SHARE-BASED PAYMENTS AND OTHER EXECUTIVE COMPENSATION

12 Months Ended

Dec. 31, 2012

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 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.

Under the Incentive Plan, we granted performance-based restricted shares to select executives.  Vesting is contingent upon the achievement of certain performance objectives, some of which are subjective in nature.  Compensation cost for these awards is recognized over the service period, and variable accounting is applied whereby the fair value of the award is remeasured each reporting period until vesting occurs.

As of December 31, 2012, an aggregate of 1,128,201 shares of our Common Stock, subject to certain adjustments, were reserved for issuance under the Incentive Plan, including an aggregate of 371,024 options, restricted stock units and stock units granted. There were 757,177 shares available for grant at December 31, 2012.

During 2012, we granted 442,195 restricted stock and restricted stock units, which have a weighted average grant date fair value of $7.98 per share.

During the year ended December 31, 2012 and 2011, previously restricted stock of 160,327 and 175,524 shares, respectively, vested. As of December 31, 2012, there are 230,095 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, 2012, 2011 and 2010 was $3,034 (including $1,891 related to performance-based shares), $1,796, and $1,352.

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. 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, 2012, 2011 and 2010 were as follows:

	2012			2011			2010
Dividend yield		0	%		0	%		0	%
Volatility rate		47.40%-61.25	%		40.24%-52.55	%		42.70%-49.50	%
Risk-free interest rate		0.17%-0.43	%		0.15%-0.65	%		0.35%-1.24	%
Expected life (years)		0.50-4.08			0.26-4.41			1.0-5.2
Weighted average fair value of units granted	$	7.98		$	11.63		$	14.23

A summary of the status of the stock option activity for the years ended December 31, 2012, 2011 and 2010 is presented below:

	2012				2011				2010
	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		110,000	$	25.00
Exercised		-	$	-		-	$	-		-	$	-
Forfeited		-	$	-		-	$	-		-	$	-
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, 2012, was .2 years.

A summary of the restricted stock and stock units activity for the year ended December 31, 2012, is presented below:

	Restricted Stock and Stock Units			Weighted Average Grant Date Fair Value
Outstanding at beginning of year		449,310	(1)	$	11.36
Granted		442,195		$	10.78
Exercised		(160,327)		$	13.61
Expired/Forfeited		(501,083)		$	8.28
Cancelled		-		$	-
Outstanding at end of year		230,095		$	15.38

(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, 2012, there was $2,488 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 1.5 years. As of December 31, 2012, there was no unrecognized compensation expenses 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. No stock units were distributed to non-management directors during the years ended December 31, 2012, 2011 and 2010, respectively. The outstanding balance of stock units as of December 31, 2012, 2011 and 2010 was 30,929, 23,053 and 17,757, respectively.