Quarterly report pursuant to Section 13 or 15(d)

EQUITY AND EARNINGS PER SHARE

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EQUITY AND EARNINGS PER SHARE
6 Months Ended
Jun. 30, 2018
Equity and Earnings Per Share [Abstract]  
EQUITY AND EARNINGS PER SHARE
EQUITY AND EARNINGS PER SHARE
 
Equity and Dividends

In January 2018, New Residential issued 28.8 million shares of its common stock in a public offering at a price to the public of $17.10 per share for net proceeds of approximately $482.3 million. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager relating to 2.9 million shares of New Residential’s common stock at the public offering price, which had a fair value of approximately $3.8 million as of the grant date. The assumptions used in valuing the options were: a 2.58% risk-free rate, a 9.86% dividend yield, 23.16% volatility and a 10-year term.

On June 21, 2018, New Residential’s board of directors declared a second quarter 2018 dividend of $0.50 per common share or $169.9 million, which was paid on July 27, 2018 to stockholders of record as of July 2, 2018.

In June 2018, the Manager and one or more affiliates and employees of the Manager, including an executive officer and director of New Residential, exercised an aggregate of 15,803,216 options and were issued an aggregate of 3,694,228 shares of New Residential’s common stock in a cashless exercise, which were sold to third parties in a simultaneous secondary offering.

Approximately 0.5 million shares of New Residential’s common stock were held by Fortress, through its affiliates, at June 30, 2018.

Option Plan

As of June 30, 2018, New Residential’s outstanding options were summarized as follows:
Held by the Manager
4,037,056

Issued to the Manager and subsequently transferred to certain of the Manager’s employees
1,530,916

Issued to the independent directors
6,000

Total
5,573,972



The following table summarizes New Residential’s outstanding options as of June 30, 2018. The last sales price on the New York Stock Exchange for New Residential’s common stock in the quarter ended June 30, 2018 was $17.49 per share.
Recipient
Date of
Grant/
Exercise(A)
 
Number of Unexercised
Options
 
Options
Exercisable as of
June 30, 2018
 
Weighted
Average
Exercise
Price(B)
 
Intrinsic Value of Exercisable Options as of
June 30, 2018
(millions)
Directors
Various
 
6,000

 
6,000

 
$
13.49

 
$

Manager(C)
2016
 
533,334

 

 

 

Manager(C)
2017
 
2,638,804

 

 

 

Manager(C)
2018
 
2,395,834

 

 

 

Outstanding
 
 
5,573,972

 
6,000

 
 
 
 
 
(A)
Options expire on the tenth anniversary from date of grant.
(B)
The exercise prices are subject to adjustment in connection with return of capital dividends. A portion of New Residential’s 2017 dividends was deemed to be a return of capital and the exercise prices were adjusted accordingly.
(C)
The Manager assigned certain of its options to Fortress’s employees as follows:
    
Date of Grant to Manager
 
Range of Exercise
Prices
 
Total Unexercised
Inception to Date
2016
 
$13.70
 
400,000

2017
 
$14.50
 
1,130,916

Total
 
 
 
1,530,916


 
The following table summarizes activity in New Residential’s outstanding options:
 
 
Amount
 
Weighted Average Exercise Price
December 31, 2017 outstanding options
 
18,502,188

 
 
Options granted
 
2,875,000

 
$
17.10

Options exercised
 
(15,803,216
)
 
$
14.30

Options expired unexercised
 

 
 
June 30, 2018 outstanding options
 
5,573,972

 
See table above


Income and Earnings Per Share

New Residential is required to present both basic and diluted earnings per share (“EPS”). Basic EPS is calculated by dividing net income by the weighted average number of shares of common stock outstanding. Diluted EPS is computed by dividing net income by the weighted average number of shares of common stock outstanding plus the additional dilutive effect, if any, of common stock equivalents during each period. New Residential’s common stock equivalents are its outstanding options. During the six months ended June 30, 2018, based on the treasury stock method, New Residential had 3,112,055 dilutive common stock equivalents outstanding. During the six months ended June 30, 2017, based on the treasury stock method, New Residential had 1,845,375 dilutive common stock equivalents outstanding.

Noncontrolling Interests

Noncontrolling interests is comprised of the interests held by third parties in consolidated entities that hold New Residential’s Servicer Advance Investments (Note 6) and Consumer Loans (Note 9).