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 maximum terms 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, and those granted to senior executives generally vest in one installment at the end of a three-year performance period. At June 30, 2015 and December 31, 2014, stock options or other awards or units available for grant under the Plan or its predecessor plans totaled 3,516,458 and 3,515,345, 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. Each new non-employee director will receive a pro rata stock award within 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. There were 96,830 and 117,830 stock awards available for future grant in accordance with the Director Plan at June 30, 2015 and December 31, 2014, respectively. 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 maximum terms 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 or upon retirement (as defined in the plans).

The Company recorded stock-based compensation expense that totaled $4.7 million and $4.5 million for the three months ended June 30, 2015 and 2014, respectively. Stock-based compensation expense totaled $11.5 million and $10.1 million for the six months ended June 30, 2015 and 2014, respectively. Stock-based compensation expenses have been allocated to the Company’s segments and included in “Selling, general and administrative” and “Financial services” expenses within the Consolidated Statements of Earnings.

ASC No. 718 (“ASC 718”), “Compensation—Stock Compensation,” 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. For the six-month period ended June 30, 2015, $1.9 million in excess tax benefits was classified as a financing inflow in the Consolidated Statements of Cash Flows. There were no excess tax benefits recognized for the six-month period ended June 30, 2014.

A summary of stock option activity in accordance with the Company’s equity incentive plans as of June 30, 2015 and 2014, and changes for the six-month periods 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, 2014	2,326,201		$	27.02	2.3
Exercised	(539,733	)	29.24
Forfeited	(15,473	)	21.57
Options outstanding at June 30, 2014	1,770,995		$	26.39	2.4	$	30,216
Available for future grant	3,348,345
Total shares reserved at June 30, 2014	5,119,340
Options exercisable at June 30, 2014	1,544,332		$	27.49	2.0	$	25,571
Options outstanding at January 1, 2015	1,385,497		$	23.30	2.2
Exercised	(424,684	)	20.67
Forfeited	(36,667	)	47.63
Options outstanding at June 30, 2015	924,146		$	23.55	2.2	$	23,666
Available for future grant	3,516,458
Total shares reserved at June 30, 2015	4,440,604
Options exercisable at June 30, 2015	917,479		$	23.50	2.2	$	23,561

Stock-based compensation expense related to employee stock options totaled $19,000 and $429,000 for the three-month periods ended June 30, 2015 and 2014, respectively, and $220,000 and $1.1 million for the six-month periods ended June 30, 2015 and 2014, respectively.

The intrinsic values of stock options exercised during the three-month periods ended June 30, 2015 and 2014, totaled $979,000 and $967,000, respectively. The intrinsic values of stock options exercised during the six-month periods ended June 30, 2015 and 2014, totaled $8.9 million and $7.9 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 and LTIP awards totaled $4.4 million and $3.8 million for the three-month periods ended June 30, 2015 and 2014, respectively, and $10.9 million and $8.5 million for the six-month periods ended June 30, 2015 and 2014, respectively. (See Note 16, “Long-Term Incentive and Supplemental Executive Retirement Plans,” for details on the LTIP.)

The following table summarizes activity that relates to the Company’s restricted stock unit awards:



	2015		2014
Restricted stock units at January 1	368,084		539,106
Shares awarded	170,994		131,597
Shares vested	(231,969	)	(298,791	)
Shares forfeited	(11,082	)	(3,828	)
Restricted stock units at June 30	296,027		368,084

At June 30, 2015, the Company’s outstanding restricted stock units are expected to vest as follows: 2015—17,526; 2016—133,677; 2017—91,287; and 2018—53,537.

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 $207,000 and $189,000 for the three-month periods ended June 30, 2015 and 2014, respectively, and $454,000 and $436,000 for the six-month periods ended June 30, 2015 and 2014, respectively.