Quarterly report pursuant to Section 13 or 15(d)

EQUITY AND EARNINGS PER SHARE

v2.4.0.8
EQUITY AND EARNINGS PER SHARE
6 Months Ended
Jun. 30, 2014
Equity And Earnings Per Share  
EQUITY AND EARNINGS PER SHARE
EQUITY AND EARNINGS PER SHARE
 
Equity and Dividends
 
On April 26, 2013, Newcastle announced that its board of directors had formally declared the distribution of shares of common stock of New Residential, a then wholly owned subsidiary of Newcastle. Following the spin-off, New Residential is an independent, publicly-traded REIT primarily focused on investing in residential mortgage related assets. The spin-off was completed on May 15, 2013 and New Residential began trading on the New York Stock Exchange under the symbol “NRZ.” The spin-off transaction was effected as a taxable pro rata distribution by Newcastle of all the outstanding shares of common stock of New Residential to the stockholders of record of Newcastle as of May 6, 2013. The stockholders of Newcastle as of the record date received one share of New Residential common stock for each share of Newcastle common stock held.
 
On April 29, 2013, New Residential’s certificate of incorporation was amended so that its authorized capital stock now consists of 2,000,000,000 shares of common stock, par value $0.01 per share, and 100,000,000 shares of preferred stock, par value $0.01 per share. At the time of the completion of the spin-off, there were 253,025,645 outstanding shares of common stock which was based on the number of Newcastle’s shares of common stock outstanding on May 6, 2013 and a distribution ratio of one share of New Residential common stock for each share of Newcastle common stock.
 
In April 2014, New Residential issued 27,750,000 shares of its common stock in a public offering at a price to the public of $6.10 per share for net proceeds of approximately $163.8 million. One of New Residential’s executive officers participated in this offering and purchased an additional 1,000,000 shares at the public offering price for net proceeds of approximately $6.1 million. 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 2,875,000 shares of New Residential’s common stock at a price of $6.10, which had a fair value of approximately $1.4 million as of the grant date. The assumptions used in valuing the options were: a 2.87% risk-free rate, a 12.584% dividend yield, 25.66% volatility and a 10 year term.
 
An employee of the Manager exercised 215,000 options with a weighted average exercise price of $2.81 on May 7, 2014. Upon exercise, 215,000 shares of common stock of New Residential were issued.

On December 17, 2013, New Residential declared a quarterly dividend of $0.175 per common share and a special cash dividend of $0.075 per common share, totaling $63.3 million, for the quarter ended December 31, 2013. The combined dividend of $0.25 was paid on January 31, 2014. On March 19, 2014, New Residential declared a quarterly dividend of $0.175 per common share, or $44.3 million, for the quarter ended March 31, 2014, which was paid in April 2014. On June 17, 2014, New Residential declared a quarterly dividend of $0.175 per common share and a special cash dividend of $0.075 per common share, totaling $70.6 million, for the quarter ended June 30, 2014. The combined dividend of $0.25 was paid on July 31, 2014.
 
Approximately 5.3 million shares of New Residential’s common stock were held by Fortress, through its affiliates, and its principals at June 30, 2014.

In January and June 2014, New Residential issued an aggregate of 50,159 shares of its common stock to its independent directors as compensation.
 
Option Plan
 
New Residential’s outstanding options at June 30, 2014 consisted of the following:
 
Number of Options
 
Strike Price
 
Maturity Date
 
162,500

 
$
16.95

 
11/22/2014
 
330,000

 
15.97

 
01/12/2015
 
2,000

 
16.68

 
08/01/2015
 
170,000

 
15.87

 
11/01/2016
 
242,000

 
16.90

 
01/23/2017
 
456,000

 
14.96

 
04/11/2017
 
1,495,166

 
3.29

 
03/29/2021
 
2,294,833

 
2.49

 
09/27/2021
 
2,000

 
2.74

 
12/20/2021
 
1,867,167

 
3.41

 
04/03/2022
 
2,265,000

 
3.67

 
05/21/2022
 
2,499,167

 
3.67

 
07/31/2022
 
5,750,000

 
5.12

 
01/11/2023
 
2,300,000

 
5.74

 
02/15/2023
 
8,000

 
6.79

 
06/02/2023
 
2,875,000

 
6.10

 
04/30/2024
Total/Weighted Average
22,718,833

 
$
5.12

 
 
 
As of June 30, 2014, New Residential’s outstanding options were summarized as follows:
Held by the Manager
17,925,463

Issued to the Manager and subsequently transferred to certain of the Manager’s employees
4,781,370

Issued to the independent directors
12,000

Total
22,718,833


 
Income and Earnings Per Share
 
Net income earned prior to the spin-off is included in additional paid-in capital instead of retained earnings since the accumulation of retained earnings began as of the date of spin-off.
 
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, 2014, based on the treasury stock method, New Residential had 6,405,348 and 6,457,136 dilutive common stock equivalents outstanding, respectively. During the three and six months ended June 30, 2013, New Residential had 3,633,843 and 1,826,960 dilutive common stock equivalents outstanding, respectively.
 
For the purposes of computing EPS for periods prior to the spin-off on May 15, 2013, New Residential treated the common shares issued in connection with the spin-off as if they had been outstanding for all periods presented, similar to a stock split. For the purposes of computing diluted EPS for periods prior to the spin-off on May 15, 2013, New Residential treated the 21.5 million options issued on the spin-off date as a result of the conversion of Newcastle options as if they were granted on May 15, 2013 since no New Residential awards were outstanding prior to that date.
 
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).