EQUITY-BASED COMPENSATION

AOG Units

The fair value of the AOG Units of approximately $5.6 billion was charged to compensation expense on a straight-line basis over the five or six year service period, as applicable. For the three months ended March 31, 2013, $15.0 million of compensation expense was recognized. The AOG Units were fully vested and amortized as of June 30, 2013.

RSUs

On October 24, 2007, the Company commenced the granting of RSUs under the Company’s 2007 Omnibus Equity Incentive Plan. These grants are accounted for as a grant of equity awards in accordance with U.S. GAAP. The fair value of all grants after March 29, 2011 is based on the grant date fair value, which considers the public share price of the Company. For Plan Grants, the fair value is based on grant date fair value, and is discounted primarily for transfer restrictions and lack of distributions until vested. For Bonus Grants, the fair value is discounted primarily for transfer restrictions and in certain cases timing of distributions. For Plan Grants that are not eligible for distributions on unvested shares, the discount for the lack of distributions until vested based on the present value of a growing annuity calculation had a weighted average of 35.2% and 15.3% for the three months ended March 31, 2014 and 2013, respectively. Additionally, for Plan Grants, the marketability discount for transfer restrictions based on the Finnerty Model calculation, after considering the discount for lack of pre-vesting distributions, had a weighted average of 5.0% and 5.0% for the three months ended March 31, 2014 and 2013, respectively. For Bonus Grants, the marketability discount for transfer restrictions based on the Finnerty Model calculation had a weighted average of 3.0% and 5.0% for the three months ended March 31, 2014 and 2013, respectively. The total fair value is charged to compensation expense on a straight-line basis over the vesting period, which is generally up to six years, with the first installment vesting one year after grant and quarterly vesting thereafter (for Plan Grants) or annual vesting over three years (for Bonus Grants). The actual forfeiture rate was 8.0% and 0.9% for the three months ended March 31, 2014 and 2013, respectively. For the three months ended March 31, 2014 and 2013, $30.6 million and $27.5 million of compensation expense was recognized, respectively.

The following table summarizes RSU activity for the three months ended March 31, 2014:



	Unvested		Weighted Average Grant Date Fair Value		Vested		Total Number of RSUs Outstanding
Balance at January 1, 2014	8,777,286		$	14.32	22,793,751		31,571,037
Granted	1,252,798		26.34		—		1,252,798
Forfeited⁽²⁾	(797,983	)	9.75		—		(797,983	)
Delivered	—		15.56		(2,524,047	)	(2,524,047	)
Vested ⁽²⁾	(1,040,353	)	20.84		1,040,353		—
Balance at March 31, 2014	8,191,748		$	15.78	21,310,057		29,501,805		⁽¹⁾


(1)	Amount excludes RSUs which have vested and have been issued in the form of Class A shares.


(2)	In connection with the departure of an employee from the Company, 625,000 RSUs previously granted to such employee vested immediately and 625,000 RSUs previously granted to such employee were forfeited as of March 26, 2014. As a result, the Company recorded an incremental compensation expense of $17.5 million related to the relevant RSU award for the three months ended March 31, 2014.

Units Expected to Vest—As of March 31, 2014, approximately 7,700,000 RSUs were expected to vest over the next 3.2 years.

Share Options

The following options have been granted under the Company's 2007 Omnibus Equity Incentive Plan:



Date of Grant	Options Granted	Vesting Terms
December 2, 2010⁽¹⁾	5,000,000	Vested and became exercisable with respect to 4/24 of the option shares on December 31, 2011 and the remainder vest in equal installments over each of the remaining 20 quarters with full vesting on December 31, 2016; 1,250,000 of these options were forfeited during the quarter ended March 31, 2014.
January 22, 2011	555,556	Half of such options that vested and became exercisable on December 31, 2011 were exercised on March 5, 2012 and the other half that were due to become exercisable on December 31, 2012 were forfeited during the quarter ended March 31, 2012.
April 9, 2011	25,000	Vested and became exercisable with respect to half of the option shares on December 31, 2011 and the other half vested in four equal quarterly installments starting on March 31, 2012 and ending on December 31, 2012 and are fully vested as of the date of this report.
July 9, 2012	50,000	Will vest and become exercisable with respect to 4/24 of the option shares on June 30, 2013 and the remainder will vest in equal installments over each of the remaining 20 quarters with full vesting on June 30, 2018.
December 28, 2012	200,000	Will vest and become exercisable with respect to 4/24 of the option shares on June 30, 2013 and the remainder will vest in equal installments over each of the remaining 20 quarters with full vesting on June 30, 2018.

(1)

In connection with the departure of an employee from the Company, 1,250,000 share options that were previously granted to such employee vested immediately and 1,250,000 share options that were previously granted to such employee were forfeited as of March 26, 2014. As a result, the Company recorded an incremental compensation expense of $28.1 million relates to the relevant option award agreement for the three months ended March 31, 2014.

For the three months ended March 31, 2014 and 2013, $28.1 million and $1.2 million of compensation expense was recognized as a result of these grants, respectively.

There were no share options granted during the three months ended March 31, 2014. Apollo measures the fair value of each option award on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for options granted during 2012 and 2011:



Assumptions:	2012			2011
Risk-free interest rate	1.11		%	2.79		%
Weighted average expected dividend yield	8.13		%	2.25		%
Expected volatility factor⁽¹⁾	45.00		%	40.22		%
Expected life in years	6.66			5.72
Fair value of options per share	$	3.01		$	8.44


(1)	The Company determined its expected volatility based on comparable companies using daily stock prices and the Company’s volatility.

The following table summarizes the share option activity for the three months ended March 31, 2014:



	Options Outstanding		Weighted Average Exercise Price		Aggregate Fair Value			Weighted Average Remaining Contractual Term
Balance at January 1, 2014	2,950,003		$	8.69	$	16,124		7.08
Exercised	(212,500	)	8.09		(1,179		)	—
Forfeited	(1,250,000	)	8.00		(7,025		)	—
Balance at March 31, 2014	1,487,503		9.36		$	7,920		6.99
Exercisable at March 31, 2014	1,310,419		$	8.42	$	28,244		6.76

Options Expected to Vest—As of March 31, 2014, approximately 167,000 options were expected to vest.

The expected life of the options granted represents the period of time that options are expected to be outstanding and is based on the contractual term of the option. Unamortized compensation cost related to unvested share options at March 31, 2014 was $0.5 million and is expected to be recognized over a weighted average period of 4.3 years.

Delivery of Class A Shares - RSUs and Share Options

During the three months ended March 31, 2014, the Company delivered Class A shares in settlement of vested RSUs and exercised share options. The delivery of Class A shares in settlement of vested RSUs and exercised share options does not cause a transfer of amounts in the condensed consolidated statements of changes in shareholders’ equity to the Class A shareholders. The delivery of Class A shares in settlement of vested RSUs and exercised share options causes the income allocated to the Non-Controlling Interests to shift to the Class A shareholders from the date of delivery forward. During the three months ended March 31, 2014, the Company delivered 2,671,869 Class A shares in settlement of vested RSUs and exercised share options, which caused the Company’s ownership interest in the Apollo Operating Group to increase to 39.4% from 39.0%.

AAA RDUs

Incentive units that provide the right to receive AAA restricted depositary units (“RDUs”) following vesting are granted periodically to employees of Apollo. These grants are accounted for as equity awards in accordance with U.S. GAAP. The incentive units granted to employees generally vest over three years. In contrast, the Company’s Managing Partners and Contributing Partners have received distributions of fully-vested AAA RDUs. The fair value at the date of the grants is recognized on a straight-line basis over the vesting period (or upon grant in the case of fully vested AAA RDUs). The grant date fair value is based on the public share price of AAA. Vested AAA RDUs can be converted into ordinary common units of AAA subject to applicable securities law restrictions. During the three months ended March 31, 2014 and 2013, the actual forfeiture rate was 1%. For the three months ended March 31, 2014 and 2013, $0.2 million and $0.3 million of compensation expense was recognized, respectively.

During the three months ended March 31, 2014 and 2013, the Company delivered 120,354 and 114,896 RDUs, respectively. The deliveries for the three months ended March 31, 2014 and 2013 resulted in a satisfaction of liability of $1.2 million and $1.0 million, respectively, and the recognition of a net decrease of additional paid in capital for the three months ended March 31, 2014 and 2013 of $2.5 million and $1.4 million, respectively. These amounts are presented in the condensed consolidated statements of changes in shareholders’ equity. There was $0.2 million and $1.2 million of liability for undelivered RDUs included in accrued compensation and benefits in the condensed consolidated statements of financial condition as of March 31, 2014 and December 31, 2013, respectively. The following table summarizes RDU activity for the three months ended March 31, 2014:



	Unvested		Weighted Average Grant Date Fair Value		Vested		Total Number of RDUs Outstanding
Balance at January 1, 2014	245,362		$	10.38	120,354		365,716
Granted	18,426		33.05		—		18,426
Forfeited	(2,861	)	8.36		—		(2,861	)
Delivered	—		9.02		(120,354	)	(120,354	)
Balance at March 31, 2014	260,927		$	12.00	—		260,927

Units Expected to Vest—As of March 31, 2014, approximately 245,000 RDUs were expected to vest over the next 3.0 years.

The following table summarizes the activity of RDUs available for future grants:



	RDUs Available For Future Grants
Balance at January 1, 2014	1,652,309
Purchases	9,719
Granted	(18,426	)
Forfeited	2,861
Balance at March 31, 2014	1,646,463

Restricted Stock and Restricted Stock Unit Awards— Apollo Commercial Real Estate Finance, Inc.

ARI restricted stock awards and ARI restricted stock unit awards ("ARI RSUs") granted to the Company and certain of the Company’s employees generally vest over three years, either quarterly or annually. The awards granted to the Company are accounted for as investments and deferred revenue in the condensed consolidated statements of financial condition. As these awards vest, the deferred revenue is recognized as management fees. The investment is accounted for using the equity method of accounting for awards granted to the Company and as a deferred compensation asset for the awards granted to employees. Compensation expense is recognized on a straight line-basis over the vesting period for the awards granted to the employees. The Company recorded an asset and a liability upon receiving the awards on behalf of the Company’s employees. The fair value of the awards to employees is based on the grant date fair value, which utilizes the public share price of ARI, less discounts for transfer restrictions. The awards granted to the Company’s employees are remeasured each period to reflect the fair value of the asset and other liabilities and any changes in these values are recorded in the condensed consolidated statements of operations. For the three months ended March 31, 2014 and 2013, $0.3 million and $1.4 million of management fees and $0.3 million and $1.0 million of compensation expense were recognized in the condensed consolidated statements of operations, respectively. The actual forfeiture rate for unvested ARI restricted stock awards and ARI RSUs was 0% and 0% for the three months ended March 31, 2014 and 2013, respectively.

The following table summarizes activity for the ARI restricted stock awards and ARI RSUs that were granted to both the Company and certain of its employees for the three months ended March 31, 2014:



	ARI Restricted Stock Unvested	ARI RSUs Unvested		Weighted Average Grant Date Fair Value		ARI RSUs Vested	Total Number of ARI RSUs Outstanding
Balance at January 1, 2014	—	274,402		$	15.86	428,372	702,774
Vested awards for employees of the Company	—	(48,000	)	14.90		48,000	—
Vested awards of the Company	—	(52,000	)	14.85		52,000	—
Balance at March 31, 2014	—	174,402		$	16.42	528,372	702,774

Units Expected to Vest—As of March 31, 2014, approximately 166,000 ARI RSUs were expected to vest over the next 1.7 years.

Restricted Stock Unit Awards—Apollo Residential Mortgage, Inc.

AMTG restricted stock units (“AMTG RSUs”) granted to the Company and certain of the Company’s employees generally vest over three years, either quarterly or annually. The awards granted to the Company are accounted for as investments and deferred revenue in the condensed consolidated statements of financial condition. As these awards vest, the deferred revenue is recognized as management fees. The investment is accounted for using the equity method of accounting for awards granted to the Company and as a deferred compensation asset for the awards granted to employees. Compensation expense is recognized on a straight line-basis over the vesting period for the awards granted to the employees. The Company recorded an asset and a liability upon receiving the awards on behalf of the Company’s employees. The awards granted to the Company’s employees are remeasured each period to reflect the fair value of the asset and other liabilities and any changes in these values are recorded in the condensed consolidated statements of operations.

The fair value of the awards to employees is based on the grant date fair value, which utilizes the public share price of AMTG less discounts for transfer restrictions and timing of distributions. For the three months ended March 31, 2014 and 2013, $0.3 million and $0.3 million of management fees were recognized in the condensed consolidated statements of operations, respectively. For the three months ended March 31, 2014 and 2013, $0.2 million and $0.3 million of compensation expense was recognized in the condensed consolidated statements of operations, respectively. The actual forfeiture rate for AMTG RSUs was 0% for the three months ended March 31, 2014 and 2013, respectively.

The following table summarizes activity for the AMTG RSUs that were granted to both the Company and certain of its employees for the three months ended March 31, 2014:



	AMTG RSUs Unvested		Weighted Average Grant Date Fair Value		AMTG RSUs Vested	Total Number of AMTG RSUs Outstanding
Balance at January 1, 2014	127,237		$	19.28	70,371	197,608
Vested awards of the employees of the Company	(989	)	16.60		989	—
Vested awards of the Company	(1,562	)	18.20		1,562	—
Balance at March 31, 2014	124,686		$	19.31	72,922	197,608

Units Expected to Vest—As of March 31, 2014, approximately 117,000 AMTG RSUs were expected to vest over 1.8 years.

Equity-Based Compensation Allocation

Equity-based compensation is allocated based on ownership interests. Therefore, the amortization of the AOG Units is allocated to shareholders’ equity attributable to Apollo Global Management, LLC and the Non-Controlling Interests, which results in a difference in the amounts charged to equity-based compensation expense and the amounts credited to shareholders’ equity attributable to Apollo Global Management, LLC in the Company’s condensed consolidated financial statements.

Below is a reconciliation of the equity-based compensation allocated to Apollo Global Management, LLC for the three months ended March 31, 2014:



	Total Amount		Non- Controlling Interest % in Apollo Operating Group		Allocated to Non- Controlling Interest in Apollo Operating Group⁽¹⁾			Allocated to Apollo Global Management, LLC
RSUs and Share Options	$	58,199	—	%	—			$	58,199
ARI Restricted Stock Awards, ARI RSUs and AMTG RSUs	544		60.6		330			214
AAA RDUs	235		60.6		143			92
Total Equity-Based Compensation	$	58,978			473			58,505
Less ARI Restricted Stock Awards, ARI RSUs and AMTG RSUs ⁽²⁾					(473		)	178
Capital Increase Related to Equity-Based Compensation					$	—		$	58,683


(1)	Calculated based on average ownership percentage for the period considering Class A share issuances during the period.


(2)	Includes equity-based compensation reimbursable by certain funds.

Below is a reconciliation of the equity-based compensation allocated to Apollo Global Management, LLC for the three months ended March 31, 2013:



	Total Amount		Non- Controlling Interest % in Apollo Operating Group		Allocated to Non- Controlling Interest in Apollo Operating Group⁽¹⁾			Allocated to Apollo Global Management, LLC
AOG Units	$	15,004	64.5	%	$	9,702		$	5,302
RSUs and Share Options	28,727		—		—			28,727
ARI Restricted Stock Awards, ARI RSUs and AMTG RSUs	1,296		64.5		836			460
AAA RDUs	259		65.5		167			92
Total Equity-Based Compensation	$	45,286			10,705			34,581
Less ARI Restricted Stock Awards, ARI RSUs and AMTG RSUs					(1,003		)	(291		)
Capital Increase Related to Equity-Based Compensation					$	9,702		$	34,290


(1)	Calculated based on average ownership percentage for the period considering Class A share issuances during the period.