Stock-Based Compensation

9 Months Ended

Sep. 30, 2011

Stock-Based Compensation

Stock-Based Compensation

Note 14.  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. At September 30, 2011 and December 31, 2010, stock options or other awards or units available for grant under the Plan or its predecessor plans totaled 3,273,544 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 September 30, 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.

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 $1.6 million and $2.5 million for the three months ended September 30, 2011 and 2010, respectively. Stock-based compensation expense for the nine months ended September 30, 2011 and 2010, totaled $6.6 million and $9.0 million, respectively. Stock-based compensation expense has been allocated to the Company’s business units and included in “Corporate,” “Financial services” and “Selling, general and administrative” expenses within the Consolidated Statements of Earnings.

A summary of stock option activity in accordance with the Company’s equity incentive plans as of September 30, 2011 and 2010, and changes for the nine-month periods then ended, follows:

					WEIGHTED-
			WEIGHTED-		AVERAGE	AGGREGATE
			AVERAGE		REMAINING	INTRINSIC
			EXERCISE		CONTRACTUAL	VALUE
	SHARES		PRICE		LIFE (in years)	(in thousands)
Options outstanding at January 1, 2010	3,693,697		$	36.43	3.1
Granted	846,000		23.30
Exercised	(131,424	)	7.59
Forfeited	(496,942	)	46.34
Options outstanding at September 30, 2010	3,911,331		$	33.30	3.0	$	2,292
Available for future grant	1,352,731
Total shares reserved at September 30, 2010	5,264,062
Options exercisable at September 30, 2010	2,735,868		$	38.04	2.6	$	1,342
Options outstanding at January 1, 2011	3,722,656		$	33.29	2.8
Granted	781,000		16.52
Exercised	(44,398	)	11.97
Forfeited	(362,420	)	51.77
Options outstanding at September 30, 2011	4,096,838		$	28.68	2.6	$	-
Available for future grant	3,273,544
Total shares reserved at September 30, 2011	7,370,382
Options exercisable at September 30, 2011	2,686,878		$	33.81	1.9	$	-

Stock-based compensation expense related to employee stock options for the three-month periods ended September 30, 2011 and 2010, totaled $903,000 and $942,000, respectively. Stock-based compensation expense related to employee stock options for the nine-month periods ended September 30, 2011 and 2010, totaled $3.0 million and $3.7 million, respectively.

There was no stock option exercise activity during the three-month period ended September 30, 2011. During the three-month period ended September 30, 2010, the total intrinsic value of stock options exercised was $353,000. During the nine-month periods ended September 30, 2011 and 2010, respectively, the total intrinsic values of stock options exercised were $284,000 and $1.7 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.

Compensation expense associated with restricted stock unit awards to senior executives totaled $561,000 and $1.5 million for the three-month periods ended September 30, 2011 and 2010, respectively. For the nine-month periods ended September 30, 2011 and 2010, compensation expense associated with these awards totaled $3.3 million and $4.9 million, respectively.

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

	2011		2010
Restricted stock units at January 1	727,317		609,812
Shares awarded	305,000		404,000
Shares vested	(304,492	)	(225,496	)
Shares forfeited	(60,000	)	(50,999	)
Restricted stock units at September 30	667,825		737,317

At September 30, 2011, the outstanding restricted stock unit awards are expected to vest as follows: 2011—10,000; 2012—345,494; 2013 —210,664; and 2014 —101,667.

Stock-based compensation expense related to Director Plan stock awards totaled $102,000 and $123,000 for the three-month periods ended September 30, 2011 and 2010, respectively. For the nine-month periods ended September 30, 2011 and 2010, stock-based compensation expense related to Director Plan stock awards totaled $313,000 and $413,000, respectively.