Quad/Graphics Exhorts Congress to Act Swiftly on Postal Reform

Mon Jul 22, 2013 4:02pm EDT

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Quad/Graphics Exhorts Congress to Act Swiftly on Postal Reform

Company CEO Joel Quadracci Testifies Second Time on Capitol Hill, Spells Out Specific Reform Measures Needed to Restore Postal Service to Financial Stability

Quad/Graphics Chairman, President & CEO Joel Quadracci returned to Capitol Hill last week Wednesday to urge Congress to act swiftly to put the U.S. Postal Service (USPS) on a path to financial stability and long-term sustainability.

Testifying before the House Oversight and Government Reform Committee, Quadracci communicated the importance of the USPS to private industry and the U.S. economy while emphasizing the urgency for postal reform to reverse a crisis of confidence in future of mail delivery.

Earlier this year, Quadracci provided similar testimony before the Senate Homeland Security and Governmental Affairs Committee. In both his appearances on Capitol Hill, he was the only printer and member of private industry invited to testify.

“As we know all too well, the Postal Service is losing money at a rate of nearly $25 million a day with a total planned loss in 2013 of $7.6 billion,” Quadracci said in his written testimony provided in advance of last week’s hearing. “This is clearly unsustainable. The constant threat of insolvency is obviously troubling for the Postal Service, but it is even more troubling for the American economy overall. Although the Postal Service is financially challenged, it is still a $65 billion business that supports a private sector economy worth more than $1 trillion, employing some 8 million private sector workers and accounting for 9% of our nation’s Gross Domestic Product.”

Quadracci’s written testimony also highlighted the importance of a financially solvent USPS to the printing and mailing industries. “Without Congressional action…the uncertainty for our clients and the entire mailing industry will stifle volumes. Many clients may choose to move away from print only because they do not have confidence that the Postal Service will continue to be a viable option. This uncertainty can be resolved by Congress taking decisive action to show that the Postal Service will remain a strong and practical option for our marketers and publishers to distribute and advertise their products.”

Among the core provisions Quadracci said are necessary for meaningful postal reform are:

  • Provide the USPS with the authority to streamline its operations. The USPS has infrastructure and capacity to handle and process 300 billion pieces of mail annually. According to USPS estimates, mail volume will only be 153 billion pieces in 2013. It’s important that the USPS be able to right-size its operations for the realities of its projected volumes, Quadracci said.
  • Adopt a 5-day mail / 6-day package delivery schedule as part of a comprehensive reform package. Quadracci said Quad/Graphics and other mailers support a move to 5-day mail / 6-day package delivery, along with the proposed conversion to curbside and, where feasible, cluster box delivery. These changes will result in major savings to the USPS annually. “The mailing industry will make the necessary changes to adjust if five-day mail delivery is implemented as part of a comprehensive plan to ensure the Postal Service’s financial viability, and with an adequate period of time (at least six months) to prepare for the change,” Quadracci testified. Additionally, he noted that Quad/Graphics is already prepared to help its clients through the transition while continuing to add value.
  • Address volume declines by maintaining the postage rate cap to the Consumer Price Index (CPI). An increase in postage has a direct and profoundly negative impact on postal volumes, resulting in a “death spiral” where additional price increases are necessary to cover costs, Quadracci testified. “Ultimately, this will drive additional volume out of the mailstream. Congress, in its wisdom, capped postage rate increases to the CPI as part of the 2006 Postal Accountability and Enhancement Act. Doing so has provided an enormous incentive for the USPS to move quickly and prudently to improve the cost-efficiency of its services without substantially reducing the quality of its mail services. Without such an incentive, the fiscal position of the USPS would be much worse than it currently is.”
  • Lengthen the amount of time the USPS has to pre-fund healthcare benefits for retirees. The current 10-year amortization schedule has resulted in unaffordable $5.5 billion annual payments on which the USPS has already defaulted twice. Extending payments over a longer period of time would relieve some short-term financial pressure while still enabling the USPS to meet its retiree benefit obligations long-term.
  • Return to the USPS overpayments to the Federal Employees Retirement System for its use in reducing its debt, making necessary capital investments, and moving forward with its efforts to restructure and right-size its operations.
  • Provide the USPS the flexibility to manage escalating healthcare costs without disadvantaging employees or retirees. Quadracci shared that it is possible to improve the quality of healthcare while reducing costs, and cited Quad/Graphics’ own success through its 23-year-old QuadMed subsidiary. “Our costs are 20-30% lower than all industry,” Quadracci said. “There are many healthcare options but too often the costs are simply shifted from one group to another. By focusing on wellness, our model actually reduces costs rather than shifting who pays.”

During his oral testimony, Quadracci stressed that while print remains an extremely effective medium for marketing and communications – and one that connects and integrates well with other media channels – clients are apprehensive about the future of the USPS. “We are at a stage where our customers are concerned,” he said. “We have to make sure we have the ability to deliver [mail] in an efficient manner.”

In closing, Quadracci acknowledged that postal reform requires bold, difficult decisions, but that those decisions are necessary and can no longer be delayed. “I applaud you for making the Postal Service a priority,” he told the Committee.

Forward-Looking Statements

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

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

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

About Quad/Graphics

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

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

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