Share-Based Compensation

Under the 2012 Stock Incentive Plan (the "2012 SIP"), a total of 26,850,000 million shares of our common stock were reserved for issuance upon the exercise of stock options or the vesting of restricted stock units (“RSUs”), performance stock units ("PSUs") or restricted stock awards that may be issued to our employees, non-employee directors and consultants. The 2012 SIP also permits awards of stock appreciation rights (“SARs”) and phantom shares as part of our long-term incentive compensation program. In general, awards granted to our employees under the 2012 SIP vest one-third on the first anniversary of the grant date, one-third on the second anniversary of the grant date, and one-third on the third anniversary of the grant date. Unvested awards vest immediately upon a change of control, except for PSUs and all equity awards granted in and after 2015 to the Company’s executive officers. Unvested awards vest immediately in the following additional circumstances: (i) an employee retires after reaching the age of 65, (ii) in certain cases upon an employee’s death or qualified disability, and (iii) except for awards granted in connection with the Company’s initial public offering, an employee with 10 years of service retires after reaching the age of 55.

Share-Based Compensation Expense

The following table summarizes the share-based compensation expense recognized for the Company’s equity and liability classified plans in the three and six months ended June 30, 2015 and 2014:



	Three months ended June 30,				Six months ended June 30,
	2015		2014		2015		2014
	(In thousands)
Share-based compensation expense:
Stock options	$	2,381	$	2,065	$	7,057	$	6,605
RSUs	3,648		3,736		9,601		8,821
PSUs	1,608		—		3,775		—
Phantom shares	376		253		740		2,196
SARs	4,196		388		4,975		559
Total share-based compensation expense	$	12,209	$	6,442	$	26,148	$	18,181

Stock Options

Under the terms of the 2012 SIP, options may be granted to purchase our common stock at a price equal to the market price on the date the option is granted. Our employee options vest one-third on each of the first, second and third anniversary of the grant date.

Share-based compensation expense for stock options is recognized ratably over the vesting period within general and administrative expense. The expense totaled $2.4 million and $2.1 million for the three months ended June 30, 2015 and 2014, respectively, and $7.1 million and $6.6 million for the six months ended June 30, 2015 and 2014, respectively. The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model with the following assumptions:



	Six months ended June 30,
	2015	2014
Expected volatility	28% - 29%	28% - 29%
Expected dividend yield	0%	0%
Expected option term	6 years	6 years
Risk-free rate of return	1.45% to 1.79%	1.82% to 2.10%
Forfeiture rate	—%	—%

Since the Company’s common stock did not have a long history of being publicly traded at grant date, the expected term was determined under the simplified method, using an average of the contractual term and vesting period of the stock options. The expected volatility assumption was calculated based on a compensation peer group analysis of stock price volatility with a six-year look back period ending on the grant date. The risk-free rates were based on the average implied yield available on five-year and seven-year U.S. Treasury issues. We have not paid, and do not anticipate paying, a cash dividend on our common stock.

The following table summarizes stock option activity during the six months ended June 30, 2015:



	Number of options		Weighted average exercise price		Weighted average contractual life	Aggregate intrinsic value
Options outstanding at January 1, 2015	11,349,286		$	18.03
Granted	653,328		38.86
Forfeited, cancelled and expired ⁽¹⁾	(24,201	)	26.10
Exercised ⁽¹⁾	(1,605,392	)	21.54
Options outstanding at June 30, 2015	10,373,021		$	18.78	6.24	$	312,213,360
Options vested and expected to vest at June 30, 2015	10,373,021		$	18.78	6.24	$	312,213,360
Options exercisable at June 30, 2015	7,777,058		$	16.82	5.55	$	249,353,008

(1)

Pursuant to the terms of the 2012 SIP, options that are forfeited, cancelled or expired may be available for future grants; however shares delivered to or withheld by the Company for the payment of the exercise price of an option and/or minimum statutory tax withholding related to an exercise, and shares subject to an option that are not issued upon the net exercise of such option, are not added back to the pool of shares available for future awards.

During the six months ended June 30, 2015, we received $3.6 million of cash from stock option exercises. At June 30, 2015, there was $10.2 million of unrecognized stock option expense, all of which is related to non-vested awards. This compensation expense is expected to be recognized over the weighted-average remaining vesting period of 1.29 years.

Restricted Stock Units

RSUs are issued to certain senior employees under the 2012 SIP as part of the long-term incentive program. An RSU represents the right to receive one share of common stock in the future. RSUs have no exercise price. RSUs granted to employees vest ratably over three years.

The following table summarizes RSU activity during the six months ended June 30, 2015:



RSUs outstanding January 1, 2015	1,347,855
RSUs issued	323,165
Shares issued upon vesting of RSUs ⁽¹⁾	(547,840		)
RSUs cancelled or forfeited ⁽¹⁾	(15,022		)
RSUs outstanding at June 30, 2015	1,108,158
Weighted average grant date fair value per share	$	26.93


(1)	Pursuant to the terms of the 2012 SIP, RSUs that are cancelled or forfeited before they vest may be available for future grants; however shares delivered to or withheld by the Company for the payment of the employee's minimum statutory tax withholding related to an RSU vesting are not added back to the pool of shares available for future awards.

Compensation expense for RSUs is recognized ratably over the vesting period. RSU expense totaled $3.6 million and $3.7 million for the three months ended June 30, 2015 and 2014, respectively, and $9.6 million and $8.8 million for the six months ended June 30, 2015 and 2014, respectively. At June 30, 2015, there was $16.8 million of total unrecognized RSU expense, all of which is related to unvested awards. This compensation expense is expected to be recognized over the weighted-average remaining vesting period of 1.42 years.

Performance Stock Units

In February 2015, we granted PSUs to our executive officers under the 2012 SIP as part of our long-term incentive compensation program. PSUs vest based on a comparison of the Company’s EPS growth over the three-year performance period to the EPS growth of companies in the S&P 500 over the same period. In the first year, one third of the PSUs will vest based on our EPS growth in that year compared to the one-year EPS growth of S&P 500 companies. In the second year, one third of the PSUs will vest based on our cumulative EPS growth over the past two years compared to the cumulative two-year EPS growth of S&P 500 companies. In the third year, one third of the PSUs will vest based on our cumulative EPS growth over the past three years compared to the cumulative three-year EPS growth of S&P 500 companies. PSUs will be converted to common stock upon vesting and the payout range is 0 to 200%.

We recognize share-based compensation expense within general and administrative expenses in the consolidated statements of income over the three year performance period based on the Company’s estimated relative performance for each vesting tranche. Accordingly, in 2015 we recognize 100% of the estimated first year expense, 50% of the estimated second year expense and 33.3% of the estimated third year expense. As of June 30, 2015, we have expensed based upon a target payout assumption of 180%.

The following table summarizes PSU activity during the six months ended June 30, 2015:



PSUs outstanding January 1, 2015	—
PSUs issued	107,358
Shares issued upon vesting of PSUs ⁽¹⁾	—
PSUs cancelled or forfeited ⁽¹⁾	—
PSUs outstanding at June 30, 2015	107,358
Weighted average grant date fair value per share	$	38.96


(1)	Pursuant to the terms of the 2012 SIP, PSUs that are cancelled or forfeited before they vest may be available for future grants; however shares delivered to or withheld by the Company for the payment of the employee's minimum statutory tax withholding related to a PSU vesting are not added back to the pool of shares available for future awards.

PSU expense totaled $1.6 million and $3.8 million for the three and six months ended June 30, 2015. At June 30, 2015 there was $2.5 million of total unrecognized PSU expense, all of which is related to unvested awards. This compensation expense is expected to be recognized over the weighted-average remaining vesting period of 1.89 years.

Phantom Shares

We previously granted phantom shares under the 2012 SIP as part of our long-term incentive compensation program, which are similar to RSUs in that they are based on the price of WhiteWave stock and vest ratably over a three-year period, but are cash-settled based upon the value of WhiteWave stock at each vesting period. The fair value of the awards is re-measured at each reporting period. Compensation expense is recognized ratably over the vesting period, which is recorded in general and administrative expenses in the unaudited condensed consolidated statement of income.

Compensation expense for phantom shares totaled $0.4 million and $0.3 million for the three months ended June 30, 2015 and 2014, respectively, and $0.7 million and $2.2 million for the six months ended June 30, 2015 and 2014, respectively. A corresponding liability has been recorded in current liabilities in our consolidated balance sheet totaling $1.5 million and $0.8 million as of June 30, 2015 and December 31, 2014, respectively. The 2015 cash settlement of WhiteWave phantom shares was $0.3 million.

The following table summarizes the phantom share activity during the six months ended June 30, 2015:



	Shares		Weighted-average grant date fair value per share
Outstanding at January 1, 2015	32,146		$	16.19
Granted	—		—
Converted/paid	(7,081	)	15.16
Forfeited	—		—
Outstanding at June 30, 2015	25,065		$	16.48

Stock Appreciation Rights

We previously granted SARs under the 2012 SIP as part of our long-term incentive compensation program, which are similar to stock options in that they are based on the price of WhiteWave stock and vest ratably over a three-year period, but are cash-settled based upon the value of WhiteWave stock at the exercise date.

The fair value of the awards is re-measured at each reporting period. Compensation expense is recognized over the vesting period, which is recorded in general and administrative expenses in the consolidated statements of income. The expense totaled $4.2 million and $0.4 million for the three months ended June 30, 2015 and 2014, respectively and $5.0 million and $0.6 million for the six months ended June 30, 2015 and 2014, respectively. A corresponding liability has been recorded in current liabilities in our consolidated balance sheets totaling $6.1 million and $1.1 million as of June 30, 2015 and December 31, 2014, respectively. The following table summarizes SAR activity during the six months ended June 30, 2015:



	Number of SARs		Weighted average exercise price		Weighted average contractual life	Aggregate intrinsic value
SARs outstanding at January 1, 2015	263,520		$	16.49
Granted	—		—
Forfeited and cancelled ⁽¹⁾	—		—
Exercised	(125,472	)	16.55
SARs outstanding at June 30, 2015	138,048		$	16.43	7.42	$	4,478,984
SARs vested and expected to vest at June 30, 2015	138,048		$	16.43	7.42	$	4,478,984
SARs exercisable at June 30, 2015	47,234		$	16.35	7.43	$	1,536,622


(1)	Pursuant to the terms of the 2012 SIP, SARs that are cancelled or forfeited may be available for future grants.