Meritage Homes Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

STOCK BASED AND DEFERRED COMPENSATION

STOCK BASED AND DEFERRED COMPENSATION

12 Months Ended

Dec. 31, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

We have a stock compensation plan, the Amended and Restated 2006 Stock Incentive Plan (the “Plan”), that was adopted in 2006 and is amended or restated from time to time, most recently in May 2014. The Plan was approved by our stockholders and is administered by our Board of Directors. The provisions of the Plan allow for the grant of stock appreciation rights, restricted stock awards, restricted stock units, performance share awards and performance-based awards in addition to non-qualified and incentive stock options. The Plan authorizes awards to officers, key employees, non-employee directors and consultants for up to 4,150,000 shares of common stock, of which 1,145,923 shares remain available for grant at December 31, 2015, excluding any shares under prior plans which have since expired. We believe that such awards provide a means of performance-based compensation to attract and retain qualified employees and better align the interests of our employees with those of our stockholders. Non-vested stock awards are usually granted with either a three-year or five-year ratable vesting period for employees, with a three-year cliff vesting for both non-vested stock and performance-based awards granted to senior executive officers and non-employee directors.

We have not granted any stock options since 2009. A summary of remaining stock option activity from stock options granted prior to 2010 is provided below.

Summary of Stock Option Activity:



	Year Ended December 31, 2015
	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
						(In thousands)
Options outstanding at beginning of year	181,440		$	18.69
Granted	—		N/A
Exercised	(147,040	)	$	19.62
Cancelled	(20,000	)	$	13.69
Outstanding at end of year	14,400		$	16.11	0.24	$	257
Vested at end of year	14,400		$	16.11	0.24	$	257
Exercisable at end of year	14,400		$	16.11	0.24	$	257
Price range of options exercised	$ 11.48 - $22.11
Price range of options outstanding	$ 11.48 - $22.11

Total shares reserved for existing or future equity award grants at end of year	2,224,800



	Years Ended December 31,
	2014				2013
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Options outstanding at beginning of year:	258,815		$	19.63	609,585		$	27.44
Granted	—		N/A		—		N/A
Exercised	(60,695	)	$	17.16	(347,370	)	$	33.40
Cancelled	(16,680	)	$	38.86	(3,400	)	$	14.00
Outstanding at end of year	181,440		$	18.69	258,815		$	19.63
Exercisable at end of year	181,440		$	18.69	225,415		$	20.36
Price range of options exercised	$ 11.48 - $42.82				$ 8.06 - $44.44
Price range of options outstanding	$ 11.48 - $22.11				$ 11.48 - $42.82

Stock options Outstanding at December 31, 2015:



	Stock Options Outstanding				Stock Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$11.48 - $11.48	500	0.24	$	11.48	500	$	11.48
$14.00 - $14.00	10,000	0.10	$	14.00	10,000	$	14.00
$22.11 - $22.11	3,900	0.61	$	22.11	3,900	$	22.11
	14,400				14,400

The total intrinsic value of option exercises for the years ended December 31, 2015, 2014 and 2013 was $3.5 million, $1.7 million and $4.8 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 stock option.

Summary of Nonvested (Restricted) Shares and Units Activity:

In addition to the stock options discussed above, we grant time-based and performance-based restricted shares. Performance-based restricted shares are only granted to our senior executive management group. All performance shares only vest upon the attainment of certain financial and operational criteria as established and approved by our Board of Directors.



	Nonvested Restricted Share Activity (time-based)		Weighted Average Grant Date Fair Value		Nonvested Restricted Share Activity (performance- Based)		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2013	825,650		$	25.43	180,000		$	22.81
Granted	355,795		42.78		62,500		42.56
Vested (Earned/Released)	(215,850	)	41.72		(67,500	)	41.97
Forfeited (1)	(81,700	)	31.27		—		N/A
Outstanding as of December 31, 2013	883,895		32.22		175,000		30.10
Granted	374,683		45.23		52,083		45.60
Vested (Earned/Released)	(256,137	)	45.34		(56,250	)	45.56
Forfeited (1)	(99,000	)	38.77		—		N/A
Outstanding at December 31, 2014	903,441		37.51		170,833		35.43
Granted	434,387		40.48		66,187		41.17
Vested (Earned/Released)	(318,651	)	41.14		(56,250	)	40.34
Forfeited (1)	(135,470	)	40.53		—		N/A
Outstanding at December 31, 2015	883,707		40.75		180,770		42.93


(1)	Forfeitures on time-based nonvested shares are a result of terminations of employment, while forfeitures on performance-based nonvested shares are a result of failing to attain certain goals as outlined in our executive management group's compensation agreements.

Compensation cost related to time-based restricted stock awards is measured as of the closing price on the date of grant and is expensed on a straight-line basis over the vesting period of the award. Compensation cost related to performance-based restricted stock awards is also measured as of the closing price on the date of grant but is expensed in accordance with ASC 718-10-25-20, Compensation – Stock Compensation ("ASC 718"), which requires an assessment of probability of attainment of the performance target. As our performance targets are dependent on performance over a specified measurement period, once we determine that the performance target outcome is probable, the cumulative expense is recorded immediately with the remaining expense and recorded on a straight-line basis through the end of the award’s vesting period. Beginning with grants in 2014, a portion of the performance-based restricted stock awards granted contain market conditions as defined by ASC 718. The guidance in ASC 718 requires that compensation expense for stock awards with market conditions be expensed based on a derived grant date fair value and expensed over the service period. We engaged a third party to perform a valuation analysis on the awards containing market conditions and our associated expense with those awards is based on the derived fair value from that analysis and is being expensed straight line over the service period of the awards. Below is a summary of compensation expense and stock award activity (in thousands):



	Years Ended December 31,
	2015		2014		2013
Stock-based compensation expense	$	15,781	$	12,211	$	9,483
Cash received by Company from exercises	$	2,886	$	1,042	$	11,601

The following table includes additional information regarding our Plan (dollars in thousands):



	As of
	December 31, 2015		December 31, 2014
Unrecognized stock-based compensation cost	$	18,545	$	20,577
Weighted average years expense recognition period	2.34		2.11
Total equity awards outstanding (1)	1,078,877		1,255,714

(1) Includes options outstanding and unvested restricted stock awards and restricted stock units.

In 2013, we began to offer a non-qualified deferred compensation plan ("deferred compensation plan") to highly compensated employees in order to allow them additional pre-tax income deferrals above and beyond the limits that qualified plans, such as 401k plans, impose on highly compensated employees. We do not currently offer a contribution match on the deferred compensation plan. All contributions to the plan to date have been funded by the employees and, therefore, we have no associated expense related to the deferred compensation plan for the years ended December 31, 2015, 2014 and 2013.