Equity Incentive Programs | 9 Months Ended |
Sep. 30, 2013 |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ' |
Equity Incentive Programs | ' |
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 5,871,652 shares of class A stock reserved for issuance under the Omnibus Plan, subject to adjustments as described in 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, 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 stock on the date of grant. As of September 30, 2013, there are 316,144 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 service period of the award, which is generally the vesting term of three to four years for performance share and performance share unit awards, restricted stock and restricted stock unit awards, and stock options. 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 $4.2 million and $13.5 million for the three and nine months ended September 30, 2013, respectively, and $3.3 million and $10.2 million for the three and nine months ended September 30, 2012, respectively, and was recorded in selling, general and administrative expenses in the condensed consolidated statements of operations. Total future compensation expense for all equity incentives related to the equity incentive program granted as of September 30, 2013, is approximately $26.2 million. Estimated future compensation expense is $4.4 million for 2013, $16.4 million for 2014, and $5.4 million for 2015. |
|
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, twenty-four months after termination for death, thirty-six 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 (the "409A Options"). The 409A Options are the new options granted to holders of the options previously issued under the Company's 1990 Stock Option Plan and 1999 Nonqualified Stock Option Plan that the Company terminated on November 18, 2011. These terminated options had included a dividend credit. Stock options are only to be granted to employees. |
|
There were no stock options granted under the Omnibus Plan during the three and nine months ended September 30, 2013. There were no stock options granted during the three months ended September 30, 2012, and 448,154 stock options were granted with a weighted average fair value of $2.25 during the nine months ended September 30, 2012. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The fair market value of the stock options is determined using the following weighted average assumptions: |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| 2012 | | | | | | | | | | | | | | | | | |
Expected volatility | 36.7 | % | | | | | | | | | | | | | | | | | |
Risk-free interest rate | 1.3 | % | | | | | | | | | | | | | | | | | |
Expected life (years) | 7 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Dividend yield | 7.1 | % | | | | | | | | | | | | | | | | | |
|
The Company determined expected volatility based on the volatility of comparable company stock. The average risk-free interest rate is based on the United States treasury security rate in effect as of the grant date over the term of the expected life. The expected life is based on the term and vesting period of each grant adjusted for historical experience in vesting. |
|
Compensation expense recognized related to stock options was $2.3 million and $7.1 million for the three and nine months ended September 30, 2013, respectively, and $2.5 million and $7.5 million for the three and nine months ended September 30, 2012, respectively. Total future compensation expense for all stock options granted as of September 30, 2013 is estimated to be $12.4 million. Estimated future compensation expense is $2.4 million for 2013, $9.8 million for 2014, and $0.2 million for 2015. |
|
The following table is a summary of the stock option activity for the nine months ended September 30, 2013: |
|
| | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Shares Under | | Weighted Average | | Weighted Average | | Aggregate | | | | | | | |
Option | Exercise | Remaining | Intrinsic Value | | | | | | | |
| Price | Contractual Term | (millions) | | | | | | | |
| | (years) | | | | | | | | |
Outstanding at December 31, 2012 | 4,407,125 | | | $ | 20.34 | | | 6.8 | | $ | 15.2 | | | | | | | | |
| | | | | | |
Granted | — | | | — | | | | | | | | | | | | | |
| | | | | | |
Exercised | (412,550 | ) | | 15.53 | | | | | | | | | | | | | |
| | | | | | |
Cancelled/forfeited/expired | (142,229 | ) | | 26.34 | | | | | | | | | | | | | |
| | | | | | |
Outstanding at September 30, 2013 | 3,852,346 | | | $ | 20.8 | | | 6.1 | | $ | 41 | | | | | | | | |
| | | | | | |
| | | | | | | | | | | | | | |
Vested and expected to vest at September 30, 2013 | 3,850,726 | | | $ | 20.81 | | | 6.1 | | $ | 40.9 | | | | | | | | |
| | | | | | |
Exercisable at September 30, 2013 | 2,200,347 | | | $ | 20.59 | | | 5.7 | | $ | 22.9 | | | | | | | | |
| | | | | | |
|
The intrinsic value of options exercisable and options outstanding at September 30, 2013 and December 31, 2012, is based on the fair value of the stock price. |
|
The following table is a summary of the stock option exercises and vesting activity for the three and nine months ended September 30, 2013 and 2012: |
|
| | | | |
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | | | |
| 2013 | | 2012 | | 2013 | | 2012 | | | | |
Total intrinsic value of stock options exercised | $ | 4.7 | | | $ | — | | | $ | 5.6 | | | $ | — | | | | | |
| | | |
Cash received from stock option exercises | 4.8 | | | 0.1 | | | 6.5 | | | 0.1 | | | | | |
| | | |
Total grant date fair value of stock options vested | — | | | — | | | 1.8 | | | — | | | | | |
| | | |
|
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 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, or 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 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 nine months ended September 30, 2013: |
|
|
| | | | | | | | | | | | | | | | | | | |
| Performance Shares | | Performance Share Units |
| Shares | | Weighted- | | Weighted- | | Units | | Weighted- | | Weighted- |
Average | Average | Average | Average |
Grant Date | Remaining Contractual Term (years) | Grant Date | Remaining Contractual Term (years) |
Fair Value | | Fair Value | |
Per Share | | Per Share | |
Nonvested at December 31, 2012 | — | | | $ | — | | | — | | | — | | | $ | — | | | — | |
|
Granted | 389,930 | | | 20.39 | | | | | 16,208 | | | 20.5 | | | |
|
Vested | — | | | — | | | | | — | | | — | | | |
|
Forfeited | (24,836 | ) | | 20.39 | | | | | — | | | — | | | |
|
Nonvested at September 30, 2013 | 365,094 | | | $ | 20.39 | | | 2.3 | | | 16,208 | | | $ | 20.5 | | | 2.3 | |
|
|
There were no PS or PSU awards granted during the three months ended September 30, 2013. During the nine months ended September 30, 2013, PS awards of 389,930 shares and PSU awards of 16,208 units were granted at a weighted-average grant date fair value of $20.39 and $20.50, respectively. On the grant dates, the target number of shares ("target shares") was granted. During the performance period, the target 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 September 30, 2013 range from zero to 762,604 PS or PSU awards should certain performance targets be achieved. There were no PS or PSU awards granted during the three and nine months ended September 30, 2012. All of the PS shares and the PSUs will vest at the end of the performance period, provided the holder of the share is continuously employed by the Company until the vesting date. |
|
Compensation expense for awards granted are recognized based on the targeted payout of 100.0%, net of estimated forfeitures. Compensation expense recognized related to PS and PSUs was $0.6 million and $1.8 million for the three and nine months ended September 30, 2013, respectively. There was no compensation expense recognized related to PS and PSUs for the three and nine months ended September 30, 2012. Total future compensation expense for all PS and PSUs granted as of September 30, 2013 is estimated to be $5.6 million. Estimated future compensation expense is $0.6 million for 2013, $2.5 million for 2014, and $2.5 million for 2015. |
|
Restricted Stock, Restricted Stock Units and Deferred 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 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, or 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 July 1, 2012 are not entitled to vote and do not earn dividend equivalents. Grantees receiving RSUs on or after July 1, 2012 are not entitled to vote but do earn dividends equivalents. 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 nine months ended September 30, 2013: |
|
| | |
| | | | | | | | | | | | | | | | | | | |
| Restricted Stock | | Restricted Stock Units | | |
| Shares | | Weighted- | | Weighted- | | Units | | Weighted- | | Weighted- | | |
Average | Average | Average | Average | | |
Grant Date | Remaining | Grant Date | Remaining | | |
Fair Value | Contractual | Fair Value | Contractual | | |
Per Share | Term (years) | Per Share | Term (years) | | |
Nonvested at December 31, 2012 | 415,906 | | | $ | 21.24 | | | 1.7 | | 22,438 | | | $ | 21.17 | | | 1.7 | | |
| |
Granted | 408,146 | | | 20.39 | | | | | 32,671 | | | 20.72 | | | | | |
| |
Vested | — | | | — | | | | | — | | | — | | | | | |
| |
Forfeited | (62,076 | ) | | 20.95 | | | | | — | | | — | | | | | |
| |
Nonvested at September 30, 2013 | 761,976 | | | $ | 20.85 | | | 1.6 | | 55,109 | | | $ | 20.9 | | | 1.8 | | |
| |
|
There were no RS or RSU awards granted during the three months ended September 30, 2013 and 2012. During the nine months ended September 30, 2013, RS awards of 408,146 shares and RSU awards of 32,671 units were granted at a grant date fair value of $20.39 and $20.72, respectively. During the nine months ended September 30, 2012, RS awards of 310,651 shares and RSU awards of 15,760 units were granted at a grant date fair value of $14.34. All of the RS shares and the RSUs 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 related to RS and RSUs was $1.3 million and $3.9 million for the three and nine months ended September 30, 2013, respectively, and $0.8 million and $2.3 million for the three and nine months ended September 30, 2012, respectively. Total future compensation expense for all RS and RSUs granted as of September 30, 2013 is estimated to be $8.2 million. Estimated future compensation expense is $1.4 million for 2013, $4.1 million for 2014, and $2.7 million for 2015. |
|
Deferred stock units ("DSU") are awards of rights to shares of the Company's class A stock and are awarded to non-employee directors of the Company. The Company granted 33,115 and 31,525 DSUs during the nine months ended September 30, 2013 and 2012, respectively, at a grant date fair value of $20.39 and $14.34, respectively. The deferred stock units are fully vested on the grant date. Each DSU 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 or death or disability as defined in the individual DSU grant agreement. Grantees of DSUs may not exercise voting rights, but are credited with dividend equivalents and those dividend equivalents will be converted into additional DSUs based on the closing price of the class A stock. During the three and nine months ended September 30, 2013, dividend equivalents of 754 and 2,640 units, respectively, were granted. During the three and nine months ended September 30, 2012, dividend equivalents of 580 and 2,145 units, respectively, were granted. There were 78,207 and 50,705 deferred stock units outstanding as of September 30, 2013 and December 31, 2012, respectively. There was no compensation expense recorded for these awards for the three months ended September 30, 2013 and 2012. The compensation expense recorded for these awards was $0.7 million and $0.4 million for the nine months ended September 30, 2013 and 2012, respectively. 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 stock to meet the stock requirements of its awards in the future. |