SHARE-BASED PAYMENTS AND OTHER EXECUTIVE COMPENSATION

12 Months Ended

Dec. 31, 2011

SHARE-BASED PAYMENTS AND OTHER EXECUTIVE COMPENSATION [Abstract]

SHARE-BASED PAYMENTS AND OTHER EXECUTIVE COMPENSATION

NOTE K - SHARE-BASED PAYMENTS AND OTHER EXECUTIVE COMPENSATION

The Amended and Restated 1997 Incentive and Capital Accumulation Plan (2005 Restatement), as amended, (“the Incentive Plan”) provides for the grant of stock options, stock appreciation rights, stock awards, performance awards, and stock units to officers, employees and directors of AV Homes. The exercise prices of stock options may not be less than the stock exchange closing price of our common stock on the date of grant. Stock option awards under the Incentive Plan generally expire 10 years after the date of grant.

As of December 31, 2011, an aggregate of 1,245,417 shares of our Common Stock, subject to certain adjustments, were reserved for issuance under the Incentive Plan, including an aggregate of 582,363 options, restricted stock units and stock units granted. There were 663,054 shares available for grant at December 31, 2011.

During 2011, we reversed approximately $450 of previously recognized compensation expense related to 293,178 shares of restricted stock which were forfeited due to the resignation of our former CEO on June 15, 2011. During the year, AV Homes entered into an Amended and Restated Employment Agreement with one of its Executive Vice Presidents. Under the terms of this agreement, 180,000 shares granted on October 22, 2010, were cancelled and replaced with new awards. During 2011, we granted 552,660 restricted stock and restricted stock units, which have a weighted average grant date fair value of $11.63 per share.

During the year ended December 31, 2011 and 2010, previously restricted stock of 175,524 and 70,728 shares, respectively, vested. As of December 31, 2011, there are 449,310 shares of restricted stock that are considered legally outstanding but are not considered outstanding for accounting purposes until the vesting conditions are satisfied in accordance with ASC 718.

Compensation expense related to share-based compensation for the years ended December 31, 2011, 2010 and 2009 was $1,796, $1,352 and $2,035, respectively.

Under ASC 718, the fair value of awards of restricted stock and units which do not contain a specified hurdle price condition is based on the market price of our common stock on the date of grant. Under ASC 718, the fair value of restricted stock awards which contain a specified hurdle price condition is estimated on the grant date using the Monte-Carlo option valuation model (like a lattice model). Under ASC 718, the fair value of each stock option is estimated on the grant date using the Black-Scholes option-pricing model. The valuation models require assumptions and estimates to determine expected volatility, expected life, expected dividend yield and expected risk-free interest rates. The expected volatility was determined using historical volatility of our stock based on the contractual life of the award. The risk-free interest rate assumption was based on the yield on zero-coupon U.S. Treasury strips at the award grant date. We also used historical data to estimate forfeiture experience.

The significant weighted average assumptions used for the years ended December 31, 2011, 2010 and 2009 were as follows:

	2011			2010			2009
Dividend yield		0	%		0	%		N/A	*
Volatility rate		40.24%-52.55	%		42.70%-49.50	%		N/A	*
Risk-free interest rate		0.15%-0.65	%		0.35%-1.24	%		N/A	*
Expected life (years)		0.26-4.41			1.0-5.2			N/A	*
Weighted average fair value of units granted	$	11.63		$	14.23		$	17.44

*Not applicable since no stock options or restricted stock awards with specified hurdle price condition as discussed above were granted during 2009.

A summary of the status of the stock option activity for the years ended December 31, 2011, 2010 and 2009 is presented below:

	2011				2010				2009
	Stock Options		Weighted Average Exercise Price		Stock Options		Weighted Average Exercise Price		Stock Options			Weighted Average Exercise Price
Outstanding at beginning of year		110,000	$	25.00		110,000	$	25.00		136,102		$	25.00
Exercised		-	$	-		-	$	-		-		$	-
Forfeited		-	$	-		-	$	-		(26,102	)	$	25.00
Outstanding at end of year		110,000	$	25.00		110,000	$	25.00		110,000		$	25.00
Exercisable at end of year		110,000	$	25.00		110,000	$	25.00		110,000		$	25.00

The weighted average remaining contractual life of stock options outstanding as of December 31, 2011, was 1.2 years.

A summary of the restricted stock and stock units activity for the year ended December 31, 2011, is presented below:

	Restricted Stock and Stock Units			Weighted Average Grant Date Fair Value
Outstanding at beginning of year		549,352		$	28.75
Granted		552,660		$	11.63
Exercised		(175,524	)	$	19.10
Expired/Forfeited		(297,178	)	$	13.94
Cancelled		(180,000	)	$	14.10
Outstanding at end of year		449,310	(1)	$	11.22

(1) Restricted stock shares are considered legally outstanding but are not considered outstanding for accounting purposes until the vesting conditions are satisfied in accordance with authoritative accounting guidance.

As of December 31, 2011, there was $4,542 of unrecognized compensation expense related to unvested restricted stock and restricted stock units, which is expected to be recognized over a weighted-average period of 2.19 years. As of December 31, 2011, there was no unrecognized compensation expense related to stock options.

Under a deferral program, non-management directors may elect to defer up to 50% of annual retainer fees, committee fees and/or chairperson fees, for which the director is credited with a number of stock units based upon the closing price of AV Homes' common stock on the due date of each payment. The number of stock units become distributable as shares of common stock upon the earlier of a date designated by the individual director or the date of the individual's separation from service as a director. Stock units of 0, 0 and 3,049 shares were distributed to non-management directors during the years ended December 31, 2011, 2010 and 2009, respectively. The outstanding balance of stock units as of December 31, 2011, 2010 and 2009 was 23,053, 17,757 and 11,895, respectively.