Quarterly report pursuant to Section 13 or 15(d)

EQUITY AND EARNINGS PER SHARE

v3.5.0.2
EQUITY AND EARNINGS PER SHARE
9 Months Ended
Sep. 30, 2016
Equity and Earnings Per Share [Abstract]  
EQUITY AND EARNINGS PER SHARE
EQUITY AND EARNINGS PER SHARE
 
Equity and Dividends

On December 10, 2015, New Residential’s Board of Directors declared a fourth quarter 2015 dividend of $0.46 per common share or $106.0 million, which was paid on January 29, 2016 to stockholders of record as of December 31, 2015.

On March 22, 2016, New Residential’s Board of Directors declared a first quarter 2016 dividend of $0.46 per common share or $106.0 million, which was paid on April 29, 2016 to stockholders of record as of April 4, 2016.

On June 27, 2016, New Residential’s Board of Directors declared a second quarter 2016 dividend of $0.46 per common share or $106.0 million, which was paid on July 29, 2016 to stockholders of record as of July 7, 2016.

On September 23, 2016, New Residential’s Board of Directors declared a third quarter 2016 dividend of $0.46 per common share or $115.4 million, which was paid on October 28, 2016 to stockholders of record as of October 3, 2016.

On January 19, 2016, New Residential announced that its Board of Directors had authorized the repurchase of up to $200.0 million of its common stock over the next 12 months. Repurchases may be made at any time and from time to time through open market purchases or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Exchange Act, by means of one or more tender offers, or otherwise, in each case, as permitted by securities laws and other legal and contractual requirements. The amount and timing of the purchases, if any, will depend on a number of factors including the price and availability of New Residential’s shares, trading volume, capital availability, New Residential’s performance and general economic and market conditions. The share repurchase program may be suspended or discontinued at any time. No share repurchases have been made as of the date of issuance of these condensed consolidated financial statements. Repurchases may impact New Residential’s financial results, including fees paid to its Manager.

In August 2016, New Residential issued 20.0 million shares of its common stock in a public offering at a price to the public of $14.20 per share for net proceeds of approximately $278.8 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 2.0 million shares of New Residential’s common stock at the public offering price, which had a fair value of approximately $2.3 million as of the grant date. The assumptions used in valuing the options were: a 1.45% risk-free rate, a 11.80% dividend yield, 27.57% volatility and a 10-year term.

In August 2016, employees of the Manager exercised an aggregate of 1,100,497 options with a weighted average exercise price of $10.59 per share. Upon exercise, 280,111 shares of common stock of New Residential were issued.

Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, and its principals at September 30, 2016.

Option Plan

As of September 30, 2016, New Residential’s outstanding options were summarized as follows:
 
Issued Prior to 2011
 
Issued in 2011-2016
 
Total
Held by the Manager
345,720

 
10,874,152

 
11,219,872

Issued to the Manager and subsequently transferred to certain of the Manager’s employees
88,280

 
1,967,458

 
2,055,738

Issued to the independent directors

 
6,000

 
6,000

Total
434,000

 
12,847,610

 
13,281,610



The following table summarizes New Residential’s outstanding options as of September 30, 2016. The last sales price on the New York Stock Exchange for New Residential’s common stock in the quarter ended September 30, 2016 was $13.81 per share.
Recipient
Date of
Grant/
Exercise(A)
 
Number of Unexercised
Options
 
Options
Exercisable
as of
September 30, 2016
 
Weighted
Average
Exercise
Price(B)
 
Intrinsic
Value of Exercisable Options as of
September 30, 2016
(millions)
Directors
Various
 
6,000

 
6,000

 
$
13.60

 
$

Manager(C)
2003 - 2007
 
434,000

 
434,000

 
31.36

 

Manager(C)
2011 - 2012
 
25,000

 
25,000

 
7.19

 
0.2

Manager(C)
2013
 
835,571

 
835,571

 
11.48

 
2.0

Manager(C)
2014
 
1,437,500

 
1,389,583

 
12.20

 
2.2

Manager(C)
2015
 
8,543,539

 
4,655,103

 
15.44

 

Manager(C)
2016
 
2,000,000

 
66,667

 
14.20

 

Outstanding
 
 
13,281,610

 
7,411,924

 
 
 
 
 
(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.
(C)
The Manager assigned certain of its options to Fortress’s employees as follows:
    
Date of Grant
 
Range of Exercise
Prices
 
Total Unexercised
Inception to Date
2006-2007
 
$29.92 to $33.80
 
88,280

2013
 
$10.24 to $11.48
 

2014
 
$12.20
 
258,750

2015
 
$15.25 to $15.88
 
1,708,708

2016
 
$13.65 to $14.20
 

Total
 
 
 
2,055,738


 
The following table summarizes activity in New Residential’s outstanding options:
 
 
Amount
 
Weighted Average Exercise Price
December 31, 2015 outstanding options
 
12,380,107

 
 
Options granted
 
2,002,000

 
$
14.20

Options exercised
 
(1,100,497
)
 
$
10.59

Options expired unexercised
 

 


September 30, 2016 outstanding options
 
13,281,610

 
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 three and nine months ended September 30, 2016, based on the treasury stock method, New Residential had 497,690 and 309,544 dilutive common stock equivalents outstanding. During the three and nine months ended September 30, 2015, based on the treasury stock method, New Residential had 759,667 and 2,821,758 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 investments in Servicer Advances (Note 6) and Consumer Loans (Note 9), as well as HLSS for the period of April 6, 2015 through October 23, 2015.