After Massive Cutbacks, Quad/Graphics Investing in 'Redefining Print'

Quad/Graphics has been The Incredible Shrinking Printing Company during the past year and a half, closing a dozen printing plants and laying off more than 6,000 employees. But trying to use capital investment to outflank the competition is still embedded in its DNA.

“In this increasingly multichannel marketplace, the Company believes that the printing industry will be driven to make capital investments in new technologies, such as those to deliver targeted and customized print solutions and to deploy multichannel marketing campaigns through the integration of new media,” the company said in its 2011 annual report, released today.

“Quad/Graphics has focused on integrating new media to redefine print for its customers" so that they can "connect with customers and subscribers across multiple channels including print, web, mobile, e-mail, e-book, tablet and in-store." Its non-print ventures include “digital imaging, video, photography, workflow solutions, interactive technology including mobile and social media, and response data analytics services.”

The investment strategy is a far cry from the go-go days of the 41-year-old company, when, according to a reliable source, Quad proposed building a huge new printing plant next door to a paper mill. (Remember when printers were building mega-plants instead of closing them down? You do? Has it occurred to you that you are, like, really old?)

A Glimmer of Hope for the Port Hawkesbury Mill

The potential purchaser of the idled Port Hawkesbury paper mill has almost worked out an electricity deal and has contacted the union to start labor negotiations, the bankruptcy monitor revealed today.

Extensive negotiations between Pacific West Commercial Corporation and Nova Scotia Power Inc. have been "constructive," and the companies "are working toward finalizing an agreement on the supply of energy to the Company," Ernst & Young said in a report today to a Canadian bankruptcy court. PWCC has said that obtaining favorable electricity rates was a major condition of it buying the mill and restarting its world-class supercalendered paper machine.

PWCC and Ernst & Young believe that the power negotiations "have reached a sufficient level that it is appropriate to seek the implementation of next steps in this proceeding." Those next steps include starting the formal process of identifying creditors, working out an agreement with the province for wood to supply the mill, and labor negotiations with the Communication, Energy, and Paperworkers Union.

Greece Is the Word for USPS, Donahoe Says

The U.S. Postal Service’s financial situation is starting to “look like Greece,” the Postmaster General told mailers last week, because of resistance to changing the agency's obviously unsustainable cost structure.

If Congress doesn’t allow USPS to change, Postmaster General Pat Donahoe told the Mailers Technical Advisory Committee (MTAC), by 2016 it will have $60 billion in annual revenue but $90 billion worth of debt.

Donahoe was updating the mailers on his plan to reduce the agency’s cost structure through such measures as eliminating Saturday delivery, closing many post offices and distribution centers, slower deliveries, and ending the accounting games surrounding retiree health benefits and pensions.

“We have to act on this now. Putting a couple of pieces together and holding your breath is not the solution. We will be in an untenable position in 5 to 6 years,” one account of the meeting quoted Donahoe as saying.

“It is hard to get the message across. Everyone can’t have their cake and eat it too. When you look at our outlook and do nothing, we look like Greece,” he said, referring to the country that faces default on its debt and massive upheaval after years of obviously unsustainable budget deficits.

Obama Proposes Postage Increase, End to Saturday Delivery

President Obama proposed today a special increase in postage rates and an end to Saturday delivery as part of a plan to right the U.S. Postal Service’s finances.

The Obama Administration’s Fiscal Year 2013 budget plan would also end the “pre-payments” for retiree health insurance and return the overpayments into a retirement fund, which have been the major sources of its recent budget deficits.

“USPS faces long-term, structural operating challenges that have been exacerbated by the precipitous drop in mail volume in the last few years due to the economic crisis and the continuing shift toward electronic communication,” the plan says. “Bold action is needed to ensure that USPS can continue to operate in the short-run and achieve viability in the long-run.”

One part of USPS’s short-run relief would be allowing it “to seek the balance of the modest one-time increase in postage rates it proposed in 2010.” Obama released a deficit-reduction plan in September that contained similar language.

U.S. Paper Companies May Lose Son of Black Liquor Loophole

Senate Finance Committee Chairman Max Baucus is trying to close the Son of Black Liquor tax loophole that has already provided U.S. paper makers with a windfall of more than $1 billion.

The committee's staff estimates the move would save $2.786 billion over the next four years, which Baucus would use to help pay for highway construction and other infrastructure projects. The staff has not revealed the basis for its calculation, a tricky matter because it requires assumptions about the future taxable income of more than a dozen paper companies.

"Black liquor qualified for the alternative fuel mixture [AFM] tax credit and the cellulosic biofuels tax credit," a news release from the committee noted Friday. "Congress never intended for black liquor to qualify for these credits and, in 2010, prohibited the credit for black liquor sold or used on or after January 1, 2010. This provision would prohibit taxpayers from claiming the alternative mixture credit or the cellulosic biofuels credit on any new or amended returns made on or after February 3, 2012."

The committee is scheduled to discuss the Highway Investment, Job Creation and Economic Growth Act of 2012 tomorrow.

FSS Is Increasing USPS's Costs, Expert Says

So far, the Flats Sequencing System seems to be increasing rather than decreasing the Postal Service’s sorting and delivery costs, according to a postal expert.

“The FSS has at times been seen as the technological fix that would reduce flats costs” and make the Periodicals class less of a money loser for the U.S. Postal Service, noted Halstein Stralberg in comments Time Inc. submitted Friday to the Postal Regulatory Commission. But based on USPS’s data for fiscal year 2011, “FSS processing was in fact very costly and most likely made Periodicals costs higher than they would have been without FSS.”

“In FY2011, far too many flats were rejected from the FSS, and some either disappeared or had unacceptable delays. Additionally, relative to the volumes sorted by the FSS, there must have been far too many manhours spent on a system that was supposed to be highly automated,” Stralberg wrote on behalf of Time Inc., which is challenging the way USPS calculates the Periodicals class’s costs.

“It appears most likely that the majority of the flats that were rejected in some way by the FSS during FY2011 were diverted to manual processing,” Stralberg concluded. “Considering that the majority of flats processed by FSS are flats that without FSS would have been carrier route presorted [making their handling costs low], the flats that are diverted to manual from FSS will experience higher delivery costs, as well as much higher processing costs, than they would had they simply remained as carrier route presorted flats going directly to the carriers.”