EQUITY AND EARNINGS PER SHARE

9 Months Ended

Sep. 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.

On September 18, 2015, New Residential’s Board of Directors declared a third quarter 2015 dividend of $0.46 per common share or $106.0 million, which was paid on October 30, 2015 to shareholders of record as of October 5, 2015.

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

Option Plan

As of September 30, 2015, New Residential’s outstanding options were summarized as follows:

	Issued Prior to 2011	Issued in 2011-2015	Total
Held by the Manager	345,720	10,582,861	10,928,581
Issued to the Manager and subsequently transferred to certain of the Manager’s employees	88,280	1,359,248	1,447,528
Issued to the independent directors	—	4,000	4,000
Total	434,000	11,946,109	12,380,109

The following table summarizes New Residential’s outstanding options as of September 30, 2015. The last sales price on the New York Stock Exchange for New Residential’s common stock in the quarter ended September 30, 2015 was $13.10 per share.

Recipient	Date of Grant/ Exercise(A)	Number of Options		Options Exercisable as of September 30, 2015	Weighted Average Exercise Price(B)		Intrinsic Value of Exercisable Options as of September 30, 2015 (millions)
Directors	Various	6,000		4,000	$	13.58	$	—
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		7,000	6.82		0.04
Manager(C)	May-12	1,150,000		8,750	7.34		0.05
Manager(C)	Jul-12	1,265,000		9,250	7.34		0.05
Manager(C)	Jan-13	2,875,000		786,070	10.24		2.25
Manager(C)	Feb-13	1,150,000		1,149,998	11.48		1.86
Manager(C)	Apr-14	1,437,500		814,583	12.20		0.73
Manager(C)	Apr-15	2,828,698		471,450	15.25		—
Manager(C)	Apr-15	2,921,302		486,884	15.25		—
Manager(C)	Jun-15	2,793,539		279,354	15.88		—
Exercised(D)	2013-2015	(7,564,298	)	N/A	7.53		N/A
Expired unexercised	2013-2015	(766,271	)	N/A	N/A		N/A
Outstanding		12,380,109		4,451,339

(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	88,282
2012	$6.82 to $7.34	—
2013	$10.24 to $11.48	1,100,496
2014	$12.20	258,750
Total		1,447,528

(D) Exercised by employees of Fortress, subsequent to their assignment, or by directors. The options exercised had an intrinsic value of $60.5 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 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, respectively. During the three and nine months ended September 30, 2014, based on the treasury stock method, New Residential had 2,955,021 and 3,158,619 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) and HLSS for the period of April 6, 2015 through October 23, 2015.