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Worldcolor Narrows Loss on Lower Revenues in First Quarter 2010

May 10, 2010
MONTRÉAL—5/10/2010—Worldcolor (TSX: WC, WC.U) more than doubled adjusted EBITDA in the first quarter of 2010 compared to the same period in 2009. This improvement was achieved because of the Company’s strict focus on restructuring initiatives, cost reductions and process improvements, which more than offset lower volume compared to the first quarter of 2009.

In the first quarter of 2010, Worldcolor generated revenues of $692 million compared to $752 million in the first quarter of 2009. Operating income in the first quarter of 2010 before impairment of assets, restructuring and other charges (IAROC) was $34 million compared to an operating loss before IAROC of $14 million in the first quarter of 2009.

The company reported a net loss of $29 million, compared to a net loss of $126 million for the same period in 2009. These results incorporated IAROC, net of income taxes, of $36 million, compared with IAROC, net of income taxes, of $11 million for the same period in 2009. The restructuring costs related largely to plant closures announced in the current year of the following facilities in North America: Oberlin, OH; Dyersburg, TN; West Bridgewater, MA; Richmond Hill, ON; St-Romuald, QC; Bromont, QC; as well as various workforce reductions. The 2010 restructuring initiatives affected a total of 1,700 employees, of which 401 positions were eliminated as of March 31, 2010 and 1,299 positions are expected to be eliminated as the aforementioned facilities are closed.

Adjusted EBITDA was $79 million in the first quarter of 2010 compared to $36 million in the first quarter of 2009. The higher adjusted EBITDA in the quarter was largely due to the benefits of restructuring, continuous improvement projects and ongoing cost containment initiatives which significantly improved operational efficiency.

In the first quarter of 2010, cost of sales decreased by 16% compared to the first quarter of 2009 while revenues in the first quarter 2010 decreased by 8% compared to the same period last year. Free cash flow in the first quarter was $98 million which was $23 million higher than in the first quarter of 2009.

“This is the third consecutive quarter in which we have increased our adjusted EBITDA and adjusted EBITDA margins compared to the same period in the prior year, in each case in an amount that exceeded our expectations. We saw a direct benefit from our restructuring and other cost containment initiatives announced last year and which continued in the first quarter,” said Mark Angelson, Chairman and CEO of Worldcolor. “These measures, as well as the streamlining of our North America printing operations into one platform, have enabled us better to serve our customers and to improve our results despite challenging market conditions and continued lower advertising spending.”

Quad/Graphics Transaction
During the first quarter of 2010 Worldcolor and Quad/Graphics Inc., entered into a definitive arrangement agreement whereby Quad/Graphics will acquire Worldcolor. Concurrent with the closing of the transaction Quad/Graphics intends to become a publicly traded company. Under the terms of the agreement, Worldcolor shareholders will receive at closing approximately 40% of the outstanding shares of Quad/Graphics and Quad/Graphics shareholders will hold approximately 60% of the shares, and Worldcolor shareholders will receive up to $93,333,333 of cash consideration, the final amount of which will be determined at closing. The transaction has cleared antitrust regulatory requirements in the United States and Canada, and is expected to close early in the summer of 2010 subject to shareholder approvals, court approval and satisfaction of other customary closing conditions.

Fresh Start Reporting
Upon emergence from protection under the Companies’ Creditors Arrangement Act in Canada (“CCAA”) and Chapter 11 in the United States, the Company adopted “fresh start” financial accounting. Under fresh start accounting, Worldcolor, the Successor, became a new entity for financial reporting purposes.  Accordingly, the Consolidated Financial Statements of the Successor on or after August 1, 2009 are not comparable to the Consolidated Financial Statements of the Predecessor prior to that date.

Use of Non-GAAP Measures
In the discussion of our 2010 results, we use certain financial measures that are not calculated in accordance with Canadian generally accepted accounting principles (GAAP) or United States GAAP to assess our financial performance, including EBITDA (earnings before interest, tax, depreciation and amortization), Adjusted EBITDA, Adjusted EBIT, and free cash flow. Adjusted EBITDA excludes the following items: IAROC, financial expenses, effective interest on preferred shares classified as a liability, depreciation, amortization, reorganization expenses and income taxes, that are not under the control of the business segments and that are not considered in the measurement of their profitability. These items are typically managed by Worldcolor’s corporate head office which focuses on strategy development and overseas governance, policy, compliance, human resources, legal, tax and other financial matters. These measures do not have any standardized meanings provided by GAAP. We use such non-GAAP financial measures because we believe that they are meaningful measures of our performance. Our method of calculating these non-GAAP financial measures may differ from the methods used by other companies and, as a result, the non-GAAP financial measures presented in this press release may not be comparable to other similarly titled measures disclosed by other companies. We provide a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures in Figure 5 and 6, “Reconciliation of non-GAAP Measures” of our first quarter 2010 management’s discussion and analysis filed with the Canadian securities regulatory authorities at www.sedar.com and furnished to the United States Securities and Exchange Commission at www.sec.gov.

A copy of our first quarter 2010 management’s discussion and analysis is also available on the Company’s website at www.worldcolor.com.

Cautionary Note 
In connection with the Quad/Graphics transaction, the Company prepared projected financial information to be included in Quad/Graphics’ Form S-4 Registration Statement (“Form S-4”) to register the offering of its Class A common stock with the Securities and Exchange Commission in the U.S. The Company’s historical financial and operating results are not necessarily indicative of its financial performance for any future period, and there is no guarantee that the Company will achieve its projected financial performance for other future periods set forth in Quad/Graphics’ Form S-4. The Company has no intention nor is it in any way updating or reaffirming any projections.

There are numerous factors that can affect the performance of the Company’s business, including the risks and uncertainties described in the Company’s most recent Annual Report and quarterly financial statements and corresponding management’s discussion and analysis furnished to the SEC on Form 6-K, including under the captions “Forward- Looking Statements” and “Risk Factors.” As they relate to projected financial information, see Quad/Graphics Form S-4, “The Arrangement Projected Financial Information” for cautionary language regarding the projections.

About Worldcolor
Worldcolor is an industry leader in providing high-value and comprehensive print, digital and related services to retailers, catalogers, publishers, branded-goods companies and other businesses worldwide. Founded in 1903, Worldcolor’s products include advertising inserts and circulars, catalogs, direct mail products, magazines, books, directories, digital premedia, logistics and mail list technologies. During its century-long existence, Worldcolor has had a rich tradition of leadership and excellence. Its team of approximately 16,500 employees is focused on helping clients meet their needs from facilities located in the U.S., Canada, Argentina, Brazil, Chile, Colombia, Mexico and Peru. More information about Worldcolor can be found on its Web site at www.worldcolor.com
 

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