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Q u a d / G r a p h i c s • a Y e a r o f T r a n s f o r m a T i o n
2 0 1 0 a n n u a l r e p o r T
03 | finding a better way
finding a better way.
a tradition that’s
been key to our
growth and the
reason that we’ll
thrive in the future.
In 2010, we undertook a bold initiative:
the acquisition of Worldcolor. That strategic
move not only transformed Quad/Graphics
into the second largest commercial printer
in North America, but strengthens our
ability to broaden the power of print.
Table of conTenTs
Message to Shareholders from Joel Quadracci
the Quad way = finding a better way
a bold transformational Move
redefining Print
the best of both worlds
financial year in review
financial Highlights
04
06
12
18
24
26
28
04 | MeSSage to SHareHolderS
the Quad way =
finding a
better way
We’ve been a breakaway company
since Day One. In fact, my father Harry
founded Quad/Graphics with the belief
that doing things differently – and better –
could propel a tiny upstart into an
industry-leading printer. This bold vision,
backed by bold moves, catalyzed the
company’s growth and success.
MeSSage to SHareHolderS | 05
“ Quad/graphics’ acquisition of worldcolor is a transformational event in our company’s history.
i’m confident that this is the right choice to move Quad/graphics forward and help us continue
to succeed over the long term.”
Joel Quadracci, chairman, PresidenT & ceo
Quad has a history of aggressive moves and in 2010
as the economic environment stabilized in 2010,
we made our biggest, boldest move yet: acquiring
we’ve seen print volumes beginning to do the same.
worldcolor. our history and our culture dictate that
However, competition in a highly fragmented printing
we set challenging but realistic objectives and deliver
industry remains intense as the industry is still in the
on our commitments. So, we approached this event in
process of consolidating and continues to suffer from
typical Quad style, spending significant time upfront
overcapacity. the impacts of these factors have led to
to prepare for the integration so we could maximize
continued pricing pressures. nevertheless, we approach
synergies for the benefit of all stakeholders. we hit the
these challenges as opportunities to redefine ourselves
ground running and are seeing measurable progress
and the print medium.
on integrating operations. as we continue to move
forward with the integration, we are focused on avoiding
customer disruptions, and maintaining high levels of
quality and service.
we believe that print has a strong future. for all the talk
of the shifting media landscape and consumers’ changing
habits, the reality is that print is a crucial component in
an ever-changing multichannel world. Quad/graphics
a critical factor in Quad/graphics’ ongoing success is
is redefining print, expanding its relevancy, increasing
our distinct corporate culture – one of my father’s most
its value for our clients and, in the process, growing our
important legacies. our culture and values give our
business. we will continue to move the business forward
company its soul and comprise the Quad way. but, the
through strategic initiatives – including market and
Quad way isn’t about following one set way; it’s about
geographical expansions – that enhance our service
finding a better way, using our culture and values as
offering, benefit our clients and their business goals,
our guide. our values drive how we run the business
and create shareholder value.
and better position us to prevail in a dynamic and
competitive printing industry. they guide us in engaging
and empowering our employees – and keeping them
safe – while satisfying our clients’ needs.
in 2011, Quad/graphics celebrates our milestone
40-year anniversary on July 13. this occasion is as
much about commemorating our historic past as it is
about celebrating our future. we are confident that
our distinctive way of doing business translates to
we’re making the right moves, in the right ways to
outstanding value for our clients. we’ve always taken
make that future bold and bright.
a sustained approach in investing in our platform
to manage costs and maximize our clients’ revenue
potential. our approach has resulted in one of the
industry’s most advanced and efficient manufacturing
platforms. our acquisition of worldcolor affords us even
greater manufacturing and distribution efficiencies, and
Joel Quadracci
a broader product and geographic offering. we’re even
Chairman, President & Ceo
better positioned to meet our clients’ evolving needs.
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.
The Quad Way = finding a better Way
it began with the idea
to build a company
unlike any other.
forty years later, our
approach to business –
and printing – remains
innovative and unique.
finding a better way | 07
Ordinary people can accomplish extraordinary things. That belief
empowered our late founder, Harry V. Quadracci, to build Quad/Graphics
into a legendary printing company and change an industry. Today, we
remain committed to Harry’s vision of finding a better way. We’re redefining
print, leveraging its strengths in a multichannel world. We’re providing
clients innovative solutions and unexpected value. And we’re helping our
employees achieve their potential.
08 | finding a better way
a culture based on strong
values and serving a
common purpose.
Our culture and values give our company its soul. We find better ways to
take care of our employees, our clients, our community and the world.
there’s a reason Quad/graphics has so many long-term
and recycling. our “good for the environment, good
employees. our employees are our greatest asset,
for business” philosophy recognizes that reducing
and they’re treated that way. we see the promise
environmental impact can benefit business without
in each and give them the chance to fulfill it: through
affecting client service or product quality.
empowerment, education and training, and by offering
healthcare, competitive salaries and benefits. it’s a solid
and sustainable approach that creates long-term growth
prospects for our employees and our company.
going forward, Quad/graphics intends to extend our
environmental philosophy and practices across our
expanded platform. our efforts include programs to
promote “enlightened environmentalism” (i.e., education
Keeping employees safe is as important as any other
about sustainable business practices) and programs
objective we have. Comprehensive programs like our
focused on recycling, energy, emissions, water and ink.
Safety Management System and Safety accountability
Measurement Program help promote high safety
standards, while adding value to our business practices
and increasing productivity.
a legacy ThaT lives on
forty years ago, Harry V. Quadracci
launched Quad/graphics in an
abandoned millwork factory in
40Y E A R S
1 9 7 1 - 2 0 1 1
we believe that good business is based on good
Pewaukee, wisconsin. though Harry is no longer with us,
relationships. our customer service team focuses on
his creation lives on stronger than ever because of the
our clients’ needs, working to develop personalized
culture he formed and the values he set in place. thanks
knowledge of – and service for – each one. More than
to his vision, Quad/graphics has had a highly successful
anything, we strive to be partners with our clients, aiding
40 years as innovative People redefining Print, and we
them in making decisions that improve their business.
look forward to many, many more.
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we’re proactive, providing insights and knowledge that
help clients be more successful.
we also believe that we have a duty to help the
communities we call home. two of the many ways
when it came to language, Harry’s vernacular reflected
his colorful character. whether he was talking about how
to manage a business or how to overcome economic
challenges, he had a knack for coining a catchy phrase.
40Y E A R S
we give back are the windhover foundation and our
His words – and philosophies – have stood the test of
1 9 7 1 - 2 0 1 1
Community fund.
time. they continue to inspire us today.
Quad/graphics prides itself on a long tradition
of environmentally conscious practices that focus
on reducing waste and emissions, conserving
resources such as energy and water, reusing materials,
40Y E A R S
1 9 7 1 - 2 0 1 1
finding a better way | 09
“i don’t think there’s any right way or wrong way to run a business …
but if there is a monument to be made, it’s the values that are instilled
in the business. and hopefully those values will live long after me.”
harry v. Quadracci
we’re happy to share a few of Harry’s most
famous phrases, along with his descriptions.
Think Small. “It is paramount that in our process
of growth, we do not lose sight of what made us
so big so fast, and that is being small with close
personal contact with our customers and with
each other. As we grow, we must continue to think
small, to maintain close personal ties and the
respect for the individual, which is the cornerstone
of Quad/Graphics.”
Respondepity. “This is our uncanny ability to
anticipate and respond to a client’s every need.”
Artists of Quick Change. “We no longer speak
of evolutionary or revolutionary change. We
measure change in terms of velocity. We must
be ready to move with instinct, change with the
moment, play the hunch.”
Environment for Excellence. “If you want
excellent performance, you surround people with
an excellent environment. We created not only a
place to work but also to learn.”
Harry V. Quadracci
e i n P e o p l e
v
B eli e
Have Fun
Respect and Help Each Other
Treat Each Other Equally
Build Relationships
Share Knowledge
Bottoms-Up Management
Work Hard, Play Hard
Celebrate Achievements
Reconnect With Others
Enjoy Family, Friends
Quad/Graphics’ values were
established at our launch in 1971,
and later formalized into our
Values Wheel. This has become
the foundation of our culture,
guiding our daily decisions and
ensuring that we remain
a company with a soul.
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Promote Company Growth
Promote Personal Growth
Improve Share Value
Dare to Think Differently
Foster Breakaway Ideas
Question the Status Quo
Take Calculated Risks
Encourage Creativity
Exceed Client Expectations
Think Like an Owner
Assume Responsibility
Improve Company Earnings
Improve Personal Earnings
Security for Yourself, Family
Trust in Each Other
Trust in Yourself
Trust That Together We Can Do More
Trust That There’s Always
a Better Way
Don't Do Business With
Anyone You
Don't Like
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Trust in Tr
Pursue Excellence as a Goal
Invest in Yourself
Invest in Community, World
Be Honest
Be Responsible
Be Accountable
Play Fair
Show Integrity
Keep Your Promises
D
o T
hings for the Rose
h in g
t T
t h e R i g h
D o
10 | finding a better way
finding a better way:
the foundation of our
strategic goals.
The Quad Way is to run our business differently and better.
The strategic goals we consistently work toward are infused
throughout our company.
Redefine the power of print as the foundation of
coordinated multichannel marketing campaigns.
Use an efficient and innovative distribution network
to provide enhanced value to clients.
we collaborate with our clients on strategies for
with our extensive co-mail platform and our significant
coordinating personalized, targeted print communications
mail volume, we create considerable postage savings for
to engage consumers, drive higher response rates and
our clients. we shave time from the schedule by printing,
increase returns on marketing spend. to improve cost-
finishing and co-mailing at production sites. or, we
effectiveness and reduce cost per response, we leverage
can move production closer to the final destination to
our integrated data analytics, finishing technology
more effectively use regional co-mail hubs and enhance
and logistics operations. our innovative digital media
delivery control. our integrated logistics, strategically
capabilities – planning, implementing and monitoring
located distribution centers and extensive delivery fleet
email campaigns, personalized Urls, digital editions,
help generate time and cost savings.
website portals and more – help our clients produce
effective, print-focused marketing campaigns.
Maximize operational and technological excellence.
leveraging a disciplined return-on-capital approach, we
make significant investments in our print manufacturing
platform and data management capabilities. Quadtech,
finding a better way | 11
Quadtech develops advanced
technologies to enhance our
industry leadership.
our Quad/blues uniform unites
employees across all levels,
serving as a reminder that “we all
put our pants on the same way.”
QuadMed, our in-house
primary care and wellness
services provider, is renowned
for its ability to deliver quality
care and control healthcare
costs for the company.
our r&d subsidiary, is the only manufacturer of press
Empower, engage and develop our employees.
control technology connected to a U.S. commercial
all Quad employees are trusted entrepreneurs,
printer. because we were an early investor in data
encouraged to take ownership in their work and drive
management, our clients benefit from more relevant
results. Skills and knowledge are kept current through
and measurable print that integrates easily with other
continuing education programs. our “promote from
channels. we’re expanding our it Smartools® process
within” strategy results in leaders with long tenure and
management technology across many of our facilities.
a deep understanding of our business and clients.
this will help unify our platform, resulting in improved
we demonstrate our care for employees through
workload scheduling, cycle time and superior quality.
innovative benefits such as QuadMed, which focuses
on prevention and wellness.
Drive domestic and international growth in
core and related businesses.
we actively watch for opportunities to grow diversified
streams of revenue and strategically increase geographic
coverage. our core capabilities function as the catalyst
for expanding our print and print-related products and
services. we expect to achieve our goals through a
mixture of organic, partnership and acquisition growth.
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a bold Transformational move
the acquisition of
worldcolor vaulted
Quad/graphics into a
$4.8 billion, publicly traded
company with a larger
geographic footprint,
a broader range of
capabilities, and a stronger
position as a printing
industry leader.
a bold tranSforMational MoVe | 13
A changing industry. Intense competition. In 2010, many businesses
felt it was a good time to cling to the status quo. Not Quad/Graphics.
When the right opportunity presented itself, we were more than ready to
grab hold. Propelled by 40 years of ongoing growth and success, a solid
leadership team, financial prowess, and innovations that consistently
enhance the power of print, we were in a solid position to make a
bold, strategic move … one that will be the foundation for growth
and opportunity for our company and our clients.
14 | a bold tranSforMational MoVe
a unique opportunity.
a bold move.
economic events of 2008 and 2009 prompted
a broader range of services
advertisers to cut spending, which reduced page
the acquisition establishes solid footholds for us in
counts in virtually every print product line resulting
new product lines, such as books. at the same time,
in excess capacity in the printing industry. we saw
the acquisition expands capability and presence within
the acquisition of worldcolor as an opportunity to
our traditional product lines such as retail inserts.
strengthen Quad/graphics’ competitive position
and increase market share. other benefits include:
increased efficiencies
by removing capacity where the two companies
leveraging The besT of boTh PlaTforms
overlap, we further strengthen our industry-leading
Quad’s success has been fueled by our efficient and
manufacturing and distribution efficiencies. with a wider
modern manufacturing platform. the acquisition
reach and increased volumes, we cement our leadership
expands our capabilities, creating what we believe to
in the co-mail arena, creating improved speed-to-market
be the most versatile and advanced platform in the
and postal savings for our clients.
industry, run by experienced and proven leaders,
and supported by talented employees.
an exPanded geograPhic fooTPrinT
the transaction rounds out our presence in latin
america, one of the world’s fastest growing markets.
it also expands our north american presence.
enhancing The PoWer of PrinT
in a mulTichannel World
the acquisition fortifies our commitment to redefine
print as the foundation of effective multichannel
communication. with continued investments in
technologies and strategies, we deliver targeted
and customized print solutions that work in concert
with other media.
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Pre-acQuisiTion
PosT-acQuisiTion
• Founded in 1971
• Third-largest commercial printer in the U.S.
• Privately owned
• Headquartered in Sussex, Wisconsin
• 11,600 employees in the U.S., South America
and europe*
• 15 print production facilities*
• $1.8 billion annual sales*
• Second largest commercial printer in North America
• Largest commercial printer in Latin America
in the markets in which we compete
• Publicly owned
• Headquartered in Sussex, Wisconsin
• ~ 28,000 employees in the U.S., Canada,
latin america and europe*
• 65 print production facilities*
• $4.8 billion annual sales*
* For the year ended December 31, 2009
* As of deal close, July 2, 2010
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a bold tranSforMational MoVe | 15
PrinT manufacTuring faciliTies
the acquisition expands our capabilities, creating what we believe
to be the most versatile and advanced platform in the industry for
the product lines we serve.
MagazineS
CatalogS
retail inSertS
direCt Mail
booKS
direCtorieS
CoMMerCial & SPeCialty
uniTed sTaTes and canada
Current Quad locations
Closed locations = 3.6 million sq. ft.
as of february 28, 2011
laTin america
Poland
Global Resources. Local Support. our expanded geographic reach puts facilities even closer
to our clients’ end-users, reducing cycle time and distribution costs.
16 | a bold tranSforMational MoVe
our goal: realize more than
$225 million in synergy savings
on an annual run-rate basis
within 24 months of closing.
Progress. We see it every day as we move ahead with our integration
initiatives. We’ve made tremendous strides and are on the right path to
achieve our goals.
with intensive planning for the five months between
approximately 3.6 million square feet of manufacturing
the time the acquisition was announced until we
and warehouse space. we’ve also realized a gross
closed the deal, we were able to hit the ground
reduction of 4,400 employees; and, as of february 28, 2011,
running. the integration process is well orchestrated
a net reduction of 3,000 full-time-equivalent employees.
– and continues to be guided and reviewed – by a
management team and structure that includes the best
and brightest from both Quad/graphics and worldcolor.
Key drivers of Quad’s inTegraTion
and synergy success
when it comes to the success of our integration efforts,
we believe there are four key drivers: consolidating plants;
identifying procurement savings; eliminating redundant
selling, general and administrative (Sg&a) expenses; and
capitalizing on our logistics leadership to provide timely,
cost-effective delivery of printed product.
from a procurement standpoint, we’ve identified
significant opportunities for consumables savings, driven
by a centralized purchasing department. Many of those
savings began shortly after the first day of integration
from a run-rate standpoint.
from an Sg&a perspective, we’ve focused on identifying
and removing redundancies in operations and job
positions. by year end, we had successfully consolidated
the Montreal corporate headquarters into our Sussex
headquarters, and created centralized
support services.
we believe these drivers will create
significant shareholder value along
with employee opportunities.
our largest opportunity for
savings will come from plant
consolidations. through the end
of february 2011, we’ve closed
nine printing plants. the impact
of these and other restructuring
actions resulted in the closure of
R E H O LDER VALU
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regarding logistics, we’re leveraging
the combined companies’ already
well-developed mail preparation
and distribution capabilities
for increased volumes. we’re
capitalizing on our fleet of trucks
to expedite product delivery.
we’re also in the process of
deploying our own internally
a bold tranSforMational MoVe | 17
developed it Smartools® technology, increasing visibility
invesTing in The PlaTform
into our expanded operations for the purpose of more
we continue to build for the future by investing in our
efficient and timely workload planning.
platform. Since our acquisition of worldcolor and through
shoring uP The business
as we move through the integration, serving our clients
and ensuring work is produced without disruption is
our top priority. in 2010, we moved nearly 400 titles to
new locations during our busiest season, and invested in
both people and process to ensure an orderly transition.
we proactively reached out to clients, providing a complete
on-boarding process. it took considerable time and effort
on our part, but the results were worth it. deliveries were
made on time, client relationships were maintained, and we
experienced no significant loss of work.
we’re also focused on making the integration as easy as
possible for our employees. we’re actively sharing our
history, corporate values and culture, working together to
unify our vastly expanded company. our leadership and
Human resources teams are working hard to understand
and harmonize titles, responsibilities and salaries, and create
employee benefits plans that are sustainable for the long
term. we believe this is tremendous progress for such a
short amount of time.
the end of 2011, our capital investment will exceed $260
million and includes:
• Investment in the retail advertising insert platform to
reinforce our Midwest presence and solidify our coast-
to-coast retail insert capabilities
• Investment in new technology, automation and
equipment upgrades across our north american platform
• A major investment to expand digital printing
capabilities to meet a growing need for shorter runs
delivered faster and more economically
• The November 2010 acquisition of HGI Company,
adding commercial and specialty printing to round out
our print offering
moving The comPany forWard
in addition to these integration efforts and investments,
we’re moving our business forward in every market and
geographic area where Quad has a presence. whether
it’s strengthening our position in europe, fine-tuning
our strategy in latin america, creating new revenue
opportunities, or continuing to redefine print in a
multichannel world, our forward focus is widening
our leadership advantages.
.
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redefining Print
Print is no longer static,
one-size-fits-all. it’s
dynamic, 1-to-1 and a
critical component in any
successful multichannel
campaign.
redefining Print | 19
Print has undergone countless changes during our first 40 years.
Our vision of the future of print means we were ready to meet
every change head-on. We consistently invent ways to ramp up the
“aggressiveness” of ink on paper. We make it live and breathe in real
time by strategically applying data. Every day, we find ways to make
print more responsive, more effective and more profitable in this
expanding multichannel environment. In other words, we redefine
print’s role in a changing media landscape.
20 | redefining Print
solutions for
Publishers
the power of print.
it’s that little jolt of excitement you get when your
levels with advanced ink-jet technology, data-driven
favorite glossy, photo-laden magazine appears in the
versioning capabilities and high-quality finishing
mailbox. it’s the feeling of contentment that comes from
techniques … all to help publishers and their advertisers
curling up in a chair and thumbing through a dog-eared
grab attention and motivate response. from data and ink
book. it’s the sense of having a friend who tags along
on paper to finishing and delivery, we solve publishers’
with you anywhere and is ready to entertain, educate
challenges daily, adding value in many ways.
and illuminate at your whim. our relationship with print
begins at an early age and spans our lifetime.
It all begins with the data
Quad/graphics helps develop and implement impactful
in today’s multichannel world, print remains the perfect
strategies to enable publishers to precisely segment
device. it not only plays well with new media, it drives
and target audiences. our advanced demographic
us to shop, search, view and experience. it engages,
binding capabilities and data management expertise
connects, inspires and moves us to act. and, in the
mean more flexibility to tailor ads, onserts, covers and
process, it makes our daily lives shine a little brighter.
other content with personalized, targeted messages.
innovaTive soluTions To helP
Publishers succeed
our ongoing investment in technology and automation
has created a platform from which we deliver relevant,
timely print solutions. Customization is taken to new
advertisers can find new customers, and publishers can
find new subscribers. with our robust personalization
platform, we use variability to create response tracking
mechanisms like personalized Urls, versioned trial-
period incentives and unique offer codes. Plus, we build
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redefining Print | 21
in measurability so publishers can prove advertising
workflow, digital media – improve
effectiveness and provide precise accountability.
and facilitate print and digital
we also help publishers drive renewal and acquisition
campaigns with high-impact, targeted direct mail. by
maximizing data quality and accuracy, our data services
eliminate undeliverable mail, reducing postage and
improving response.
More engaging, more revenue
Publishing clients rely on our innovative production
techniques and creative formats to stand out in the
marketplace and create value for their advertisers
and readers.
our magazine platform can accommodate the
most imaginative custom web ideas – from inserts
to attention-getting paper, page folds and ink to a full
range of personalization techniques – and produce
and deliver them cost-effectively. in other words,
we have an abundance of ways to power up the
engage-ability of a magazine.
our book platform boasts presses built for great
efficiency, flexibility and variability. we’re able to
production. we simplify processes
and increase productivity by
using our systems for automated
publishing, asset management,
and our ad and page production
portals. Precision color measurement
ensures accurate, high-quality
transfer from digital files to printed
page. additional efficiencies are created with our
innovative XMl publishing solution, which translates
content for output to a variety of channels.
More timeliness, more options
Since pioneering co-mail almost three decades ago,
Quad has been helping publishers mail smarter
and more cost effectively. our innovation in this
area has resulted in 18 patents and applications on
technologies and techniques that support all forms of
co-mail. our co-mail program merges mailstreams of
a number of different titles – even those that vary in
size and thickness – to create one large mailstream that
provides significant postal discounts for participating
accommodate any stage in a book’s life cycle, from
publications. our ability to co-mail polywrapped
short initial press runs and, later, reprints on our
products means publishers can include onserts,
digital presses to longer web offset runs, including
supplements and other enclosures. this provides the
mass-market paperbacks, all complemented by e-book
opportunity to cross-sell, issue invoices or pursue
conversion capabilities. with creative elements such
renewals and still benefit from co-mail discounts.
on a daily basis, Quad is redefining print to help
publishers be more productive and profitable.
as embossing, specialized inks and unique coatings,
we help books stand out on bookshelves.
when it comes to directories, our platform is capable
of delivering high-impact, revenue-generating formats
and solutions – including inserts, onserts, edge printing
and magnets – that help advertisers set themselves
apart and drive response.
More efficiencies, more savings
with integrated data, production and mailing solutions,
we significantly simplify the publishing process, while
making it more relevant and compelling. our robust
premedia solutions – creative, photography, imaging,
7
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22 | redefining Print
solutions for
marketers
the power of print.
it’s the feeling you have watching children, surrounded
Print draws us to the store or propels us to order online.
by catalogs, circling all of the items they “must have.” it’s the
it compels us to make a call or send a text message.
“aha” you get when the personalized message on a direct
and it‘s accelerated by other media channels: the internet,
mail piece reminds you that time is running out to use
mobile technologies, digital tablets and other devices.
your 20% off coupon to get those shoes that go perfectly
in fact, an infotrends study (2011) found that when
with the dress you bought last month. it’s the
marketers combine print with other channels,
anticipation you feel on Sunday morning
when the newspaper arrives teeming
R I N T
P
with retail advertising inserts,
highlighting special promotions
and coupons you need for your
next shopping trip.
innovaTive soluTions
To helP marKeTers
succeed
at Quad/graphics, we believe
print will remain among the
most powerful tools available
B
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A
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to marketers. it’s the ideal vehicle
for creating a call to action. Marketers
rely on print to drive behavior that increases
response and revenue.
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average response rates increase
by 34 percent. that’s a
powerful combination.
E
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DIO
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It’s an all-of-the-above world
the reality is there’s no one
way or right way to get
the individual consumer’s
attention these days. today
it’s an “all-of-the-above world,”
where successful marketers
use their powerful data across a
S
O
CIAL MEDIA
V
T
What’s the best communication channel to
reach consumers? all of the above. Marketers
use multiple channels – driven by data –
to improve consumer response.
redefining Print | 23
combination of channels to deliver a more relevant
message and a more potent offer. Versatile by nature,
Streamlining for
greater productivity
print has the proven power to stand on its own, or work in
tandem with other communication channels to drive sales.
Data drives profitable response
Quad/graphics recognized data’s power early on,
which is why we’ve been honing our capabilities
and expertise for more than two decades. our data
management expertise enables marketers to tailor their
marketing plans to precisely fit a customer’s needs,
wants and lifestyle. Quad’s advanced personalization
capabilities translate our clients’ marketing plans to
a large part of “redefining print”
is creating solutions that meet
marketers’ need to save time and
money. Quad has an entire business
unit dedicated to help our clients
streamline internal workflow
processes and seamlessly connect
them to the print manufacturing
process. Marketers benefit from increased flexibility
in production schedules, less overhead, and reduced
costs of doing business … all of which positively affect
printed communications delivered to the right person
their bottom line.
at the right time. the result is a 1-to-1 conversation that
captures attention and increases response. we also help
reduce cost per response by applying the best press
and mailing technology for each job. our workflow
processes and integrated systems keep mail files and
versioning data consistent across the entire platform,
reducing turnaround time. with a unified, in-depth view
of each individual, we help personalize and integrate
offers across multiple channels. that means fewer missed
opportunities, reduced cost to obtain valuable customers
and optimized marketing spend.
It takes imagination and ingenuity to stand out
from attention-grabbing direct mail formats and press
applications – including tipped-on cards, scents, stickers,
scratch-off coatings – to precisely targeted messages,
print has the ability to reach out and get noticed.
our capabilities help marketers create newspaper
Maximizing mailing efficiency and savings
given that postage and distribution costs can be
approximately half of a mailer’s production budget,
Quad is constantly looking for a better way to meet
that challenge. we start by optimizing data quality
and accuracy to eliminate undeliverables. this reduces
postage costs and helps to ensure mail is delivered
to the right person at the right time. we also offer
comprehensive mail, distribution and logistics services,
including a variety of programs suited to mailers of all
sizes. of note: our co-mail and commingle programs,
which merge together mailpieces from multiple clients
into a single mailstream to achieve postal processing
discounts from the U.S. Postal Service. in conjunction
with our co-mail programs, we use our strategically
located facilities to cost effectively drop ship mailpieces
closer to their end destination. in addition to achieving
advertising inserts that stand out from the stack with
formats like pop-ups, coupon strips, gatefolds, add-a-card
greater postal savings and reducing the amount of
handling, we enable pieces to arrive in-home and
and more. for catalogers, vellum coverwraps, UV coatings,
in-store on time.
multifold covers, metallic and acetate inserts, and
uncommon sizes are prime promotional real estate.
Quad’s web-to-print technology provides a cost-
effective means to deliver consistent brand and content,
customized to the individual. it simplifies the ability of
marketers with field representatives, including agents,
salespeople, dealers, retailers, distributors and franchisees,
to reach smaller audiences with relationship-building
pieces: full-color postcards, die-cut mailers, elegant
invitations – all with variable data and/or graphics.
6
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tHe beSt of botH worldS | 25
the best of both worlds!
on July 6, 2010, Quad/graphics stock began trading
the right thing. and we’ve always been led by a strong,
on the new york Stock exchange under the ticker
committed board of directors with a stable, talented and
symbol QUad. it was an historic day; Quad/graphics
long-serving senior management team.
had been privately held since its inception 39 years
earlier. although this was a big change, we were
comfortable with it because our approach has always
been to blend the best of public and private in running
the company. we’ve always run our business with
the same financial discipline and strong corporate
governance that was expected of a public company.
we’ve always had an intense focus on shareholder value,
and deployed strategies that supported both current
and long-term value creation. we’ve always maintained a
stable, committed equity base through family control and
employee ownership. we’ve always adhered to a strong
set of core values based on honesty, integrity and doing
why go public, then? we determined the best way
to finance the worldcolor transaction was to use our
equity rather than lever up the company with debt.
However, Quad/graphics is a controlled public company
with the Harry V. Quadracci family having voting control
through ownership of high-vote stock. this structure
provides consistency in ownership and leadership –
and perpetuates our shareholder culture of being “our
own best investment.” in other words, we’re managing
for today’s circumstances, but with an eye toward
building a company that will succeed across generations.
“
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26 | finanCial year in reView
2010: a year of
transformation.
Since our founding almost 40 years ago, Quad/graphics
has undergone a remarkable metamorphosis, advancing
from a tiny upstart to an industry leader admired around
the world for how we have continuously redefined
print through the innovation of our employees. in 2010,
the metamorphosis continued through a series of
transformational events that further strengthened our
foundation for growth: acquiring worldcolor, debuting
QUad on the new york Stock exchange and continuing
to redefine print’s relevance in an ever-expanding
multichannel media world. despite these significant
changes, our values, our ability to serve our customers
and our commitment to a long-term view on creating
shareholder value remain firmly in place. as we move
forward, we intend to build upon our past financial
success by focusing on the key principles of shareholder
value creation that resulted in one of the most profitable
commercial printing companies in the industry.
creaTing shareholder value
increasing shareholder value is at the heart of how we
created a long-term, financially successful and sustainable
business at Quad/graphics. More specifically, we focus on
four primary drivers of creating long term share value:
Profitable Growth. we pursue growth opportunities
that contribute to earnings and meet our profitability
metrics, whether the growth is generated organically
with existing and new customers, or through acquisitions
and joint ventures. the goal of this pursuit may appear
obvious, but in a highly competitive industry like printing,
it is crucial to not lose sight of profit when pursuing
growth opportunities.
Margin Improvement. Continuous improvement
and lean Manufacturing methodologies are among
the tools we use every day to improve our manufacturing
productivity to maintain and ultimately grow our operating
margins. in order to succeed over the long run and provide
our customers with more growth opportunities, we’ve
built and continue to invest in what we believe is the
most efficient and modern manufacturing platform in the
industry. we have a long-standing strategy of replacing
equipment proactively – retiring equipment when it has
served its useful, economic (rather than mechanical) life.
this allows us to stay on the cutting edge of technology
and partner with our customers in finding the most
efficient and impactful methods of reaching the consumer.
additionally, we aggressively continue to find ways to
reduce costs, whether through reducing waste, increasing
throughput or streamlining processes. the combination
of the right investments in technology, automation and
our overall platform, and our focus on lean Manufacturing
methodologies help us drive margin improvement
throughout our business.
Disciplined Capital Management. well-managed
printing businesses can generate a lot of cash. as stewards
of our shareholders’ cash, we must be disciplined in how
we use that cash to provide the greatest return. as we
make capital expenditures, it is not how large or small the
capital dollars spent are but, rather, whether it is the right
capital spending. a key part of that discipline is requiring
that the returns on our investments exceed our cost of
capital, whether the investments are related to purchasing
the right equipment or investing in the right strategic
growth initiatives. another key part to that discipline
is working capital management. Historically, we have
not used extended terms with customers as a means to
grow revenues and have been very disciplined in how
we manage our receivables, inventory and payables to
shorten the cycle time of converting revenue into cash.
we balance the use of cash between compelling
investment opportunities, deleveraging our balance
sheet through debt reductions or returning cash back
to our shareholders through dividends. we believe that
the consistency in how we evaluate our capital needs has
helped to drive our strong historic financial performance.
today, our priorities for cash are debt reduction, reducing
risk to the balance sheet associated with our pension
liabilities, and investing for future profitable growth.
we will assess other opportunities to enhance the
returns we provide to shareholders, such as dividends,
during 2011.
Stock Price Multiple Expansion. we believe there are
three fundamental drivers under our control that can
favorably impact the value of our stock price and the
multiple at which it trades:
• Maximize Profitable Growth, Margin Improvement
finanCial year in reView | 27
and disciplined Capital Management
• Invest in opportunities and geographies
outside our existing markets and locations with
higher growth and return trajectories than our
traditional businesses
• Successfully complete the Worldcolor integration
and achieve projected synergy savings
we have proved over the years we can grow profitably,
improve margins and generate returns on capital that
exceed our cost of capital. we intend to continue to do
that moving forward to create shareholder value.
caPiTalizing on a comPelling oPPorTuniTy
the recession and excess capacity in the commercial
print industry created a unique opportunity to acquire
worldcolor and create substantial shareholder value.
this will be achieved primarily by eliminating excess
manufacturing capacity through consolidating
production into Quad/graphics’ more modern and
efficient manufacturing platform. additionally, we
identified the ability to streamline costs by reducing
selling and administrative costs, consolidating
procurement spend and negotiating better prices, and
leveraging our logistics expertise across a larger platform.
we are off to a fast start and have already reduced net
headcount by more than 3,000 through our consolidation
efforts. while the integration is a 24-month journey, we are
confident we will achieve somewhat more than our goal
of $225 million in synergy savings.
Promising early resulTs
on the next page, we’ve highlighted some key financial
metrics to demonstrate a few of our early successes with
the worldcolor acquisition. Strong cash flow generation
allowed us to pay down $216 million in debt after
assuming $13 million in debt from our acquisition of Hgi
Company, and invest over $80 million into our platform.
the debt repayment allowed us to deleverage our balance
sheet and improve our debt leverage ratio to 2.35x from
2.49x, putting us well on our way to return to our 2.0x goal
and investment grade ratings on our debt.
Profitability of the combined company also improved,
in part due to our synergy savings realized thus far.
Pro forma adjusted ebitda in 2010 increased 3% to
$672 million as compared to $653 million in 2009.
adjusted ebitda improved despite the underlying
price pressures in the industry and acquiring lower-
priced customer contracts from worldcolor, which
was experiencing a downward trajectory in its net sales.
additionally, we incurred frictional costs that negatively
impacted our earnings as part of our integration efforts.
frictional costs are normally occurring costs as part of
a plant consolidation where pressure on production
productivity temporarily reduces profitability on
transferred work as a result of ramping down the closing
plant and ramping up the plant receiving the work.
in a job shop environment like we operate, it takes
some time to properly transition work and produce
it efficiently at margins better than the closed facility.
transitioning nearly 400 titles at once during our busy
season created a very complex and fluid environment.
but the results have been promising, with Quad/graphics
retaining more than 97% of the revenue associated with
the transitioned titles and improving overall profitability.
we are early in the integration process, but we believe
we have quickly established a strong foundation to
build upon for the future success of Quad/graphics
and our shareholders.
oTher financial iTems of noTe during 2010:
• Working capital needs increased due to the larger
size of our combined company and the dilutive
impact of worldcolor’s longer cash conversion cycle
on receivables. we view working capital management
as an opportunity for 2011 to free up cash for other
needs, such as debt reduction.
• The Worldcolor pension and post-retirement
liability assumed in the acquisition was reduced
by $111 million. this reduction is the result of
investment returns, funding a portion of the liability,
and our active management of post-retirement
issues. our goal is to move from plans designed as
a “promise to pay in the future” to our historical form
of “pay as you go.” to that end, we intend to replace
the critically underfunded U.S. multiemployer pension
plans (“MePPs”) for our unionized employees with
our 401(k) plan and profit-sharing benefits. the result
of these changes will be to continue to deleverage
our balance sheet by reducing the remaining
$438 million in underfunded pension, post-retirement
and MePP liabilities.
• We entered into a new $530 million revolving credit
facility as well as a $700 million term loan b facility,
both of which are at floating rates. the new facilities,
along with our existing long-term fixed rate debt
allow us good flexibility in using cash flow generation
to pay down debt. as of december 31, 2010, we had
54% of our debt as floating rate and 46% as fixed,
and the outstanding balance on our revolving credit
facility was $57 million.
attention to our core values of how we run the business
and our intense focus on share value drivers will be the
ultimate metric by which our success will be measured.
we embrace the challenges associated with integrating
worldcolor and are excited about what we are building
for the mutual success of our customers, our employees
and our shareholders.
John C. fowler
executive Vice President & Cfo
28 | finanCial HigHligHtS
financial highlighTs (in millions, except per share data)
full year Pro forma results(1)
Change
2010
2009
$
Profitability
net Sales
adjusted ebitda(2)
adjusted ebitda Margin(2)
adjusted net earnings(2)
adjusted diluted ePS(2)
Cash Flow
Cash flow from operations
Capital expenditures
Balance Sheet
total debt
debt/adjusted ebitda
Pension, Post-retirement and MePP liability
$672
14.1%
$107
$2.24
$292
$155
2010
$1,579
2.35X
$438
$4,765
$4,873
$653
13.4%
$106
$2.21
$459
$185
$(108)
$19
70 bp
$1
$0.03
$(167)
$(30)
worldcolor
acquisition date(3)
$
Change
$1,795
2.49X
$549
$(216)
(0.14)X
$(111)
%
-2%
3%
5%
1%
1%
-36%
-16%
%
-12%
-6%
-20%
footnotes:
(1) To assist in comparisons, amounts represent pro forma results as if the Worldcolor acquisition took place on January 1, 2009.
(2) In addition to financial measures prepared in accordance with generally accepted accounting principles (GAAP), this annual report also
contains non-GAAP financial measures, specifically EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Earnings
and Adjusted Diluted EPS. They are presented to provide additional information regarding Quad/Graphics’ performance and because they are
important measures by which Quad/Graphics gauges the profitability and assesses the performance of its business. These measures should not
be considered alternatives to net earnings (loss) as a measure of operating performance or to cash flows from operating activities as a measure of
liquidity. See page 29 for reconciliation of GAAP to Non-GAAP financial measures.
(3) Amounts are presented as of July 2, 2010, the date of the Worldcolor acquisition.
finanCial HigHligHtS | 29
Premedia 2%
Commercial and Specialty 3%
Other 2%
Pro forma 2010 revenue
by ProducT line (1)
Direct Mail 5%
Directory 5%
Magazine 23%
Logistics 8%
Books 9%
Catalog 21%
Pro forma 2010 revenue
by region (1)
Europe 4%
Latin America 6%
Canada 8%
Retail Inserts 22%
United States 82%
reconciliaTion of gaaP To non-gaaP measures (in millions, except per share data)
full year Pro forma results(1)
net earnings (loss) attributable to Quad/graphics
common shareholders
interest and financial expense
income tax expense
depreciation and amortization
EBITDA (Non-GAAP)
EBITDA Margin (Non-GAAP)
restructuring, impairment and transaction-related charges
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA Margin (Non-GAAP)
full year Pro forma results(1)
earnings (loss) before income taxes and equity in earnings
of unconsolidated entities
restructuring, impairment and transaction-related charges
income tax expense (at pro forma 39% statutory rate)
equity in earnings of unconsolidated entities
net (earnings) loss attributable to noncontrolling interests
Adjusted Net Earnings
diluted weighted average number of common shares outstanding
Adjusted Diluted EPS
footnotes:
2010
$
$
$
$
$
(229)
132
191
369
463
9.7%
209
672
14.1%
2010
(48)
209
161
(63)
98
9
(0)
107
48
year ended december 31,
2009
$
48
110
53
373
$
584
12.0%
69
653
$
13.4%
year ended december 31,
$
$
2009
95
69
164
(64)
100
6
(0)
106
48
$
2.24
$
2.21
(1) To assist in comparisons, amounts represent pro forma results as if the Worldcolor acquisition took place on January 1, 2009.
30 | finanCial HigHligHtS
sTocK Performance informaTion
the following graph compares, on a cumulative basis, changes since the close of trading on July 6, 2010
(the date on which Quad/graphics’ class a common stock was first publicly traded) in:
• Quad/Graphics’ class A common stock;
• Standard & Poor’s MidCap 400 Index; and
• Standard & Poor’s 1500 Commercial Printing Index
Comparison of Cumulative Total Return
Comparison of Cumulative Total Return*
7/6/10
7/31/10
8/31/10
9/30/10
10/31/10
11/30/10
12/31/10
$140
$120
$100
$80
$60
Quad/Graphics, Inc.
S&P MidCap 400 Index
S&P 1500 Commercial Printing Index
* Assumes $100 invested on July 6, 2010, in stock or index, and the reinvestment of all dividends since that date.
monThly reTurn PercenTage
Quad/graphics, inc.
S&P MidCap 400 index
S&P 1500 Commercial Printing index
-11.37
8.67
7.06
0.02
-4.94
-9.85
9.80
11.31
10.81
-4.32
3.45
7.99
-2.68
2.97
-7.73
-5.15
6.55
9.49
7/31/10
8/31/10
9/30/10
10/31/10
11/30/10
12/31/10
indexed reTurns
base Period
7/06/10
7/31/10
8/31/10
9/30/10
10/31/10
11/30/10
12/31/10
Quad/graphics, inc.
S&P MidCap 400 index
S&P 1500 Commercial Printing index
100
100
100
88.63
108.67
107.06
88.65
103.31
96.51
97.33
114.98
106.95
93.13
118.95
115.49
90.63
122.48
106.56
85.96
130.51
116.67
standing, left to right:
mark angelson, John shiely, douglas buth,
christopher Harned, William abraham Jr., Thomas ryder
seated: betty Quadracci, Joel Quadracci
board of direcTors
William J. Abraham Jr.
Partner of Foley & Lardner, LLP
Mark A. Angelson
Former Chairman & CEO of
World Color Press Inc. and
Former CEO and Director of
R.R. Donnelley & Sons Company
Betty Ewens Quadracci
President of QuadCreative, LLC and
President and Publisher of
Milwaukee Magazine
J. Joel Quadracci
Chairman, President & CEO of
Quad/Graphics, Inc.
Douglas P. Buth
Retired Chairman, CEO & President of
Appleton Papers Inc.
Thomas O. Ryder
Retired Chairman & CEO of
Reader’s Digest Association, Inc.
Christopher B. Harned
Partner, Managing Director and
Head of the Consumer Products Group of
The Cypress Group LLC
John S. Shiely
Chairman Emeritus of
Briggs & Stratton Corporation and
Former Chairman, President & CEO of
Briggs & Stratton Corporation
Quad/Graphics’ 2010 Annual Report on Form 10-K accompanies this document.
If you are a shareholder and would like to receive another copy of the 2010 Form
10-K, without exhibits and without charge, please write to Andrew R. Schiesl,
Vice President, General Counsel and Secretary, Quad/Graphics, Inc., N63W23075
State Hwy. 74, Sussex, Wisconsin 53089-2827. You can also access the 2010 Form
10-K on our website at www.QG.com/annualmeeting.
corporaTe HeadQuarTers
Quad/Graphics, Inc.
N63W23075 State Hwy. 74
Sussex, WI 53089-2827
qgraphics@qg.com
1.888.782.3226
414.566.6000 (Wisconsin)
invesTor relaTions
Barbara Bolens
Assistant Treasurer and Director of
Investor Relations
Barbara.Bolens@qg.com or ir@qg.com
1.877.283.4543
http://investors.qg.com
sTocK Transfer agenT
American Stock Transfer
6201 15th Avenue
Brooklyn, NY 11219
info@amstock.com
1.800.937.5449
www.amstock.com
N63W23075 State Hwy. 74
Sussex, Wisconsin 53089-2827
1.888.782.3226
www.QG.com
© 2011 Quad/Graphics, Inc. All rights reserved. | 03.11 | 11-0003