Stock-Based Compensation

12 Months Ended

Dec. 31, 2011

Stock-Based Compensation

Stock-Based Compensation

Note J: Stock-Based Compensation

The Ryland Group, Inc. 2011 Equity and Incentive Plan (the "Plan") permits the granting of stock options, restricted stock awards, stock units, cash incentive awards or any combination of the foregoing to employees. Stock options granted in accordance with the Plan generally have a maximum term of seven years and vest in equal annual installments over three years. Certain outstanding stock options granted under predecessor plans have maximum terms of either five or ten years. Outstanding restricted stock units granted under the Plan or its predecessor plans generally vest in three equal annual installments with performance criteria. At December 31, 2011 and 2010, stock options or other awards or units available for grant under the Plan or its predecessor plans totaled 3,346,508 and 1,477,072, respectively.

The Ryland Group, Inc. 2011 Non-Employee Director Stock Plan (the "Director Plan") provides for a stock award of 3,000 shares to each non-employee director on May 1 of each year. New non-employee directors will receive a pro rata stock award 30 days after their date of appointment or election based on the remaining portion of the plan year in which they are appointed or elected. Stock awards are fully vested and nonforfeitable on their applicable award dates. At December 31, 2011, there were 176,000 stock awards available for future grant in accordance with the Director Plan. At December 31, 2010, there were 21,975 stock awards available under the predecessor plan. Previously, The Ryland Group, Inc. 2004 Non-Employee Director Equity Plan and its predecessor plans provided for automatic grants of nonstatutory stock options to directors. These stock options are fully vested and have a maximum term of ten years.

All outstanding stock options, stock awards and restricted stock awards have been granted in accordance with the terms of the applicable Plan, Director Plan and their respective predecessor plans, all of which were approved by the Company's stockholders. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the plans).

The Company recorded stock-based compensation expense of $9.7 million, $11.5 million and $10.1 million for the years ended December 31, 2011, 2010 and 2009, respectively. Stock-based compensation expenses have been allocated to the Company's business units and are reported in "Corporate," "Financial services" and "Selling, general and administrative" expenses within the Consolidated Statements of Earnings.

ASC 718 requires cash flows attributable to tax benefits resulting from tax deductions in excess of compensation costs recognized for exercised stock options ("excess tax benefits") to be classified as financing cash flows. There were no excess tax benefits for the years ended December 31, 2011 and 2010, while an excess tax benefit of $580,000 for the year ended December 31, 2009, was classified as a financing cash inflow in the Consolidated Statements of Cash Flows.

A summary of stock option activity in accordance with the Company's equity incentive plans as of December 31, 2011, 2010 and 2009, and changes for the years then ended, follows:

	SHARES			WEIGHTED- AVERAGE EXERCISE PRICE	WEIGHTED- AVERAGE REMAINING CONTRACTUAL LIFE (in years)		AGGREGATE INTRINSIC VALUE (in thousands)
Options outstanding at January 1, 2009	3,654,901		$	37.97	3.8
Granted	482,000			14.22
Exercised	(192,630	)		6.09
Forfeited	(250,574	)		39.56
Options outstanding at December 31, 2009	3,693,697		$	36.43	3.1	$	5,277
Available for future grant	1,942,037
Total shares reserved at December 31, 2009	5,635,734
Options exercisable at December 31, 2009	2,810,299		$	39.92	3.0	$	2,882
Options outstanding at January 1, 2010	3,693,697		$	36.43	3.1
Granted	846,000			23.30
Exercised	(200,758	)		8.62
Forfeited	(616,283	)		46.46
Options outstanding at December 31, 2010	3,722,656		$	33.29	2.8	$	1,315
Available for future grant	1,477,072
Total shares reserved at December 31, 2010	5,199,728
Options exercisable at December 31, 2010	2,580,526		$	38.23	2.3	$	588
Options outstanding at January 1, 2011	3,722,656		$	33.29	2.8
Granted	781,000			16.52
Exercised	(44,398	)		11.97
Forfeited	(510,384	)		43.36
Options outstanding at December 31, 2011	3,948,874		$	28.91	2.4	$	553
Available for future grant	3,346,508
Total shares reserved at December 31, 2011	7,295,382
Options exercisable at December 31, 2011	2,574,246		$	34.35	1.7	$	369

A summary of stock options outstanding and exercisable at December 31, 2011, follows:

	OPTIONS OUTSTANDING					OPTIONS EXERCISABLE
RANGE OF EXERCISE PRICES		NUMBER OUTSTANDING	WEIGHTED- AVERAGE REMAINING LIFE (in years)		WEIGHTED- AVERAGE EXERCISE PRICE		NUMBER EXERCISABLE		WEIGHTED- AVERAGE EXERCISE PRICE
$14.13 to $16.68		1,203,000	3.4	$	15.86		311,345	$	14.83
$20.99 to $37.37		1,609,638	2.0		25.14		1,126,665		25.93
$40.00 to $72.13		1,136,236	1.9		48.06		1,136,236		48.06

The total intrinsic values of stock options exercised during the years ended December 31, 2011, 2010 and 2009, were $284,000, $2.1 million and $2.2 million, respectively. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

The Company has determined the grant-date fair value of stock options using the Black-Scholes-Merton option-pricing formula. Expected volatility is based upon the historical volatility of the Company's common stock. The expected dividend yield is based on an annual dividend rate of $0.12 per common share. The risk-free rate for periods within the contractual life of the stock option award is based upon the zero-coupon U.S. Treasury bond on the date the stock option is granted, with a maturity equal to the expected option life of the stock option granted. The expected option life is derived from historical experience under the Company's share-based payment plans and represents the period of time that a stock option award granted is expected to be outstanding.

The following table presents the weighted-average inputs used and fair values determined for stock options granted during the years ended December 31, 2011, 2010 and 2009.

		2011			2010			2009
Expected volatility		51.0	%		53.6	%		49.0	%
Expected dividend yield		0.7	%		0.5	%		0.9	%
Expected term (in years)		3.5			3.5			3.5
Risk-free rate		1.4	%		1.6	%		1.7	%
Weighted-average grant-date fair value	$	6.02		$	9.05		$	5.01

The Company recorded stock-based compensation expense related to stock options of $4.0 million, $4.7 million and $4.0 million for the years ended December 31, 2011, 2010 and 2009, respectively.

A summary of the Company's nonvested options as of and for the years ended December 31, 2011, 2010 and 2009, follows:

	2011					2010					2009
		SHARES			WEIGHTED- AVERAGE GRANT-DATE FAIR VALUE		SHARES			WEIGHTED- AVERAGE GRANT-DATE FAIR VALUE		SHARES			WEIGHTED- AVERAGE GRANT-DATE FAIR VALUE
Nonvested options outstanding at January 1		1,142,130		$	8.31		883,398		$	8.23		935,327		$	12.19
Granted		781,000			6.02		846,000			9.05		482,000			5.01
Vested		(498,507	)		8.37		(425,107	)		9.44		(410,180	)		13.10
Forfeited		(49,995	)		7.89		(162,161	)		8.79		(123,749	)		9.50
Nonvested options outstanding at December 31		1,374,628		$	7.00		1,142,130		$	8.31		883,398		$	8.23

At December 31, 2011, the total unrecognized compensation cost related to nonvested stock option awards previously granted under the Company's plans was $5.2 million. That cost is expected to be recognized over the next 2.2 years.

The Company has made several restricted stock unit awards to senior executives under the Plan and its predecessor plans. Compensation expense recognized for such awards totaled $5.3 million, $6.3 million and $5.6 million for the years ended December 31, 2011, 2010 and 2009, respectively.

The following is a summary of activity relating to restricted stock unit awards:

	2011		2010		2009
Restricted stock units at January 1	727,317		609,812		480,002
Shares awarded	305,000		404,000		416,482
Shares vested	(314,492	)	(235,496	)	(206,672	)
Shares forfeited	(60,000	)	(50,999	)	(80,000	)
Restricted stock units at December 31	657,825		727,317		609,812

At December 31, 2011, the outstanding restricted stock units are expected to vest as follows:
2012—338,827; 2013—217,331; and 2014—101,667.

The Company has granted stock awards to its non-employee directors pursuant to the terms of the Director Plan. The Company recorded stock-based compensation expense related to Director Plan stock awards in the amounts of $415,000, $547,000 and $510,000 for the years ended December 31, 2011, 2010 and 2009, respectively.