Stockholders' Equity and Share-Based Compensation

12 Months Ended

Dec. 31, 2011

Stockholders' Equity and Share-Based Compensation [Abstract]

STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION

12. STOCKHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

Common Stock

Our Board of Directors has the power to issue shares of authorized but unissued common stock without further shareholder action subject to the requirements of applicable laws and stock exchanges. At December 31, 2011, we had authorized 100.0 million shares. At December 31, 2011, we had 23.4 million shares of common stock outstanding. The holders of shares of Altisource common stock are entitled to one vote for each share on all matters voted on by shareholders, and the holders of such shares will possess all voting power.

Treasury Stock

On May 19, 2010, our shareholders authorized us to purchase up to 3.8 million shares of our common stock in the open market. Through December 31, 2011, we purchased 2.3 million shares of our common stock on the open market at an average price of $34.55 per share, leaving 1.5 million shares still available for purchase under the program.

Equity Incentive Plan

Our 2009 Equity Incentive Plan (the “Plan”) provides for various types of equity awards, including stock options, stock appreciation rights, stock purchase rights, restricted shares and other awards, or a combination of any of the above. Under the Plan, we may grant up to 6.7 million share-based awards to officers, directors, key employees and certain Ocwen employees. As of December 31, 2011, 2.3 million share-based awards were available for future grant under the Plan. The shares will be issued from authorized and unissued shares of our common stock. Expired and forfeited awards are available for re-issuance. Vesting and exercise of share-based awards are generally contingent on continued employment.

Equity-Based Compensation

We have issued stock-based awards in the form of stock options for certain employees and officers. We recorded total stock compensation expense of $4.0 million, $3.1 million and $0.3 million for the years ended December 31, 2011, 2010 and 2009, respectively. The total compensation expense for 2011 and 2010 includes $3.0 million and $0.5 million, respectively, related to the vesting of performance awards that vested in 2011 and 2010, respectively.

Outstanding equity based compensation currently only consists of stock option grants that are a combination of service-based and market-based options:

Service-based Options. These options are granted at fair market value on the date of grant. The options generally vest over four years with equal annual cliff-vesting and expire on the earlier of 10 years after the date of grant or following termination of service. A total of 1.0 million service-based awards were outstanding at December 31, 2011.

Market-based Options. These option grants have two components each of which vest only upon the achievement of certain criteria. The first component, which we refer to internally as “ordinary performance” grants, consists of two-thirds of the market-based grant and begins to vest if the stock price realizes a compounded annual gain of at least 20% over the exercise price, so long as the stock price is at least double the exercise price. The remaining third of the market-based options, which we refer to internally as “extraordinary performance” grants, begins to vest over three years if the stock price realizes a compounded annual gain of at least 25% over the exercise price, so long as it is at least triple the exercise price. The vesting schedule for all market-based awards is 25% upon achievement of the criterion and the remaining 75% in three equal annual installments. A total of 2.2 million market-based awards were outstanding at December 31, 2011.

We granted 0.2 million stock options (at an average price of $33.15 per share) and 0.9 million stock options (at an average price of $23.58 per share) during the years ended December 31, 2011 and 2010, respectively.

The fair value of the service-based options was determined using the Black-Scholes options pricing model while a lattice (binomial) model was used to determine the fair value of the market-based options using the following weighted average assumptions as of the grant date:

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	2011						2010						2009
	Black-Scholes			Binomial			Black-Scholes			Binomial			Black-Scholes			Binomial
Risk-free Interest Rate		1.69 – 1.93	%		0.04 – 3.03	%		1.50 – 3.20	%		0.02 – 3.66	%		2.64	%		0.50 – 3.86	%
Expected Stock Price Volatility		48	%		55.7 – 55.8	%		47 – 50	%		51 – 52	%		39	%		38 – 46	%
Expected Dividend Yield		—			—			—			—			—			—
Expected Option Life (in years)		6.25			—			6.25 – 7			—			5			—
Contractual Life (in years)		—			14			—			13			—			10
Fair Value	$	16.33 – $17.85		$	16.91 – $20.39		$	11.95 – $13.24		$	10.05 – $12.42		$	5.35		$	4.54 – $5.33

The following table summarizes the weighted-average fair value of stock options granted, and the total intrinsic value of stock options exercised:

	September 30,			September 30,		September 30,
			December 31
			2011		2010
Weighted-Average Fair Value at Date of Grant			$	17.66	$	18.18
Intrinsic Value of Options Exercised	(in thousands	)	$	4,966	$	7,530
Fair Value of Options Vested	(in thousands	)	$	3,536	$	926

Stock-based compensation expense is recorded, net of estimated forfeiture rates ranging from 1% to 3%.

As of December 31, 2011, estimated unrecognized compensation costs related to share-based payments amounted to $5.8 million which we expect to recognize over a weighted-average remaining requisite service period of approximately 3.0 years.

The following table summarizes activity of our stock options:

		September 30,			September 30,		September 30,		September 30,
	Number of Options			Weighted Average Exercise Price		Weighted Average Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2010		3,451,613		$	13.46		7.3	$	52,641
Granted		181,000			33.15
Exercised		(231,908	)		11.20
Forfeited		(156,747	)		24.44
Outstanding at December 31, 2011		3,243,958		$	14.19		6.7	$	116,755
Exercisable at December 31, 2011		1,787,132		$	10.92		6.0	$	70,165

The following table summarizes information about stock options outstanding and exercisable at December 31, 2011:

		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,
	Options Outstanding						Options Exercisable
Exercise Price Range	Number		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price
$0.00 – $5.00		40,342		1.09	$	2.97		40,342		1.09	$	2.97
$5.01 – $10.00		2,035,326		6.28		9.49		1,387,416		6.16		9.46
$10.01 – $15.00		251,248		4.93		13.22		212,498		4.42		13.05
$20.01 – $25.00 (a)		786,042		8.27		23.81		146,876		8.27		23.81
$30.01 – $35.00 (a)		72,500		9.44		33.03		—		—		—
$35.01 – $40.00 (a)		58,500		9.56		37.09		—		—		—
		3,243,958						1,787,132

^(a)  These options contain market-based components as described above. All other options are time-based awards.

The following table summarizes the market prices necessary in order for the market performance options to begin to vest:

		September 30,		September 30,
	Market Based Options
(in thousands, except share prices) Vesting Price	Ordinary Performance		Extraordinary Performance
$60.00 – $65.00		10		—
$65.01 – $70.00		26		72
$70.01 – $75.00		8		125
$75.01 – $95.00		0		5
$95.01 – $115.00		0		17
		44		219
Weighted Average Share Price	$	67.45	$	74.40