Equity Incentive Programs

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

The shareholders of the Company approved the Quad/Graphics, Inc. 2010 Omnibus Incentive Plan (“Omnibus Plan”) for two complementary purposes: (1) to attract and retain outstanding individuals to serve as directors, officers and employees; and (2) to increase shareholder value. In May 2019, an additional 1,800,000 shares were approved for issuance, providing for an aggregate 12,671,652 shares of class A stock reserved for issuance under the Omnibus Plan. Awards under the Omnibus Plan may consist of incentive awards, stock options, stock appreciation rights, performance shares, performance share units, shares of class A stock, restricted stock (“RS”), restricted stock units (“RSU”), deferred stock units (“DSU”) or other stock-based awards as determined by the Company’s Board of Directors. Each stock option granted has an exercise price of no less than 100% of the fair market value of the class A stock on the date of grant. As of December 31, 2019, there were 1,682,404 shares available for issuance under the Omnibus Plan. Authorized but unissued shares of the Company’s class A stock or treasury shares may be used for issuance under the Company’s equity incentive programs. The Company plans to either use treasury shares of its class A common stock or issue shares of class A common stock to meet the stock requirements of its awards in the future.

The Company recognizes compensation expense based on estimated grant date fair values for all share-based awards issued to employees and non-employee directors, including stock options, performance shares, performance share units, restricted stock, restricted stock units and deferred stock units. The Company recognizes these compensation costs for only those awards expected to vest, on a straight-line basis over the requisite three to four year service period of the awards, except DSU awards, which are fully vested and expensed on the grant date. The Company estimated the number of awards expected to vest based, in part, on historical forfeiture rates and also based on management’s expectations of employee turnover within the specific employee groups receiving each type of award. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates.

Equity Incentive Compensation Expense

The total compensation expense recognized related to all equity incentive programs was $13.6 million, $15.6 million and $16.4 million for the years ended December 31, 2019, 2018 and 2017, respectively, and was recorded primarily in selling, general and administrative expenses in the consolidated statements of operations. Total stock-based compensation expense included income of $1.1 million recognized for liability awards that are remeasured on a quarterly basis during the year ended December 31, 2019. Total future compensation expense related to all equity incentive programs granted as of December 31, 2019, is estimated to be $15.8 million, which consists entirely of expense for RS and RSU awards. Estimated future compensation expense is $9.8 million for 2020, $5.3 million for 2021 and $0.7 million for 2022.

Stock Options

Options vest over four years, with no vesting in the first year and one-third vesting upon the second, third and fourth anniversary dates. As defined in the individual grant agreements, acceleration of vesting may occur under a change in control, death, disability or normal retirement of the grantee. Options expire no later than the tenth anniversary of the grant date, 24 months after termination for death, 36 months after termination for normal retirement or disability and 90 days after termination of employment for any other reason. Options are not credited with dividend declarations, except for the November 18, 2011 grants. Stock options are only to be granted to employees.

There were no stock options granted during the years ended December 31, 2019, 2018 and 2017. There was no compensation expense recognized related to stock options for the years ended December 31, 2019, 2018 and 2017. There is no future compensation expense for stock options granted as of December 31, 2019. The following table is a summary of the stock option activity for the year ended December 31, 2019:



	Shares Under Option		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (millions)
Outstanding and exercisable at December 31, 2018	942,315		$	24.31	1.8	$	—
Granted	—		—
Exercised	—		—
Canceled/forfeited/expired	(152,078	)	19.35
Outstanding and exercisable at December 31, 2019	790,237		$	25.27	1.1	$	—

The intrinsic value of options outstanding and exercisable as of December 31, 2019 and 2018, was based on the fair value of the stock price. All outstanding options are vested as of December 31, 2019. The following table is a summary of the stock option exercises and vesting activity for the years ended December 31, 2019, 2018 and 2017:



	2019		2018		2017
Total intrinsic value of stock options exercised	$	—	$	3.7	$	1.7
Proceeds from stock options exercised	—		4.2		2.6
Total grant date fair value of stock options vested	—		—		—

Restricted Stock and Restricted Stock Units

Restricted stock and restricted stock unit awards consist of shares or the rights to shares of the Company’s class A stock which are awarded to employees of the Company. The awards are restricted such that they are subject to substantial risk of forfeiture and to restrictions on their sale or other transfer by the employee. RSU awards are typically granted to eligible employees outside of the United States. As defined in the individual grant agreements, acceleration of vesting may occur under a change in control, death, disability or normal retirement of the grantee. Grantees receiving RS grants are able to exercise full voting rights and receive full credit for dividends during the vesting period. All such dividends will be paid to the RS grantee within 45 days of full vesting. Grantees receiving RSUs are not entitled to vote but do earn dividends. Upon vesting, RSUs will be settled either through cash payment equal to the fair market value of the RSUs on the vesting date or through issuance of Company class A stock.

The following table is a summary of RS and RSU award activity for the year ended December 31, 2019:



	Restricted Stock					Restricted Stock Units
	Shares		Weighted- Average Grant Date Fair Value Per Share		Weighted- Average Remaining Contractual Term (Years)	Units		Weighted- Average Grant Date Fair Value Per Share		Weighted- Average Remaining Contractual Term (Years)
Nonvested at December 31, 2018	2,335,916		$	17.36	1.0	107,092		$	16.70	0.8
Granted	1,503,344		12.31			186,807		12.33
Vested	(1,118,071	)	9.46			(58,187	)	9.51
Forfeited	(97,218	)	17.72			(5,091	)	26.88
Nonvested at December 31, 2019	2,623,971		$	17.82	1.5	230,621		$	14.75	1.9

In the first quarter of 2019, the Company issued RSU awards in connection with the acquisition of Periscope that are accounted for as liability awards that will vest on March 1, 2022. The awards were recorded at fair value on the initial issuance date and are remeasured to fair value at each reporting period, with the change in fair value being recorded in selling, general and administrative expense in the consolidated statements of operations. The change in fair value of the awards classified as liabilities resulted in income of $1.1 million for the year ended December 31, 2019. As of December 31, 2019, the fair value of the RSU awards classified as liabilities was $0.6 million and was included in other long-term liabilities on the consolidated balance sheets.

In general, RS and RSU awards will vest on the third anniversary of the grant date, provided the holder of the share is continuously employed by the Company until the vesting date. Compensation expense recognized for RS and RSUs classified as equity was $13.8 million, $14.7 million and $15.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Deferred Stock Units

Deferred stock units are awards of rights to shares of the Company’s class A stock and are awarded to non-employee directors of the Company. The following table is a summary of DSU award activity for the year ended December 31, 2019:



	Deferred Stock Units
	Units		Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 2018	236,561		$	19.40
Granted	72,464		12.32
Dividend equivalents granted	36,309		8.60
Settled	(30,676	)	22.53
Outstanding at December 31, 2019	314,658		$	16.22

Each DSU award entitles the grantee to receive one share of class A stock upon the earlier of the separation date of the grantee or the second anniversary of the grant date, but could be subject to acceleration for a change in control, death or disability as defined in the individual DSU grant agreement. Grantees of DSU awards may not exercise voting rights, but are credited with dividend equivalents and those dividend equivalents will be converted into additional DSU awards based on the closing price of the class A stock. Compensation expense recognized for DSUs was $0.9 million for each of the years ended December 31, 2019, 2018 and 2017. As DSU awards are fully vested on the grant date, all compensation expense was recognized at the date of grant.