Stockholders' Equity and Stock-Based Compensation

12 Months Ended

Dec. 31, 2011

Stockholders' Equity and Stock-Based Compensation [Abstract]

STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION

STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION

On January 27, 2011, the Company entered into an underwritten public offering for 24,193,548 shares of its common stock, at a price to the public of $12.70 per share, pursuant to an effective shelf registration statement. The offering closed on February 2, 2011. In addition, certain former stockholders of Griffin Industries, Inc. (pursuant to such stockholders' contractual registration rights) granted the underwriters a 30-day option, which the underwriters subsequently exercised in full, to purchase from them up to an additional 3,629,032 shares of Darling common stock to cover over-allotments. The Company used the net proceeds of approximately $292.7 million from the offering to repay all of its then outstanding revolver balance and a portion of its term loan facility under the Company's Credit Agreement. Darling did not receive any proceeds from the sale of shares by the former stockholders of Griffin.

On December 21, 2010 a special meeting of the stockholders was held and a proposal to approve an amendment to Darling's restated certificate of incorporation, as amended, to increase the total number of authorized shares of common stock, par value $0.01, from 100,000,000 to 150,000,000 was approved.

On May 11, 2005, the shareholders approved the Company's 2004 Omnibus Incentive Plan (the "2004 Plan").  The 2004 Plan replaced both the 1994 Employee Flexible Stock Option Plan and the Non-Employee Directors Stock Option Plan and thus broadens the array of equity alternatives available to the Company.   On May 11, 2010, the shareholders reapproved the performance measures under the 2004 Plan.  Under the 2004 Plan, the Company is allowed to grant stock options, stock appreciation rights, non-vested and restricted stock (including performance stock), restricted stock units (including performance units), other stock-based awards, non-employee director awards, dividend equivalents and cash-based awards.  There are up to 6,074,969 common shares available under the 2004 Plan which may be granted to any participant in any plan year as defined in the 2004 Plan.  Some of those shares are subject to outstanding awards as detailed in the tables below.  To the extent these outstanding awards are forfeited or expire without exercise, the shares will be returned to and available for future grants under the 2004 Plan.  The 2004

Plan’s purpose is to attract, retain and motivate employees, directors and third party service providers of the Company and to encourage them to have a financial interest in the Company.  The 2004 Plan is administered by the Compensation Committee (the "Committee") of the Board of Directors.  The Committee has the authority to select plan participants, grant awards, and determine the terms and conditions of such awards as defined in the 2004 Plan.  The Committee has adopted a Long-Term Incentive Plan (the "LTIP") for the Company's key employees, as a subplan under the terms of the 2004 Plan.  The principal purpose of the LTIP is to encourage the Company's executives to enhance the value of the Company and, hence, the price of the Company’s stock and the stockholders' return.  In addition, the LTIP is designed to create retention incentives for the individual and to provide an opportunity for increased equity ownership by executives.  The Committee awarded dollar value performance based restricted stock and stock option opportunities under the LTIP in each of fiscal 2011, 2010 and 2009 to certain of the Company's officers, including the Chief Executive Officer and certain of its Executive Vice Presidents.   The restricted stock and stock options underlying the LTIP are issued only if a predetermined financial objective is met by the Company.  The Company met the financial objective for fiscal 2010 and fiscal 2009 and those shares and options were issued in accordance with the terms of the LTIP plan. See Long-Term Incentive Opportunity Awards below for a discussion on the fiscal 2011 LTIP plan. The Company’s stock options granted under the 2004 Plan generally terminate 10 years after date of grant.  At December 31, 2011, the number of common shares available for issuance under the 2004 Plan was 1,603,522.

The following is a summary of stock-based compensation granted during the years ended December 31, 2011, January 1, 2011 and January 2, 2010.

Nonqualified Stock Options.  On March 10, 2009, the Company granted 24,000 nonqualified stock options in the aggregate to the non-employee directors.  The exercise price for the March 10, 2009 stock options was $2.94 per share (fair market value at the close of the trading day immediately preceding the grant date).  On March 9, 2010, the Company granted 24,000 nonqualified stock options in the aggregate to the non-employee directors.  The exercise price for March 9, 2010 stock options was $8.21 per share (fair market value at the close of the trading day immediately preceding the grant date).  All of the non-employee director stock options vest 25 percent six months after the grant date and 25 percent on each of the first three anniversary dates thereafter.

On March 9, 2010, the Company's board of directors granted 53,722 nonqualified stock options in the aggregate under the Company’s LTIP to certain of the Company’s employees.  The exercise price for the March 9, 2010 stock options was $8.21 per share (fair market value at the close of the trading day immediately preceding the grant date).  On March 8, 2011, the Company's board of directors granted 73,834 nonqualified stock options in the aggregate under the Company’s LTIP to certain of the Company’s employees.  The exercise price for the March 8, 2011 stock options was $14.50 per share (fair market value at the close of the trading day immediately preceding the grant date).  All of these awards vest 25 percent upon grant and 25 percent on each of the first three anniversary dates of the grant thereafter.

Incentive Stock Options. For fiscal 2011, 2010 and 2009 none of the options issued were incentive stock options.

A summary of all stock option activity as of December 31, 2011 and changes during the year ended is presented below.

	Number of shares		Weighted-avg. exercise price per share		Weighted-avg. remaining contractual life
Options outstanding at January 1, 2011	867,022		$	4.20
Granted	73,834		14.50
Exercised	(121,722	)	4.34
Forfeited	(6,000	)	6.45
Expired	—		—
Options outstanding at December 31, 2011	813,134		$	5.10	4.0 years
Options exercisable at December 31, 2011	721,022		$	4.26	3.4 years

The fair value of each stock option grant under the Company's stock option plan was estimated on the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions and results for fiscal 2011, 2010 and 2009.

Weighted Average	2011	2010	2009
Expected dividend yield	0.0%	0.0%	0.0%
Risk-free interest rate	2.53%	2.73%	2.31%
Expected term	5.75 years	5.77 years	5.80 years
Expected volatility	61.1%	60.2%	58.4%
Fair value of options granted	$8.26	$4.80	$1.76

The expected lives for options granted during fiscal 2011, 2010 and 2009 were computed using the simplified method.

At December 31, 2011, $8.3 million of total future equity-based compensation expense (determined using the Black-Scholes option pricing model and Monte Carlo model for non-vested stock grants) related to outstanding non-vested options and stock awards is expected to be recognized over a weighted average period of 1.7 years.

For the year ended December 31, 2011, the amount of cash received from the exercise of options was approximately $0.5 million and the related tax benefits was approximately $1.1 million. For the years ended January 1, 2011 and January 2, 2010, the amount of cash received from the exercise of options was insignificant and the related tax benefits were approximately $0.2 million and less than $0.1 million, respectively.  The total intrinsic value of options exercised for the years ended December 31, 2011, January 1, 2011 and January 2, 2010 was approximately $1.4 million, $0.1 million and $0.1 million, respectively.  The fair value of shares vested for the years ended December 31, 2011, January 1, 2011 and January 2, 2010 was approximately $3.7 million, $2.0 million and $0.7 million, respectively.  At December 31, 2011, the aggregate intrinsic value of options outstanding was approximately $6.8 million and the aggregate intrinsic value of options exercisable was approximately $6.6 million.

Non-Vested Stock Awards.  On March 10, 2009, the Company’s board of directors granted 410,076 shares of stock, 366,326 shares were under the Company’s LTIP and 43,750 shares were granted as a one-time issuance to other employees not part of the Company’s LTIP.  At the March 10, 2009 grant date 102,518 shares vested immediately and the remaining stock awards vest over the next three anniversary dates of the grants in equal installments.  On March 9, 2010, the Company's board of directors granted 241,183 shares of stock, 161,183 shares were under the Company's LTIP and 80,000 shares were granted as a one-time issuance to other employees not part of the Company’s LTIP.   At the March 9, 2010 grant date 60,296 shares vested immediately and the remaining stock awards vest over the next three anniversary dates of the grants in equal installments. On March 8, 2011, the Company's board of directors granted 221,503 shares of stock all of which were under the Company's LTIP. At the March 8, 2011 grant date 55,376 shares vested immediately and the remaining stock awards vest over the next three anniversary dates of the grants in equal installments. On August 29, 2011, the Company's board of directors granted 10,878 shares of stock to certain key employees as a one-time issuance. At the August 29, 2011 grant date 2,720 shares vested immediately and the remaining stock awards vest over the next three anniversary dates of the grants in equal installments.

On November 11, 2010, the Company's board of directors approved award opportunities for 640,000 non-vested restricted shares at $12.53 (fair market value at grant date) under the Company's 2010 Special Incentive Program (as more fully described below).  These restricted shares vest upon the closing of the Merger and achievement of certain varying market conditions over vesting periods spanning 4 years.

A summary of the Company’s non-vested stock awards as of December 31, 2011, and changes during the year ended is as follows:

	Non-Vested Shares		Weighted Average Grant Date Fair Value
Stock awards outstanding January 1, 2011	1,006,108		$	7.75
Shares granted	232,381		14.57
Shares vested	(284,219	)	8.53
Shares forfeited	—		—
Stock awards outstanding December 31, 2011	954,270		$	9.18

Nonemployee Director Restricted Stock Awards.  On March 9, 2006, the Company's Board of Directors approved a Non-Employee Director Restricted Stock Award Plan (as subsequently amended, the "Director Restricted Stock Plan") pursuant to and in accordance with the 2004 Plan in order to attract and retain highly qualified persons to serve as non-employee directors and to more closely align such directors' interests with the interests of the stockholders of the Company by providing a portion of their compensation in the form of Company common stock.

Under the Director Restricted Stock Plan, $60,000 in restricted Company common stock (the "Restricted Stock") will be awarded to each non-employee director on the fourth business day after the Company releases its earnings for its prior completed fiscal year (the "Date of Award").  The amount of restricted stock to be issued will be calculated using the closing price of the Company’s common stock on the third business day after the Company releases its earnings.  The Restricted Stock will be subject to a right of repurchase at $0.01 per share upon termination of the holder as a member of the Company's board of directors for cause and will not be transferable. These restrictions will lapse with respect to 100% of the Restricted Stock upon the earliest to occur of (i) ten years after the Date of Award, (ii) a Change of Control (as defined in the 2004 Plan), and (iii) termination of the non-employee director's service with the Company, other than for "cause" (as defined in the Director Restricted Stock Plan).  On March 8, 2011, the Company issued 24,828 shares of restricted stock in the aggregate to its non-employee directors under the Director Restricted Stock Plan. On May 18, 2011, the Company issued 4,652 shares of restricted stock in the aggregate to its two newly elected non-employee directors under the Director Restricted Stock Plan. On March 9, 2010, the Company issued 14,616 shares of restricted stock in the aggregate to its non-employee directors under the Director Restricted Stock Plan.  On March 10, 2009, the Company issued 40,818 shares of restricted stock in the aggregate to its non-employee directors under the Director Restricted Stock Plan.  

A summary of the Company’s directors’ restricted stock awards as of December 31, 2011, and changes during the year ended is as follows:

	Restricted Shares		Weighted Average Grant Date Fair Value
Stock awards outstanding January 1, 2011	94,148		$	5.52
Restricted shares granted	29,480		14.93
Restricted shares where the restriction lapsed	(36,374	)	7.70
Restricted shares forfeited	—		—
Stock awards outstanding December 31, 2011	87,254		$	7.79

Fiscal 2011 Long-Term Incentive Opportunity Awards.  The Committee awarded dollar value performance based restricted stock and stock option opportunities under the LTIP for fiscal 2011 to certain of the Company's officers, including the Chief Executive Officer and certain of its Executive Vice Presidents (the "2011 Restricted Stock and Option Awards").  The restricted stock and stock options underlying the 2011 Restricted Stock and Option Awards are issued only if a predetermined financial objective is met by the Company.  The Company met the financial objective for fiscal 2011.  Accordingly, in accordance with the terms of the 2011 Restricted Stock and Option Awards, it is anticipated that the restricted stock representing 80% of the potential award and stock options representing 20% of the potential award will be granted and issued to the recipients on the fourth business day after the Company releases its annual financial results for fiscal 2011. The amount of restricted stock and stock options to be issued was predetermined using a discounted per share price. The "Discounted Per Share Price" is derived by discounting the closing market price of the Company's common stock as of the last trading day of the immediately preceding fiscal year to account for forfeiture of the restricted stock based on, among other things, the probability of the failure of the restricted stock to be granted and the failure of the Company to meet the required performance measures. The stock options will have an exercise price equal to the fair market value of the Company's common stock on the third business day after the Company releases its annual financial results.

The above 2011 Restricted Stock and Option Awards and prior year LTIP awards are treated as a liability until the grant date when the number of shares and options to be issued is known, and then it becomes equity-classified.  At December 31, 2011 and January 1, 2011 the Company recorded a liability of approximately $4.0 million and $2.6 million on the balance sheet for the long-term incentive opportunities.

2010 Special Incentive Program Awards. On November 11, 2010, the Committee approved a 2010 Special Incentive Program (the "2010 Special Incentive Program") for certain key employees of the Company pursuant to the Company's 2004 Omnibus Incentive Plan, conditioned upon the closing of the Merger.  Under the 2010 Special Incentive Program, certain key employees (the "Participating Employees") upon successful completion of the Merger became eligible to receive a total of 640,000 shares of restricted stock of which 110,000 shares have been issued as of December 31, 2011.  The stock vests upon the closing of the Merger and achievement of certain varying market conditions over vesting periods spanning 4 years.  A Participating Employee will not be entitled to receive any grant under the Restricted Stock Award if such Participating Employee’s employment with the Company has terminated, voluntarily or involuntarily, prior to the determination that the conditions to receive the Restricted Stock Award have been fulfilled.