0.68 ) Income tax expense at 40% normalized tax rate
per share (0.48 ) (0.43 ) Equity in (earnings) loss of
unconsolidated entities from condensed consolidated statement of
operations per share (0.02 ) 0.01 GAAP to Non-GAAP diluted impact
per share — 0.01
Adjusted Diluted Earnings Per
Share (Non-GAAP) (1) $ 0.73
$ 0.65
______________________________
(1)
Adjusted Diluted Earnings Per Share
excludes the following: (i) restructuring, impairment and
transaction-related charges; (ii) non-cash goodwill impairment
charges; (iii) discrete income tax items; and (iv) equity in
(earnings) loss of unconsolidated entities.
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings (Loss) Per Share. The Company
believes that these Non-GAAP measures, when presented in
conjunction with comparable GAAP measures, provide additional
information for evaluating Quad/Graphics' performance and are
important measures by which Quad/Graphics' management assesses the
profitability and liquidity of its business. These Non-GAAP
measures should be considered in addition to, not as a substitute
for or superior to, net earnings (loss) as a measure of operating
performance or to cash flows provided by operating activities as a
measure of liquidity. These Non-GAAP measures may be different than
Non-GAAP financial measures used by other companies.
QUAD/GRAPHICS, INC.
RECONCILIATION OF GAAP TO NON-GAAP
MEASURES
ADJUSTED DILUTED EARNINGS PER SHARE
For the Years Ended December 31, 2016
and 2015
(in millions, except per share data)
(UNAUDITED)
Year Ended December 31, 2016
2015 Earnings (loss) before income taxes and equity in loss
of unconsolidated entities $ 59.3 $ (918.4 ) Restructuring,
impairment and transaction-related charges 80.6 164.9 Goodwill
impairment — 808.3 Gain on debt extinguishment (14.1 ) —
125.8 54.8 Income tax expense at 40% normalized tax rate
50.3 21.9 Adjusted net earnings (Non-GAAP) $ 75.5
$ 32.9 Basic weighted average number of common
shares outstanding 47.9 47.9 Plus: effect of dilutive equity
incentive instruments (Non-GAAP) 1.9 1.0 Diluted
weighted average number of common shares outstanding (Non-GAAP)
49.8 48.9
Adjusted Diluted Earnings Per
Share (Non-GAAP) (1) $ 1.52
$ 0.67 Diluted Earnings (Loss) Per
Share (GAAP) $ 0.90 $ (13.40 ) Restructuring, impairment and
transaction-related charges per share 1.62 3.37 Goodwill impairment
per share — 16.53 Gain on debt extinguishment per share (0.28 ) —
Income tax expense (benefit) from condensed consolidated statement
of operations per share 0.26 (5.51 ) Income tax expense at 40%
normalized tax rate per share (1.01 ) (0.45 ) Equity in loss of
unconsolidated entities from condensed consolidated statement of
operations per share 0.03 0.13
Adjusted Diluted
Earnings Per Share (Non-GAAP) (1) $ 1.52
$ 0.67
______________________________
(1)
Adjusted Diluted Earnings Per Share
excludes the following: (i) restructuring, impairment and
transaction-related charges; (ii) non-cash goodwill impairment
charges; (iii) gain on debt extinguishment; (iv) discrete income
tax items; and (v) equity in loss of unconsolidated entities.
In addition to financial measures prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP), this earnings announcement also contains Non-GAAP
financial measures, specifically EBITDA, EBITDA Margin, Adjusted
EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Debt Leverage Ratio
and Adjusted Diluted Earnings (Loss) Per Share. The Company
believes that these Non-GAAP measures, when presented in
conjunction with comparable GAAP measures, provide additional
information for evaluating Quad/Graphics' performance and are
important measures by which Quad/Graphics' management assesses the
profitability and liquidity of its business. These Non-GAAP
measures should be considered in addition to, not as a substitute
for or superior to, net earnings (loss) as a measure of operating
performance or to cash flows provided by operating activities as a
measure of liquidity. These Non-GAAP measures may be different than
Non-GAAP financial measures used by other companies.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170221006696/en/
Quad/Graphics, Inc.Investor Relations Contact:Kyle
EganManager of Treasury and Investor Relations,
Quad/Graphics414-566-2482kegan@qg.comorMedia
Contact:Claire HoDirector of Corporate Communications,
Quad/Graphics414-566-2955cho@qg.com
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