Equity Incentive Programs

The shareholders of the Company approved the Quad/Graphics, Inc. 2010 Omnibus Incentive Plan ("Omnibus Plan") for two complimentary purposes: (1) to attract and retain outstanding individuals to serve as directors, officers and employees and (2) to increase shareholder value. The Omnibus plan provides for an aggregate 7,871,652 shares of class A common 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 common stock, restricted stock, restricted stock units, deferred stock units 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 common stock on the date of grant. As of March 31, 2015, there are 1,775,884 shares available for issuance under the Omnibus Plan.

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 deferred stock units, 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 $2.7 million and $4.2 million for the three months ended March 31, 2015 and 2014, respectively, and was recorded in selling, general and administrative expenses in the condensed consolidated statements of operations. Total future compensation expense related to all equity incentive programs granted as of March 31, 2015, is approximately $15.5 million. Estimated future compensation expense is $8.1 million for 2015, $6.5 million for 2016 and $0.9 million for 2017.

Net tax benefit on equity award activity, shown as tax benefit on equity award activity in the financing section of the condensed consolidated statements of cash flows, was $1.2 million during the three months ended March 31, 2015. There was no net tax benefit on equity award activity during the three months ended March 31, 2014.

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 three months ended March 31, 2015 and 2014. Compensation expense recognized related to stock options was $0.1 million and $2.0 million for the three months ended March 31, 2015 and 2014, respectively. Total future compensation expense for all stock options granted as of March 31, 2015 to be recognized in 2015, is approximately $0.1 million.

The following table is a summary of the stock option activity for the three months ended March 31, 2015:



	Shares Under Option		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (millions)
Outstanding at December 31, 2014	3,477,980		$	21.05	4.7	$	15.6
Granted	—		—
Exercised	(96,176	)	13.89
Cancelled/forfeited/expired	—		—
Outstanding at March 31, 2015	3,381,804		$	21.26	4.4	$	14.8

Exercisable at March 31, 2015	3,255,356		$	21.53	4.3	$	13.7

The intrinsic value of options exercisable and options outstanding at March 31, 2015 and December 31, 2014, is based on the fair value of the stock price. All outstanding options are either vested or expected to vest at March 31, 2015.

The following table is a summary of the stock option exercises and vesting activity for the three months ended March 31, 2015 and 2014:



	Three Months Ended March 31,
	2015		2014
Total intrinsic value of stock options exercised	$	0.9	$	0.5
Cash received from stock option exercises	1.3		0.8
Total grant date fair value of stock options vested	1.8		1.9

Performance Share and Performance Share Units

Performance share ("PS") and performance share unit ("PSU") awards consist of shares or the rights to shares of the Company's class A common stock which are awarded to employees of the Company. These shares are payable upon the determination that the Company achieved certain established performance targets and can range from 0% to 200% of the targeted payout based on the actual results. Shares awarded in 2013 have a performance period of three years ending December 31, 2015. As set forth 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 PS or PSU grants receive full credit for dividends during the vesting period. All such dividends will be paid to the grantee within 45 days of full vesting. Upon vesting, PSUs will be settled either through cash payment equal to the fair market value of the PSUs on the vesting date or through issuance of Company class A common stock. There are no voting rights with these instruments until vesting occurs and a share of stock is issued.

The following table is a summary of PS and PSU award activity for the three months ended March 31, 2015:



	Performance Shares				Performance Share 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, 2014	343,568	$	20.39	1.2	16,208	$	20.50	1.2
Granted	—	—			—	—
Vested	—	—			—	—
Forfeited	—	—			—	—
Nonvested at March 31, 2015	343,568	$	20.39	0.9	16,208	$	20.50	0.9

There were no PS or PSU awards granted during the three months ended March 31, 2015 and 2014. During the performance period, the target number of shares will be earned or forfeited, and additional shares, up to the maximum number of shares, may be granted at the end of the performance period. The potential payouts for nonvested awards at March 31, 2015 range from 179,888 to 539,664 PS or PSU awards should certain performance targets be achieved. PS and PSU awards will vest on March 1, 2016, provided the holder of the share is continuously employed by the Company until the vesting date.

Compensation expense for awards granted is recognized based on the targeted payout of 100%, net of estimated forfeitures. Compensation expense recognized related to PS and PSUs was $0.5 million and $0.6 million for the three months ended March 31, 2015 and 2014, respectively. Total future compensation expense for all PS and PSUs granted as of March 31, 2015, is approximately $2.2 million. Estimated future compensation expense is $1.8 million for 2015 and $0.4 million for 2016.

Restricted Stock and Restricted Stock Units

Restricted stock ("RS") and restricted stock unit ("RSU") awards consist of shares or the rights to shares of the Company's class A common 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 granted prior to January 1, 2012 are not entitled to vote and do not earn dividends. Grantees receiving RSUs on or after January 1, 2012 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 common stock.

The following table is a summary of RS and RSU award activity for the three months ended March 31, 2015:



	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, 2014	1,311,544		$	20.80	1.5	63,046		$	20.21	1.2
Granted	—		—			—		—
Vested	(259,743	)	14.34			(12,608	)	14.34
Forfeited	(1,097	)	23.45			(658	)	23.45
Nonvested at March 31, 2015	1,050,704		$	22.40	1.6	49,780		$	21.66	1.3

There were no RS or RSU awards granted during the three months ended March 31, 2015. During the three months ended March 31, 2014, RS awards of 701,811 shares and RSU awards of 17,767 units were granted at a weighted-average grant date fair value of $23.45. 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 was $2.1 million and $1.0 million for the three months ended March 31, 2015 and 2014, respectively. Total future compensation expense for all RS and RSUs granted as of March 31, 2015, is approximately $13.2 million. Estimated future compensation expense is $6.2 million for 2015, $6.1 million for 2016 and $0.9 million for 2017.

Deferred Stock Units

Deferred stock units ("DSU") are awards of rights to shares of the Company's class A common stock and are awarded to non-employee directors of the Company. The following table is a summary of DSU award activity for the three months ended March 31, 2015:



	Deferred Stock Units
	Units	Weighted-Average Grant Date Fair Value Per Share
Outstanding at December 31, 2014	110,804	$	20.40
Granted	—	—
Dividend equivalents granted	1,427	23.18
Settled	—	—
Forfeited	—	—
Outstanding at March 31, 2015	112,231	$	20.44

There were no DSU awards granted during the three months ended March 31, 2015. During the three months ended March 31, 2014, DSU awards of 26,316 units were granted at a weighted-average grant date fair value of $23.45. The DSU awards are fully vested on the grant date. Each DSU award entitles the grantee to receive one share of class A common 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 common stock. Dividend equivalents of 1,427 and 1,024 units were granted during the three months ended March 31, 2015 and 2014, respectively.

There was no compensation expense recorded for DSUs for the three months ended March 31, 2015. The compensation expense recorded for DSUs was $0.6 million for the three months ended March 31, 2014. As these awards were fully vested on the grant date, all compensation expense was recognized at the date of grant.

Other information

Authorized unissued shares or treasury shares may be used for issuance under the Company's equity incentive programs. The Company intends to use treasury shares of its class A common stock to meet the stock requirements of its awards in the future.