Stock compensation plans

We maintain a stock award plan for both employees and for non-employee directors. Information related to the active plan as of December 31, 2012 is as follows:



Plan Name	Shares Authorized	Shares Available for Grant
PulteGroup, Inc. 2004 Stock Incentive Plan	22,000,000	6,725,123

The plan provides for the grant of a variety of equity awards, including options (generally non-qualified options), restricted stock, performance shares, and restricted stock units ("RSUs") to key employees (as determined by the Compensation Committee of the Board of Directors) for periods not exceeding ten years. Options granted to employees generally vest incrementally over four years. Restricted stock generally cliff vests after three years. Performance shares vest upon attainment of the stated performance targets and minimum service requirements and are converted into shares of common stock upon distribution. RSUs represent the right to receive an equal number of shares of common stock and are converted into shares of common stock upon distribution.

Non-employee directors are entitled to an annual distribution of stock options, common stock, or restricted stock units. All options and RSUs granted to non-employee directors vest immediately and are exercisable on the grant date for ten years.

Our stock compensation expense for the three years ended December 31, 2012 is presented below ($000's omitted):



	2012		2011		2010
Stock options	$	2,617	$	5,228	$	15,030
Restricted stock	8,919		11,231		17,051
Performance shares and RSUs	1,158		—		—
Long-term incentive plans	10,203		511		—
	$	22,897	16,970		32,081

Stock options

A summary of stock option activity for the three years ended December 31, 2012 is presented below (000’s omitted except per share data):



	2012					2011					2010
	Shares			Weighted- Average Per Share Exercise Price		Shares			Weighted- Average Per Share Exercise Price		Shares			Weighted- Average Per Share Exercise Price
Outstanding, beginning of year	21,641			$	21	24,004			$	21	26,193			$	21
Granted	—			$	—	441			$	8	1,128			$	11
Exercised	(2,877		)	$	11	—			$	—	(902		)	$	10
Forfeited	(1,616		)	$	27	(2,804		)	$	15	(2,415		)	$	21
Outstanding, end of year	17,148			$	22	21,641			$	21	24,004			$	21
Options exercisable at year end	15,719			$	23	18,845			$	23	19,400			$	23
Weighted-average per share fair value of options granted during the year	$	—				$	4.46				$	6.43

The following table summarizes information about the weighted-average remaining contractual lives of stock options outstanding and exercisable at December 31, 2012:



	Options Outstanding				Options Exercisable
	Number Outstanding (000's omitted)	Weighted- Average Remaining Contract Life (in years)	Weighted- Average Per Share Exercise Price		Number Exercisable (000's omitted)	Weighted- Average Per Share Exercise Price
$0.01 to $11.00	2,504	5.5	$	10	2,063	$	11
$11.01 to $18.00	4,989	6.4	$	12	4,001	$	12
$18.01 to $25.00	3,271	1.1	$	22	3,271	$	22
$25.01 to $35.00	3,894	3.0	$	31	3,894	$	31
$35.01 to $60.00	2,490	2.5	$	42	2,490	$	42
	17,148	3.9	$	22	15,719	$	23

The fair value of each option grant is estimated on the date of grant using primarily the Black-Scholes option pricing model with the following weighted-average assumptions:



	Weighted-Average Assumptions Year Ended December 31,
	2012	2011		2010
Expected life of options in years	N/A	6.2		6.0
Expected stock price volatility	N/A	58	%	58	%
Expected dividend yield	N/A	0.0	%	0.0	%
Risk-free interest rate	N/A	2.7	%	2.7	%

We estimate the expected life of stock options using employees’ historical exercise behavior and the contractual terms of the instruments. Volatility is estimated using historical volatility with consideration for implied volatility.

Total compensation cost related to non-vested stock option awards not yet recognized was $1.4 million at December 31, 2012. These costs will be expensed over a weighted-average vesting period of approximately one year. The stock option participant agreements provide continued vesting for certain eligible employees who have achieved a predetermined level of service based on their combined age and years of service. We record the related compensation cost for these awards over the period through the date the employee first achieves the minimum level of service that would no longer require them to provide services to earn the award, which is reflected in the weighted-average vesting period.

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 aggregate intrinsic value of stock options that were exercised during 2012, 2011, and 2010 was $8.6 million, $0.0 million, and $1.8 million, respectively. As of December 31, 2012, options outstanding had an intrinsic value of $50.4 million, of which $39.6 million related to options exercisable.

Restricted stock

A summary of restricted stock activity for the three years ended December 31, 2012 is presented below (000’s omitted, except per share data):



	2012				2011				2010
	Shares		Weighted- Average Per Share Grant Date Fair Value		Shares		Weighted- Average Per Share Grant Date Fair Value		Shares		Weighted- Average Per Share Grant Date Fair Value
Non-vested at beginning of year	2,322		$	10	2,775		$	12	3,539		$	16
Granted	1,154		$	9	1,032		$	8	1,552		$	11
Vested	(333	)	$	11	(1,242	)	$	13	(1,541	)	$	21
Forfeited	(137	)	$	10	(243	)	$	11	(775	)	$	12
Non-vested at end of year	3,006		$	9	2,322		$	10	2,775		$	12

During 2012, 2011, and 2010, the total fair value of shares vested during the year was $3.7 million, $15.9 million, and $32.2 million, respectively. Unamortized compensation cost related to restricted stock awards was $8.7 million at December 31, 2012. These costs will be expensed over a weighted-average period of approximately 2 years.

Performance shares and RSUs

A summary of performance share activity for the three years ended December 31, 2012 is presented below (000’s omitted, except per share data):



	2012				2011				2010
	Shares		Weighted- Average Grant Date Fair Value		Shares		Weighted- Average Grant Date Fair Value		Shares		Weighted- Average Grant Date Fair Value
Outstanding, beginning of year	720		$	7	140		$	12	123		$	12
Granted	308		$	13	772		$	7	133		$	12
Forfeited	—		$	—	—		$	—	—		$	—
Distributed	(211	)	$	10	(192	)	$	9	(116	)	$	12
Outstanding, end of year	817		$	8	720		$	7	140		$	12
Vested, end of year	51		$	10	120		$	11	140		$	12

During 2012 and 2011, we granted performance shares to certain individuals. We recognized expense in 2012 when it became probable that certain of the stated performance targets would be achieved. The fair value of each performance share was calculated using the stock price on the grant date. Unamortized compensation cost related to performance shares considered probable was $1.6 million at December 31, 2012 and will be expensed over a weighted-average period of approximately one year. Additionally, there were 51,453 RSUs outstanding that had vested but had not yet been paid out because the payout date had been deferred by the holder.

Long-term incentive plans

In lieu of restricted stock grants, we maintain a long-term incentive plan for certain of our field employees that provides awards based on the achievement of stated performance targets over a three-year period. Awards are earned each year in the form of share units that are paid out in cash at the end of the performance period based upon the number of share units earned times the Company's stock price at the end of the performance period. Accordingly, the liability associated with the awards is adjusted each reporting period based on movements in the Company's stock price and totaled $5.9 million and $0.5 million at December 31, 2012 and 2011, respectively.

During 2012, we implemented a long-term performance award plan for senior management that provides awards based on the achievement of stated performance targets over a three-year period. Awards are earned based on our cumulative performance over the performance period and are stated in dollars but settled in common shares based on the Company's stock price at the end of the performance period. If the Company's stock price falls below a floor of $5.00 per share at the end of the performance period or the Company does not have a sufficient number of shares available under its stock incentive plans at the time of settlement, then a portion of each award will be paid in cash. We recognize expense for these awards based on the probability of achievement of the stated performance targets. The liability for these awards totaled $4.8 million at December 31, 2012.