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SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION
9 Months Ended
Sep. 30, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION
SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION
 
Stock Repurchase Plan

On May 20, 2015, our shareholders approved a new stock repurchase program, which replaced the previous stock repurchase program. Under the new program, we are authorized to purchase up to 3.0 million shares of our common stock, based on a limit of 15% of the outstanding shares of common stock on the date of approval at a minimum price of $1.00 per share and a maximum price of $500.00 per share.  This is in addition to amounts previously purchased under the prior programs.  We purchased 1.8 million shares of our common stock at an average price of $27.90 per share during the nine months ended September 30, 2015 and 2.0 million shares at an average price of $104.88 per share during the nine months ended September 30, 2014 (0.2 million shares at an average price of $26.88 per share for the third quarter of 2015 and 1.3 million shares at an average price of $102.45 per share for the third quarter of 2014). As of September 30, 2015, approximately 1.8 million shares of common stock remain available for repurchase under the new program. Our senior secured term loan limits the amount we can spend on share repurchases and may prevent repurchases in certain circumstances. As of September 30, 2015, approximately $320 million was available to repurchase our common stock under our senior secured term loan.
 
Share-Based Compensation
 
We issue share-based awards in the form of stock options and certain other equity-based awards for certain employees and officers.  We recorded share-based compensation expense of $3.3 million and $1.6 million for the nine months ended September 30, 2015 and 2014, respectively ($1.9 million and $0.5 million for the third quarter of 2015 and 2014, respectively). As of September 30, 2015, estimated unrecognized compensation costs related to share-based awards amounted to $12.3 million, which we expect to recognize over a weighted average remaining requisite service period of approximately 2.67 years.

Stock Options
 
Stock option grants are composed of a combination of service-based and market-based options.
 
Service-Based Options.  These options are granted at fair value on the date of grant. The options generally vest over three or four years with equal annual cliff-vesting and expire on the earlier of ten years after the date of grant or following termination of service. A total of 1.3 million service-based awards were outstanding at September 30, 2015.
 
Market-Based Options.  These option grants generally have two components, each of which vests 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 is at least double the exercise price, as long as the stock price realizes a compounded annual gain of at least 20% over the exercise price. The remaining third of the market-based options, which we refer to internally as “extraordinary performance” grants, begins to vest if the stock price is at least triple the exercise price, as long as the stock price realizes a compounded annual gain of at least 25% over the exercise price. The vesting schedule for all market-based awards is 25% upon achievement of the criteria and thereafter the remaining 75% in three equal annual installments. A total of 2.0 million market-based awards were outstanding at September 30, 2015.

The Company granted 0.7 million stock options (at a weighted average exercise price of $23.19 per share) and 0.1 million stock options (at a weighted average exercise price of $92.91 per share) during the nine months ended September 30, 2015 and September 30, 2014, respectively.

The fair value of the service-based options was determined using the Black-Scholes option pricing model and the fair value of the market-based options was determined using a lattice (binomial) model. The following assumptions were used to determine the fair value as of the grant date:
 
 
Nine months ended 
 September 30, 2015
 
Nine months ended 
 September 30, 2014
 
 
Black-Scholes
 
Binomial
 
Black-Scholes
 
Binomial
 
 
 
 
 
 
 
 
 
Risk-free interest rate (%)
 
1.50 - 1.78

 
0.02 - 2.26

 
1.80 - 1.90

 
0.02 - 2.49

Expected stock price volatility (%)
 
55.06 - 58.58

 
55.06 - 57.60

 
37.57 - 38.58

 
38.48 - 38.58

Expected dividend yield
 

 

 

 

Expected option life (in years)
 
6.00 - 6.25

 

 
6.25

 

Contractual life (in years)
 

 
13.00 - 14.00

 

 
14.00

Fair value
 
$10.01 - $17.34
 
$9.91 - $16.13
 
$35.37 - $41.79
 
$25.51 - $31.93


The following table summarizes the weighted average grant date fair value of stock options granted, the total intrinsic value of stock options exercised and the grant date fair value of stock options that vested during the period presented:
 
 
Nine months ended September 30,
(in thousands, except per share amounts)
 
2015
 
2014
 
 
 
 
 
Weighted average grant date fair value of options granted per share
 
$
12.62

 
$
26.39

Intrinsic value of options exercised
 
232

 
7,636

Grant date fair value of options that vested during the period
 
1,195

 
1,412


 
The following table summarizes the activity related to our stock options:
 
Number of
options
 
Weighted
average
exercise
price
 
Weighted
average
contractual
term
(in years)
 
Aggregate
intrinsic value
(in thousands)
 
 
 
 
 
 
 
 
Outstanding at December 31, 2014
2,601,892

 
$
21.21

 
4.44
 
$
47,805

Granted
729,910

 
23.19

 
 
 
 
Exercised
(28,109
)
 
11.78

 
 
 
 

Forfeited
(70,402
)
 
69.47

 
 
 
 

 
 
 
 
 
 
 
 
Outstanding at September 30, 2015
3,233,291

 
20.73

 
4.97
 
27,352

 
 
 
 
 
 
 
 
Exercisable at September 30, 2015
2,324,689

 
14.39

 
3.30
 
25,405



Other Share-Based Awards

The Company’s other share-based and similar types of awards consist of restricted shares and Equity Appreciation Rights (“EARs”).

The restricted shares are service-based awards that vest over one to four years with either annual cliff-vesting, vesting of all of the restricted shares at the end of the vesting period or vesting beginning after two years of service. Restricted shares are granted at fair value on the date of grant. The Company granted 0.2 million restricted shares (at a weighted average price of $19.06 per share) during the nine months ended September 30, 2015. A total of 0.3 million service-based restricted shares were outstanding at September 30, 2015.

The following table summarizes the activity related to our restricted shares:
 
Number of
restricted shares
 
 
Outstanding at December 31, 2014
26,224

Granted
245,938

Issued
(2,836
)
 
 
Outstanding at September 30, 2015
269,326



EARs provide participating employees of certain divisions of the Company with the potential to receive a percentage of the increase in the value of the applicable division during the term of the EARs. The Company has established EAR plans for three divisions: Consumer Analytics, Document Solutions and Marketplace Solutions. These EAR plans allow for the issuance of EARs representing up to 15% of each of these divisions. The EARs consist of service-based awards and performance-based awards. Service-based EARs generally vest in equal installments on the first, second, third and fourth anniversaries of the grant date. Performance-based EARs begin to vest on the date certain performance criteria are achieved by the applicable division of the Company.

The participating employee will have the opportunity at certain times specified in the award agreement to exercise EARs that have vested and in exchange will receive share equivalency units, the number of which will be based on the increase in value of the division and the amount of EARs awarded to the participating employee. After a holding period of six months and one day, the Company, the applicable division or an affiliate of the Company may redeem the share equivalency units for a payment equal to the then fair market value of the share equivalency units. At the Company’s option, the share equivalency units may be redeemed for cash, shares of Altisource’s common stock under its shareholder approved equity incentive plan, a subordinated note payable or, under certain circumstances where the division has been converted into a company form, shares of that company. Upon the occurrence of certain corporate transactions, including the sale of the division, a qualified initial public offering of the equity of the division or a spin-off of the division, the Company will have the right to repurchase and cancel any outstanding share equivalency units or shares of the division that have been issued in payment of redeemed share equivalency units, and the applicable plan administrator will have the discretion to adjust the terms of the applicable division equity appreciation rights plan and any outstanding EARs.

The Company granted EARs with a total grant date fair value of $1.0 million during the nine months ended September 30, 2015 related to the Company's Consumer Analytics, Document Solutions, and Marketplace Solutions divisions. Generally, 25% of these EARs are service-based and 75% of these EARs are performance-based.

The following table summarizes the activity related to our EARs (expressed as a percentage of each of the divisions):
 
 
Consumer Analytics
 
Document Solutions
 
Marketplace Solutions
 
 
 
 
 
 
 
Outstanding at December 31, 2014
 

 

 

Granted
 
5.6
%
 
4.5
%
 
4.9
%
 
 
 
 
 
 
 
Outstanding at September 30, 2015
 
5.6
%
 
4.5
%
 
4.9
%


The Company intends to issue additional EARs to employees.

Share-based compensation expense for stock options, restricted shares and EARs is recorded net of estimated forfeiture rates ranging from 0% to 10%.