Equity Incentive Programs

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Equity Incentive ProgramsThe shareholders of the Company approved the Quad/Graphics, Inc. 2020 Omnibus Incentive Plan (the “2020 Plan”) at the Company’s annual meeting of shareholders held on May 18, 2020, (the “Annual Meeting”) for two complementary purposes: (1) to attract and retain outstanding individuals to serve as directors, officers and employees; and (2) to increase shareholder value. The Company’s previous plan, the Quad/Graphics, Inc. 2010 Omnibus Plan (the “2010 Plan”), was terminated on the date of approval of the 2020 Plan, and no new awards will be granted under the 2010 Plan. All awards that were granted under the 2010 Plan that were outstanding as of May 18, 2020, will remain outstanding and will continue to be governed by the 2010 Plan.

The 2020 Plan provides for an aggregate 3,000,000 shares of class A common stock reserved for issuance, plus shares still available for issuance or re-credited under the 2010 Plan. Awards under the 2020 Plan may consist of incentive awards, stock options, stock appreciation rights, performance shares, performance share units, shares of class A common 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 common stock on the date of grant. There were 3,481,420 shares of class A common stock reserved for issuance under the 2020 Plan as of June 30, 2020, including 3,000,000 shares of class A common stock that were approved for issuance at the Annual Meeting and 481,420 shares of class A common stock that were remaining and available for issuance that transferred from the 2010 Plan. Authorized unissued shares 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, RS awards, RSU awards and DSU awards. 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

Equity incentive compensation expense was recorded primarily in selling, general and administrative expenses in the condensed consolidated statements of operations and includes expense (income) recognized for liability awards that are remeasured on a quarterly basis. The total compensation expense recognized related to all equity incentive programs for the three and six months ended June 30, 2020, was as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
RS and RSU equity awards expense	$	2.7	$	3.3	$	4.8	$	7.4
RSU liability awards expense (income)	0.1		(0.6)		(0.2)		(0.6)
DSU awards expense	—		—		1.0		0.9
Total equity incentive compensation expense	$	2.8	$	2.7	$	5.6	$	7.7

Total future compensation expense related to all equity incentive programs granted as of June 30, 2020, was estimated to be $14.4 million, which consists entirely of expense for RS and RSU awards. Estimated future compensation expense is $5.2 million for the remainder of 2020, $6.7 million for 2021, $2.2 million for 2022 and $0.3 million for 2023.

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, and no compensation expense was recognized related to stock options for the three and six months ended June 30, 2020 and 2019. There is no future compensation expense for stock options as of June 30, 2020.

The following table is a summary of the stock option activity for the six months ended June 30, 2020:


	Shares Under Option	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (millions)
Outstanding at December 31, 2019	790,237	$	25.27	1.1	$	—
Granted	—	—
Exercised	—	—
Canceled/forfeited/expired	(226,762)	16.79
Outstanding and exercisable at June 30, 2020	563,475	$	28.68	0.9	$	—

The intrinsic value of options outstanding and exercisable at June 30, 2020, and December 31, 2019, was based on the fair value of the stock price. All outstanding options are vested as of June 30, 2020. There were no stock options exercised during the three and six months ended June 30, 2020 and 2019.

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 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 awards 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 RSU awards are not entitled to vote, but do earn dividends. Upon vesting, RSU awards will be settled either through cash payment equal to the fair market value of the RSU awards on the vesting date or through issuance of the Company’s class A common stock. 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.

The following table is a summary of RS and RSU award activity for the six months ended June 30, 2020:


	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, 2019	2,623,971	$	17.82	1.5	230,621	$	14.75	1.9
Granted	1,091,299	4.67			45,353	4.67
Vested	(547,883)	26.88			(25,228)	26.88
Forfeited	(152,515)	14.23			(1,208)	12.32
Nonvested at June 30, 2020	3,014,872	$	11.60	1.8	249,538	$	11.70	1.8

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 condensed consolidated statements of operations. As of June 30, 2020, the fair value of the RSU awards classified as liabilities was $0.4 million and was included in other long-term liabilities on the condensed consolidated balance sheets.

Deferred Stock Units

Deferred stock units 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 six months ended June 30, 2020:


	Deferred Stock Units
	Units	Weighted-Average Grant Date Fair Value Per Share
Outstanding at December 31, 2019	314,658	$	16.22
Granted	204,088	4.67
Dividend equivalents granted	21,145	3.40
Settled	(38,930)	19.81
Outstanding at June 30, 2020	500,961	$	10.69

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. As DSU awards are fully vested on the grant date, all compensation expense is recognized at the date of grant.