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, 2015
Equity and Earnings Per Share [Abstract]  
EQUITY AND EARNINGS PER SHARE
EQUITY AND EARNINGS PER SHARE
 
Equity and Dividends

New Residential’s Board of Directors authorized a one-for-two reverse stock split on August 5, 2014, subject to stockholder approval. In a special meeting on October 15, 2014, New Residential’s stockholders approved the reverse split. On October 17, 2014, New Residential effected the one-for-two reverse stock split of its common stock. As a result of the reverse stock split, every two shares of New Residential’s common stock were converted into one share of common stock, reducing the number of issued and outstanding shares of New Residential’s common stock from approximately 282.8 million to approximately 141.4 million. The impact of this reverse stock split has been retroactively applied to all periods presented.

In April 2015, New Residential issued the New Residential Acquisition Common Stock in connection with the HLSS Acquisition (Note 1).

In April 2015, New Residential issued 29,213,020 shares of its common stock in a public offering at a price to the public of $15.25 per share for net proceeds of approximately $436.1 million. One of New Residential’s executive officers participated in this offering and purchased 250,000 shares at the public offering price. For the purpose of compensating the Manager for its successful efforts in raising capital for New Residential, in connection with this offering and the New Residential Acquisition Common Stock issued in the HLSS Acquisition, New Residential granted options to the Manager to purchase 5,750,000 shares of New Residential’s common stock at a price of $15.25, which had a fair value of approximately $8.9 million as of the grant date. The assumptions used in valuing the options were: a 2.02% risk-free rate, a 6.71% dividend yield, 24.04% volatility and a 10 year term.

In June 2015, New Residential issued 27.9 million shares of its common stock in a public offering at a price to the public of $15.88 per share for net proceeds of approximately $442.6 million. One of New Residential’s executive officers participated in this offering and purchased 9,100 shares at the public offering price. For the purpose of compensating the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager to purchase 2.8 million shares of New Residential’s common stock at the public offering price, which had a fair value of approximately $3.7 million as of the grant date. The assumptions used in valuing the options were: a 2.61% risk-free rate, a 7.81% dividend yield, 23.73% volatility and a 10 year term. In addition, the Manager and its employees exercised an aggregate of 6.2 million options and were issued an aggregate of 3.6 million shares of New Residential’s common stock in a cashless exercise, which were sold to third parties in a simultaneous secondary offering.

In July 2015, one former employee of the Manager exercised an aggregate of 37,500 options and received 20,227 shares of New Residential’s common stock in a cashless exercise.

On December 18, 2014, New Residential’s board of directors declared a fourth quarter 2014 dividend of $0.38 per common share or $53.7 million, which was paid on January 30, 2015 to stockholders of record as of December 30, 2014.

On March 16, 2015, New Residential’s board of directors declared a first quarter 2015 dividend of $0.38 per common share or $53.7 million, which was paid on April 30, 2015 to stockholders of record as of March 26, 2015.

On May 14, 2015, New Residential’s board of directors declared a second quarter 2015 dividend of $0.45 per common share or $89.5 million, which was paid on July 24, 2015 to stockholders of record as of May 26, 2015.

Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, and its principals at June 30, 2015.

Option Plan

As of June 30, 2015, New Residential’s outstanding options were summarized as follows:
 
Issued Prior to 2011
 
Issued in 2011-2015
 
Total
Held by the Manager
343,440

 
10,557,860

 
10,901,300

Issued to the Manager and subsequently transferred to certain of the Manager’s employees
90,560

 
1,421,747

 
1,512,307

Issued to the independent directors
1,000

 
4,000

 
5,000

Total
435,000

 
11,983,607

 
12,418,607



The following table summarizes New Residential’s outstanding options as of June 30, 2015. The last sales price on the New York Stock Exchange for New Residential’s common stock in the quarter ended June 30, 2015 was $15.24 per share.
Recipient
Date of
Grant/
Exercise(A)
 
Number of
Options
 
Options
Exercisable
as of
June 30,
2015
 
Weighted
Average
Exercise
Price(B)
 
Intrinsic
Value as of
June 30,
2015
(millions)
Directors
Various
 
6,000

 
5,000

 
$
17.54

 
$

Manager(C)
2003 - 2007
 
1,226,555

 
434,000

 
31.36

 

Manager(C)
Mar-11
 
838,417

 

 
6.58

 

Manager(C)
Sep-11
 
1,269,917

 

 
4.98

 

Manager(C)
Apr-12
 
948,750

 
17,500

 
6.82

 
0.10

Manager(C)
May-12
 
1,150,000

 
21,750

 
7.34

 
0.20

Manager(C)
Jul-12
 
1,265,000

 
23,250

 
7.34

 
0.20

Manager(C)
Jan-13
 
2,875,000

 
759,866

 
10.24

 
3.80

Manager(C)
Feb-13
 
1,150,000

 
1,073,331

 
11.48

 
4.00

Manager(C)
Apr-14
 
1,437,500

 
670,833

 
12.20

 
2.00

Manager(C)
Apr-15
 
2,828,698

 
188,580

 
15.25

 

Manager(C)
Apr-15
 
2,921,302

 
194,753

 
15.25

 

Manager(C)
Jun-15
 
2,793,539

 

 
15.88

 

Exercised(D)
2013-2015
 
(7,499,518
)
 
N/A

 
7.60

 
N/A

Expired unexercised
2013-2015
 
(792,553
)
 
N/A

 
N/A

 
N/A

Outstanding
 
 
12,418,607

 
3,388,863

 
 
 
 
 
(A)
Options expire on the tenth anniversary from date of grant.
(B)
The strike prices are subject to adjustment in connection with return of capital dividends.
(C)
The Manager assigned certain of its options to Fortress’s employees as follows:
Date of Grant
 
Range of Strike
Prices
 
Total Unexercised
Inception to Date
2005-2007
 
$29.92 to $33.80
 
90,560

2012
 
$6.82 to $7.34
 
62,501

2013
 
$10.24 to $11.48
 
1,100,496

2014
 
$12.20
 
258,750

Total
 
 
 
1,512,307


 
(D)
Exercised by employees of Fortress, subsequent to their assignment, or by directors. The options exercised had an intrinsic value of $60.0 million.

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 stock options. During the three and six months ended June 30, 2015, based on the treasury stock method, New Residential had 4,259,059 and 3,869,894 dilutive common stock equivalents outstanding, respectively. During the three and six months ended June 30, 2014, based on the treasury stock method, New Residential had 3,202,674 and 3,228,568 dilutive common stock equivalents outstanding, respectively.
 
Noncontrolling Interests
 
Noncontrolling interests is comprised of the interests held by third parties in consolidated entities that hold New Residential’s investments in servicer advances (Note 6).