12.

COMMON STOCK AND SHARE-BASED COMPENSATION

Our authorized shares of capital stock include one million shares of preferred stock and 500 million shares of common stock with a par value of $0.01 per share.

1-for-2 Reverse Stock Split — At the 2013 Annual Stockholders’ Meeting, which was held on May 15, 2013, our stockholders approved an amendment to our restated certificate of incorporation, as amended, to effect a reverse stock split of our issued common stock by a ratio of not less than 1-for-2 and not more than 1-for-8. The approval of the amendment was conditioned upon the successful completion of the WhiteWave spin-off, which was completed on May 23, 2013. On August 26, 2013, we effected a 1-for-2 reverse stock split of our issued common stock. The reverse stock split ratio and the implementation and timing of the reverse stock split were determined by our Board of Directors. The reverse stock split did not change the authorized number of shares or par value of our common stock or preferred stock, but did effect a proportionate adjustment to the per share exercise price and the number of shares of common stock issuable upon the exercise of outstanding stock options, the number of shares of common stock issuable upon the vesting of restricted stock awards, and the number of shares of common stock eligible for issuance under our 2007 Stock Incentive Plan (the “2007 Plan”). No fractional shares were issued in connection with the reverse stock split. Each stockholder’s percentage ownership and proportional voting power generally remained unchanged as a result of the reverse stock split.

All applicable outstanding equity awards discussed below have been adjusted retroactively for the 1-for-2 reverse stock split.

Conversion of Equity Awards Outstanding at Spin-Off Date — At the date of the WhiteWave spin-off, certain of our outstanding Dean Foods stock options and unvested restricted stock units (“RSUs”) held by WhiteWave employees were converted to equivalent options or restricted stock units, as applicable, with respect to WhiteWave’s common stock. These modified awards otherwise retained substantially the same terms and conditions, including term and vesting provisions, as the existing Dean Foods Company equity awards had at the time of conversion. We will not incur any future compensation cost related to conversion of our outstanding Dean Foods stock options and restricted stock units held by WhiteWave employees and directors in connection with the WhiteWave spin-off.

Additionally, in connection with the WhiteWave spin-off, we have proportionately adjusted the number and exercise prices of certain options, RSUs and phantom shares granted to Dean Foods employees and directors that were outstanding at the time of the WhiteWave spin-off to maintain the aggregate intrinsic value of such awards at the date of the WhiteWave spin-off, pursuant to the terms of these awards. The conversion ratio was determined based on the 5-day volume weighted-average trading prices for Dean Foods common stock and WhiteWave common stock for the period ended on the second trading day preceding the WhiteWave spin-off and, therefore, the ratio used to adjust these awards differs from the conversion ratio that would have resulted had the ratio been calculated based on the Dean Foods stock price immediately following the WhiteWave spin-off. As a result of this modification, we have recorded additional stock compensation expense of $6.7 million during the year ended December 31, 2013.

The impact of the conversion on our outstanding equity awards, and the related share-based compensation expense, is summarized in the tables below.

Stock Repurchases — Since 1998, our Board of Directors has from time to time authorized the repurchase of our common stock up to an aggregate of $2.3 billion, excluding fees and expenses. On November 7, 2013, our Board of Directors approved an increase in our total share repurchase authorization to approximately $2.38 billion, resulting in remaining availability for repurchases of approximately $300 million (excluding fees and commissions). We made no share repurchases during the years ended December 31, 2013 or 2012. Our management is authorized to purchase shares from time to time through open market transactions at prevailing prices or in privately negotiated transactions, subject to market conditions and other factors. Shares, when repurchased, are retired.

Stock Award Plans — As of December 31, 2013, we had three award plans with remaining shares available for issuance. These plans, which are our 1997 Stock Option and Restricted Stock Plan, the 1989 Dean Foods Company Stock Awards Plan (which we adopted upon completion of our acquisition of Legacy Dean) and the Dean Foods Company 2007 Stock Incentive Plan (the “2007 Plan”) provide for grants of stock options, stock units, restricted stock and other stock-based awards to employees, officers, directors and, in some cases, consultants, up to a maximum of 37.5 million, 5.7 million and 12.3 million shares, subject to adjustments as provided in these respective plans. Options and other stock-based awards vest in accordance with provisions set forth in the applicable award agreements. The remaining shares available for grant under the historical plans are granted pursuant to the terms and conditions of the 2007 Plan. On May 15, 2013, the 2007 Plan was amended and changed from one under which limits were placed on the number of shares that could be granted with respect to awards other than stock options and stock appreciation rights (“Full Value Awards”) to one under which all authorized shares may be granted from a “fungible” share pool. Pursuant to the 2007 Plan, as amended, each share subject to any Full Value Award that is granted from the pool of available shares will count against the amended 2007 Plan’s share authorization as though 1.67 shares of the Company’s stock had been awarded. As of December 31, 2013, we had approximately 10.68 million shares, in aggregate, available in the fungible share pool for issuance.

Under our stock award plans, we grant stock options and restricted stock units to certain employees and directors. Non-employee directors also can elect to receive their director’s fees in the form of restricted stock in lieu of cash.

Stock Options — Under the terms of our stock option plans, employees and non-employee directors may be granted options to purchase our stock at a price equal to the market price on the date the option is granted. In general, employee options 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. All unvested options vest immediately upon a change of control or in certain cases upon death or qualified disability. Options granted to non-employee directors generally vest immediately.

We recognize share-based compensation expense for stock options ratably over the vesting period. The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model, using the following assumptions:


	Year Ended December 31
	2012			2011
Expected volatility		44	%		41	%
Expected dividend yield		0	%		0	%
Expected option term		5 years			5 years
Risk-free rate of return		0.62 to 0.89	%		1.32 to 2.30	%

The expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to contractual terms (generally 10 years), vesting schedules and expectations of future employee and director behavior. Expected stock price volatility is based on a combination of historical volatility of our stock and expectations with regard to future volatility. The risk-free rates are based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term. We have not historically declared or paid a regular cash dividend on our common stock. Prior stock option awards are not impacted by our decision in 2013 to begin paying dividends in 2014.

We did not grant any stock options during 2013, nor do we plan to in 2014.

The following table summarizes stock option activity during the year ended December 31, 2013(1):


	Options			Weighted Average Exercise Price		Weighted Average Contractual Life		Aggregate Intrinsic Value
Options outstanding at January 1, 2013		4,145,843		$	41.24
Granted		—			—
Forfeited and cancelled(2)		(1,321,760	)		29.66
Exercised		(1,860,105	)		18.17
Adjustment to options outstanding at the time of WhiteWave spin-off (3)		4,091,057			18.74

Options outstanding at December 31, 2013		5,055,035			19.35		3.56	$	6,404,283

Options vested and expected to vest at December 31, 2013		5,051,347			19.35		3.56	$	6,380,657
Options exercisable at December 31, 2012		3,626,897			43.79
Options exercisable at December 31, 2013		4,721,948			19.98		3.26	$	4,119,637

(1)

On August 26, 2013 we effected a 1-for-2 reverse stock split of our issued common stock. The number and weighted average exercise price of stock options outstanding as of January 1, 2013 and any stock option activity during 2013 prior to the date of the reverse stock split have been adjusted retroactively to reflect the reverse stock split.

(2)

Pursuant to the terms of our stock option plans, options that are forfeited or canceled may be available for future grants. Effective May 15, 2013, any stock options surrendered or cancelled in satisfaction of participants’ exercise proceeds or tax withholding obligations will no longer become available for future grants under the plans.

(3)	The number and exercise prices of certain options outstanding at the time of the WhiteWave spin-off were proportionately adjusted to maintain the aggregate intrinsic value of the options before and after the WhiteWave spin-off.

The following table summarizes information about options outstanding and exercisable at December 31, 2013:


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price		Number Exercisable		Weighted- Average Exercise Price
$8.96 to $10.44		602,181		7.54	$	9.89		293,790	$	9.69
11.46 to 15.84		806,928		2.77		14.74		782,232		14.78
16.18 to 16.98		81,332		4.61		16.81		81,332		16.81
17.36		659,567		4.89		17.36		659,567		17.36
17.48 to 21.90		332,709		1.69		20.10		332,709		20.10
21.96		562,454		3.52		21.96		562,454		21.96
22.22		937,290		1.90		22.22		937,290		22.22
22.34 to 25.18		273,995		3.74		23.18		273,995		23.18
26.06		711,305		2.82		26.06		711,305		26.06
26.52 to 27.60		87,274		3.28		27.27		87,274		27.27

The following table summarizes additional information regarding our stock option activity (in thousands, except per share amounts):


	Year Ended December 31
	2013		2012		2011
Weighted-average per share grant date fair value of options granted	$	—	$	5.44	$	5.35
Intrinsic value of options exercised		9,540		6,084		1,183
Fair value of shares vested		4,084		12,580		12,718
Tax benefit related to stock option expense		2,534		2,661		3,678

During the year ended December 31, 2013, net cash received from stock option exercises was $27.3 million and the total cash benefit for tax deductions to be realized for these option exercises was $3.6 million.

At December 31, 2013, there was $0.6 million of total unrecognized stock option 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 0.93 years.

Restricted Stock Units — We issue restricted stock units (“RSUs”) to certain senior employees and non-employee directors as part of our 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 generally vest ratably over three years, subject to certain accelerated vesting provisions based primarily on a change of control, or in certain cases upon death or qualified disability. RSUs granted to non-employee directors vest ratably over three years.

The following table summarizes RSU activity during the year ended December 31, 2013(1):


	Employees			Directors			Total
RSUs outstanding January 1, 2013		492,629			32,470			525,099
RSUs issued		188,926			33,725			222,651
Shares issued upon vesting		(194,746	)		(19,160	)		(213,906	)
RSUs cancelled or forfeited(2)		(277,663	)		(5,361	)		(283,024	)
Adjustment to stock units outstanding at the time of WhiteWave spin-off (3)		470,871			54,599			525,470

RSUs outstanding at December 31, 2013		680,017			96,273			776,290

Weighted-average per share grant date fair value	$	14.15		$	12.46		$	13.95

(1)

On August 26, 2013 we effected a 1-for-2 reverse stock split of our issued common stock. The number and weighted average grant date fair value of stock units outstanding as of January 1, 2013 and any stock unit activity during 2013 prior to the date of the reverse stock split have been adjusted retroactively to reflect the reverse stock split.

(2)

Pursuant to the terms of our stock unit plans, employees have the option of forfeiting stock units to cover their minimum statutory tax withholding when shares are issued. Effective May 15, 2013, any stock units surrendered or cancelled in satisfaction of participants’ tax withholding obligations will no longer become available for future grants under the plans.

(3)	The number and exercise prices of certain stock units outstanding at the time of the WhiteWave spin-off were proportionately adjusted to maintain the aggregate intrinsic value of the stock units before and after the WhiteWave spin-off.

The following table summarizes information about our RSU grants and RSU expense during the years ended December 31, 2013, 2012 and 2011 (in thousands, except per share amounts):


	Year Ended December 31
	2013		2012		2011
Weighted-average grant date fair value of RSUs granted	$	15.45	$	12.01	$	10.13
Tax benefit related to RSU expense		1,493		3,904		4,173

At December 31, 2013, there was $6.6 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 1.55 years.

Restricted Stock — We offer our non-employee directors the option to receive their compensation for services rendered in either cash or shares of restricted stock equal to 150% of the fee amount. Shares of restricted stock vest one-third on grant, one-third on the first anniversary of grant and one-third on the second anniversary of grant. The following table summarizes restricted stock activity during the year ended December 31, 2013:


	Shares			Weighted- Average Grant Date Fair Value
Unvested at January 1, 2013		13,158		$	30.74
Restricted shares granted		30,540			21.22
Restricted shares vested		(19,499	)		22.47
Restricted shares forfeited		—			—

Unvested at December 31, 2013		24,199			22.76

Cash Performance Units — We grant awards of cash performance units (“CPUs”) as part of our long-term incentive compensation program under the terms of our 2007 Plan. The CPU awards are cash-settled awards and are designed to link compensation of certain executive officers and other key employees to our performance over a three-year period. The performance metric for the 2011 and 2012 CPUs, as defined in the award agreements, is the performance of our stock price relative to that of a peer group of companies.

The range of payout under the CPU awards is between 0% and 200% and is payable in cash at the end of each respective performance period. The fair value of the awards is remeasured at each reporting period. Compensation expense is recognized over the vesting period with a corresponding liability, which is recorded in other long-term liabilities in our Consolidated Balance Sheets. All of the 1,526,250 CPU awards outstanding as of December 31, 2012, which were granted in 2011 and 2012, were converted and paid out during the year ended December 31, 2013. No awards with respect to those years remain outstanding at December 31, 2013.

For CPU awards granted in 2013, the Compensation Committee changed the performance metric to bank earnings before interest, taxes, depreciation, and amortization (“Bank EBITDA”). Bank EBITDA is defined as adjusted operating income plus depreciation and amortization plus all non-cash expenses. As the underlying value of these awards is not derived from or linked to our stock price, these awards are not share-based in nature and accordingly they have been excluded from the table above.

Phantom Shares — We grant phantom shares as part of our long-term incentive compensation program, which are similar to RSUs in that they are based on the price of our stock and vest ratably over a three-year period, but are cash-settled based upon the value of our stock at each vesting period. The fair value of the awards is remeasured at each reporting period. Compensation expense, which is variable, is recognized over the vesting period with a corresponding liability, which is recorded in accounts payable and accrued expenses in our Consolidated Balance Sheets. The following table summarizes the phantom share activity during the year ended December 31, 2013 (1):


	Shares			Weighted- Average Grant Date Fair Value
Outstanding at January 1, 2013		440,948		$	23.14
Granted		301,799			32.11
Converted/paid		(206,635	)		21.99
Forfeited		(105,548	)		19.42
Adjustment to phantom shares outstanding at the time of WhiteWave spin-off (2)		680,495			17.68

Outstanding at December 31, 2013		1,111,059			17.72

(1)

On August 26, 2013 we effected a 1-for-2 reverse stock split of our issued common stock. The number and weighted average grant date fair value of phantom shares outstanding as of January 1, 2013 and any phantom share activity during 2013 prior to the date of the reverse stock split have been adjusted retroactively to reflect the reverse stock split.

(2)	The number and exercise prices of certain phantom shares outstanding at the time of the WhiteWave spin-off were proportionately adjusted to maintain the aggregate intrinsic value of the phantom shares before and after the WhiteWave spin-off.

Share-Based Compensation Expense — The following table summarizes the share-based compensation expense related to Dean Foods equity-based awards recognized during the years ended December 31, 2013, 2012 and 2011 (in thousands):


	Year Ended December 31
	2013			2012(1)		2011
Stock Options	$	6,520	⁽²⁾	$	7,061	$	9,720
Stock Units		5,114	⁽²⁾		11,688		14,998
Cash Performance Units		—	⁽³⁾		331		1,475
Phantom Shares		7,654			8,383		2,429

Total		19,288			27,463		28,622

(1)

During the second quarter of 2012, we recorded additional compensation expense of $12.1 million related to employees whose equity-based long-term incentive awards are subject to certain accelerated vesting provisions, based on age and years of service, as a result of amendments to our incentive award agreements that were approved during 2010. The portion of the additional expense pertaining to prior periods was immaterial.

(2)	The share-based compensation expense recorded during the year ended December 31, 2013 includes additional compensation expense of $5.7 million for stock options and $1.0 million for stock units related to the equity conversion described more fully above.

(3)	As described above, the performance metric for the CPU awards granted in 2013 is Bank EBITDA and accordingly the expense related to such awards during the year ended December 31, 2013, which was not material, has been excluded from the table above.