13. Stock-Based Compensation

Determining Fair Value of Share-Based Payment Awards. The Company examines its historical pattern of option exercises in an effort to determine if there are any discernable activity patterns based on certain employee and non-employee populations. Based upon this evaluation, the Company identified three distinct populations: (1) executives currently consisting of the Company's Chief Executive Officer, Chief Operating Officer and General Counsel (collectively, the "Executives"); (2) Non-Executive employees ("Non-Executives"); and (3) non-employee members of the Company's board of directors ("Directors"). Accordingly, during 2011, 2010 and 2009 the Company used separate Black-Scholes option pricing model assumptions for each of the aforementioned employee and non-employee populations. The fair values for stock options granted for the years ended December 31, 2011, 2010 and 2009 were estimated using the Black-Scholes option pricing model with the following weighted-average assumptions.


	Year Ended December 31,
	2011		2010		2009
Weighted-average expected lives of options		4.6 yrs.		7.6 yrs.		6.9 yrs.
Expected volatility		47.8%		44.2%		43.8%
Risk free interest rate		1.3%		2.8%		2.1%
Dividend yield rate		4.1%		3.5%		3.2%

Based on calculations using the Black-Scholes option pricing model, the weighted-average grant date fair values of stock options granted during 2011, 2010 and 2009 were $3.76, $9.19 and $10.87, respectively. No stock options were granted to our Executives during the year ended December 31, 2011. As a result, the weighted average expected life of our options decreased from 7.6 years in 2010 to 4.6 years in 2011, reflecting the shorter lives of non-executive option grants.

The expected life of employee stock options represents the weighted-average period for which the stock options are expected to remain outstanding and are derived primarily from historical exercise patterns. The expected volatility is based on the historical volatility in the price of the Company's common stock over the most recent period commensurate with the estimated expected life of the Company's stock options. The risk-free interest rate assumption is determined based upon observed interest rates appropriate for the expected term of the Company's employee stock options. The dividend yield assumption is based on the Company's history of dividend payouts.

An annual forfeiture rate is estimated at the time of grant for all share-based payment awards, and revised, if necessary, in subsequent periods if the actual forfeiture rate differs from the Company's estimate. The Company estimates the annual forfeiture rate of up to 25% for share-based payment awards granted to Non-Executives. The Company estimates the annual forfeiture rate to be 0% for share-based payment awards granted to its Executives.

Stock Option Award Activity. Stock option activity under the Company's option plans at December 31, 2011 and changes during the year ended December 31, 2011 were as follows.


	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2010		5,858,924		$	40.72
Granted - at fair market value		265,000			25.07
Exercised		(489,324	)		18.47
Cancelled		(471,344	)		33.42

Outstanding at December 31, 2011		5,163,256		$	42.69		5.15	$	-

The following table summarizes information associated with stock options granted to Executives, Non-Executives and Directors that are vested and expected to vest in future reporting periods.


	Vested and Expected to Vest at December 31, 2011
	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Executives		3,768,854	$	43.89
Directors		1,047,912		39.88
Non-Executives		307,642		39.43

Total		5,124,408	$	42.80		5.15	$	-

The following table summarizes information associated with stock options granted to Executives, Non-Executives and Directors that are exercisable at December 31, 2011.


	Exercisable at December 31, 2011
	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Executives		2,603,854	$	49.13
Directors		1,047,912		39.88
Non-Executives		260,162		41.55

Total		3,911,928	$	46.15		4.25	$	-

The aggregate intrinsic values in the tables above represent the total pre-tax intrinsic values (the difference between the closing price of MDC's common stock on the last trading day of fiscal 2011 and the exercise price, multiplied by the number of in-the-money stock option shares) that would have been received by the option holders had all in-the-money outstanding stock options been exercised on December 31, 2011. The total intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009 was $0.2 million, $0.1 million and $2.8 million, respectively.

The following table summarizes information associated with outstanding and exercisable stock options at December 31, 2011.


	Options Outstanding						Options Exercisable
Range of Exercise Price	Number Outstanding		Weighted- Average Remaining Contractual Life (in years)		Weighted- Average Exercise Price		Number Exercisable		Weighted- Average Exercise Price
$ 15.84 - $ 23.77		592,912		3.49	$	21.66		567,912	$	21.73
$ 23.78 - $ 39.61		1,921,620		7.74	$	32.24		755,492	$	33.23
$ 39.62 - $ 47.53		1,196,724		3.45	$	43.98		1,136,524	$	44.10
$ 47.54 - $ 63.38		860,000		4.11	$	60.52		860,000	$	60.52
$ 63.39 - $ 71.30		492,000		3.30	$	67.17		492,000	$	67.17
$ 71.31 - $ 78.89		100,000		3.76	$	78.89		100,000	$	78.89

Total		5,163,256		5.15	$	42.69		3,911,928	$	46.15

Total stock-based compensation expense relating to stock options granted by the Company was $9.0 million, $12.7 million and $11.3 million for the years ended December 31, 2011, 2010 and 2009, respectively. As of December 31, 2011, $9.8 million of total unrecognized compensation cost related to stock options is expected to be recognized as an expense by the Company in the future over a weighted-average period of approximately 2 years.

The Company received cash proceeds from the exercise of stock options of $9.0 million, $0.1 million and $3.6 million during the years ended December 31, 2011, 2010 and 2009, respectively. The Company did not have any tax benefit realized for stock options exercised during the years ended December 31, 2011 or 2010. The tax benefit realized for stock options exercised during the year ended December 31, 2009, net of the reversal of tax benefits of stock options exercised in previous years, was $4.3 million. The Company will issue previously unissued shares and/or treasury stock upon the exercise of stock options.

Restricted and Unrestricted Stock Award Activity. Non-vested restricted stock awards at December 31, 2011 and changes during the year ended December 31, 2011 were as follows.


	Number of Shares			Weighted- Average Grant Date Fair Value
Non-vested at December 31, 2010		443,112		$	36.15
Granted		329,703			30.24
Vested		(100,677	)		36.34
Cancelled		(4,289	)		38.88

Non-vested at December 31, 2011		667,849		$	33.19

Total stock-based compensation expense relating to restricted stock awards was $6.4 million, $4.8 million and $3.8 million for the years ended December 31, 2011, 2010 and 2009, respectively. At December 31, 2011, there was $14.1 million of unrecognized stock-based compensation expense related to non-vested restricted stock awards that is expected to be recognized as an expense by the Company in the future over a weighted-average period of approximately 2 years. The total intrinsic value of restricted stock awards which vested during each of the years ended December 31, 2011, 2010 and 2009 was $11.8 million, $12.7 million and $13.1 million, respectively.