Quad/Graphics (QUAD) Risk Analysis

The advertising and marketing services industries are highly competitive and are expected to remain so. Any failure on the part of the Company to compete effectively in the markets it serves could have a material adverse effect on its results of operations, financial condition or cash flows and could require changes to the way it conducts its business or require it to reassess strategic alternatives involving its operations. The Company operates primarily in the commercial print portion of the printing industry, which is highly fragmented and competitive in both the United States and internationally. The Company competes for business not only with large and mid-sized printers, but also with smaller regional printers and the growing forms of digital alternatives to print. In certain circumstances, due primarily to factors such as freight rates and client preference for local services, printers with better access to certain regions of a given country may be preferred by clients in such regions. Some of the industries that the Company services have been subject to consolidation efforts, leading to a smaller number of potential clients. Furthermore, if the smaller clients of the Company are consolidated with larger companies using other printing companies, the Company could lose its clients to competing printing companies.

The Company has historically derived a significant portion of its revenue from long-term contracts with significant clients. If the Company loses significant clients (including as a result of reduced demand for a client's products or services), is unable to renew such contracts on similar terms and conditions, or at all, or is not awarded new long-term contracts with important clients in the future, its results of operations, financial condition and cash flows may be adversely affected. The Company is exposed to risks of loss in the event of nonperformance by its clients. Some of the Company's clients are highly leveraged or otherwise subject to their own operating and regulatory risks. Even if the Company's credit review and analysis mechanisms work properly, the Company may experience financial losses and loss of future business if its clients become bankrupt, insolvent or otherwise are unable to pay the Company for its work performed. Any increase in the nonpayment or nonperformance by clients could adversely affect the Company's results of operations and financial condition. Certain industries in which the Company's clients operate have experienced, and in the future may experience consolidation. When client consolidation occurs, it is possible that the volume of work performed by the Company for a client after the consolidation will be less than it was before the consolidation or that the client's work will be completely moved to competitors. In addition, new and enhanced technologies, including artificial intelligence, search, web and infrastructure computing services, digital content, and electronic devices, may affect clients. The internet facilitates competitive entry and comparison shopping, and the reliance on digital retailing may reduce clients' volume. Any such reduction or loss of work could adversely affect the Company's results of operations and financial condition.

Postal costs are a significant component of the cost structures of many of the Company's clients and potential clients. Postal rate changes and USPS regulations that result in higher overall costs can influence the volume that these clients will be willing to print and ultimately send through the USPS. Integrated distribution with the USPS is an important component of the Company's business. Any material change in the current service levels provided by the postal service could impact the demand that clients have for print services. In 2025, the USPS significantly reduced their service standards with the first phase of changes taking effect on April 1, 2025, and the second phase taking effect on July 1, 2025. In addition to the reduced service standards, the USPS also issued reduced service performance targets for 2025. Almost all letters and flats targets were reduced, some as much as 15% lower than 2024 targets (e.g., First Class Letters three to five day on time performance target was reduced from 90% down to 80%). The USPS, however, did not meet these reduced performance standards and targets, and has kept the performance targets for 2026 essentially in line with 2025, with only a few minor adjustments. Federal statute requires the PRC to conduct reviews of the overall rate-making structure for the USPS to ensure funding stability. As a result of those reviews, the PRC authorized a five year rate-making structure that provides the USPS with additional pricing flexibility over the Consumer Price Index (CPI) cap, which has resulted in a substantially altered rate structure for mailers. The revised rate authority that is effective as a result of the rules issued by the PRC includes a higher overall rate cap on the USPS' ability to increase rates from year to year. This will continue to lead to price spikes for mailers and may also reduce the incentive for the USPS to continue to take out costs and instead continue to rely on postage increases in its attempt to cover its costs. Given the significant amount of concern that has been expressed by the mailing industry, in April 2024, the PRC opened a proceeding to start the next rate system review, which includes a phased approach of proposing changes to improve rate predictability. The USPS did not implement a Market Dominant product price increase for January 2025. However, the available rate authority was rolled forward and implemented in July 2025, at a level that significantly exceeded CPI. In September 2025, the USPS announced they would not increase prices on Market Dominant products in January 2026. Further, in January 2026, the PRC issued a final rule that restricts the USPS to one price change a year from 2026 to 2030. The Company believes the continued use of all available rate authority by the USPS will continue to increase the potential volume declines as rate predictability with respect to cost is no longer known for mailers. The result may be reduced demand for printed products as clients may move more aggressively into other delivery methods, such as the many digital and mobile options now available to consumers. The USPS launched a new Marketing Mail Catalog promotion, which offers a 10% discount on postage for any mail pieces that meet the USPS definition of a catalog. The discount went into effect on October 1, 2025 and continues until June 30, 2026. Because the discount applies to the current rate, which is based on several years of biannual rate increases, including another increase in July 2025, the impact of the discount on catalog volume and revenue may be diminished. The PRC also refined some rules around work-share discounts that will keep these discounts more closely aligned with the costs avoided and provide incentives to co-mail and place product as far down the mail-stream as possible. Discounts are earned as a result of less handling of the mail, and therefore, lower costs for the USPS. As a result, the Company has made substantial investments in co-mailing technology and equipment to ensure clients benefit from these discounts. If the incentives to co-mail are decreased by USPS regulations, the overall cost to mail printed products will increase and may result in print volumes declining.

The conduct of the Company's businesses is subject to various laws and regulations administered by federal, state and local government agencies in the United States, as well as to foreign laws and regulations administered by government entities and agencies in markets in which the Company operates. These laws and regulations and interpretations thereof, and enforcement priorities may change, sometimes dramatically, as a result of political, economic or social events, such as the election of the new administration or changes in the makeup of legislative bodies. Such regulatory environment changes may include changes in taxation requirements, accounting and disclosure standards, immigration laws and policy, environmental laws, trade policy, and requirements of United States and foreign occupational health and safety laws. Changes in laws, regulations or governmental policy and the related interpretations may alter the environment in which the Company does business, and therefore, may impact its results or increase its costs or liabilities. In particular, several states, including California, have adopted or are in the process of implementing new climate- and emissions-related reporting obligations, which require certain companies doing business in the state to disclose greenhouse gas emissions and climate-related financial risks. Compliance with these or similar requirements may increase the Company's reporting and data-collection burdens, and clients subject to such rules may also require additional information from the Company. In addition, the Company and its subsidiaries are party to a variety of legal and environmental remediation obligations arising in the normal course of business, as well as environmental remediation and related indemnification proceedings in connection with certain historical activities, former facilities and contractual obligations of acquired businesses. Permits are required for the operation of certain parts of the Company's business, and these permits are subject to renewal, modification and, in some circumstances, revocation. Due to regulatory complexities, uncertainties inherent in litigation and the risk of unidentified contaminants on current and former properties, the potential exists for remediation, liability and indemnification costs to differ materially from the costs the Company has estimated. The Company cannot assure you that the Company's costs in relation to these matters will not exceed its established liabilities or otherwise have an adverse effect on its results of operations. Various laws and regulations addressing climate change have been and/or are being considered at the federal and state levels. Proposals under consideration include requiring climate- and emissions-related disclosures and limitations on the amount of greenhouse gas that can be emitted together with systems of trading allowed emissions capacities. The impacts of such proposals may require the Company to implement additional processes, systems or controls, or to take other measures that could have a material adverse impact on the Company's financial condition and results of operations.

The Company could be adversely affected by engaging in business practices that are in violation of United States or foreign anti-corruption laws, including the United States Foreign Corrupt Practices Act. The Company operates in parts of the world with developing economies that have experienced governmental corruption to some degree, and in certain circumstances, strict compliance with anti-corruption laws may conflict with local customs and practices. In certain countries, the Company does substantial business with government entities or instrumentalities, which creates increased risk of a violation of the Foreign Corrupt Practices Act and international laws. There can be no assurance that all of the Company's employees, contractors or agents, including those representing the Company in countries where practices which violate anti-corruption laws may be customary, will not take actions that violate the Company's policies and procedures. The failure to comply with the laws governing international business practices may result in substantial penalties and fines.

The price of raw materials used by the Company has fluctuated over time and has caused fluctuations in the Company's net sales and cost of sales. This volatility may continue and the Company may experience increases in the costs of its raw materials in the future as prices are expected to remain beyond its control. The primary raw materials that the Company uses in its print business are paper, ink and energy. The price and availability of paper may also be adversely affected by paper mills' permanent or temporary closures; paper mills' access to raw materials, conversion to produce other types of paper that are not usable by or as efficient for the Company in its operations (which a number of paper mills have done or are doing), transportation constraints; and tariffs and trade restrictions. The price and availability of ink and ink components may be adversely affected by similar factors, including the availability of component raw materials, labor and transportation, as well as tariffs and trade restrictions. Due to the significance of paper in the Company's print business, the Company is dependent on the availability of paper. In periods of high demand, certain paper grades have been in short supply, including grades used in the Company's business. In addition, during periods of tight supply, many paper producers allocate shipments of paper based upon historical purchase levels of clients. The declining number of paper suppliers may cause certain paper grades to be in short supply or unavailable, and may cause paper prices to substantially increase. Although historically the Company generally has not experienced significant difficulty in obtaining adequate quantities of paper, continued supplier consolidations, changes in United States import or trade regulations, reductions of graphic paper production capacity, or other developments in the overall paper markets could result in decreased supply and could adversely affect the Company's revenues or profits. The Company may also be unable to resell waste paper or other by-products of printing process at favorable prices, which may adversely impact margins and profitability. Approximately half of the paper used by the Company is supplied directly by its clients. For those clients that do not directly supply their own paper, the Company generally includes price adjustment clauses in sales contracts for paper and other critical raw materials in the printing process. Although these clauses generally mitigate certain paper price risks, higher paper prices and reduced paper supplies, as well as availability and changes in the United States import or trade regulations, may have an affect on client demand for printed products. The Company is dependent upon the vendors within its supply chain to maintain a steady supply of inventory, equipment parts and other materials. Many of the Company's products are dependent upon a limited number of vendors, and the price and availability of inventory, parts and other materials, such as printing plates, could be adversely affected by supply-chain disruptions; labor pressures; tariffs, anti-dumping duties, and trade restrictions; distribution challenges; and macroeconomic conditions. Under current market conditions, it is possible that one or more of the Company's vendors will be unable to fulfill their obligations due to financial hardship, liquidity issues or other operational pressures. Labor represents a significant component of the Company's cost structure. Increases in wages, salaries and the cost of medical, dental, workers' compensation, pension and other post-retirement benefits have in the past impacted and may continue to impact the Company's financial performance. Changes in interest rates, investment returns or the regulatory environment may impact the Company's required contributions and the solvency of its pension plan. The Company may be unable to achieve labor productivity targets or retain employees, or labor may not be adequately available in locations in which the Company operates, which could negatively impact the Company's financial performance. Freight, fuel and energy costs may fluctuate significantly in response to global economic conditions, geopolitical tensions and supply-chain constraints, and increases in these items could adversely impact the Company's margins and results. If the Company passes along increases in the cost of freight, fuel and energy, and the price of the Company's products and services increases as a result, client demand could be adversely affected, and thereby, in turn, negatively impact the Company's financial performance. If the Company is unable to continue to pass along increases in the cost of paper to its clients, future increases in paper costs would adversely affect its margins and profits. Similar challenges may arise with respect to increases in ink, labor, energy, freight and other operating costs. The Company may not be able to fully pass on to clients the impact of higher supply-chain prices or higher electric and natural-gas energy prices on its manufacturing costs, and increases in these items would adversely impact the Company's margins and financial performance. If the Company does succeed in passing along such increases, the resulting higher prices for the Company's products and services may reduce client demand, which could also adversely affect the Company's results of operations.