EQUITY AND EARNINGS PER SHARE

Equity and Dividends

New Residential’s certificate of incorporation authorizes 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.

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

In addition, 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. To compensate 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 relating to 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. 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 2.8 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 6.7 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 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 February 2017, New Residential issued 56.5 million shares of its common stock in a public offering at a price to the public of $15.00 per share for net proceeds of approximately $834.5 million. One of New Residential’s executive officers participated in this offering and purchased 18,600 shares at the public offering price. 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 5.7 million shares of New Residential’s common stock at the public offering price, which had a fair value of approximately $8.1 million as of the grant date. The assumptions used in valuing the options were: a 2.38% risk-free rate, a 10.82% dividend yield, 28.64% volatility and a 10-year term.

In July 2015, a former employee of the Manager exercised 37,500 options with a weighted average exercise price of $7.19 and received 20,227 shares of common stock of New Residential. 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 and received 280,111 shares of common stock of New Residential.

Common dividends have been declared as follows:



		Per Share
Declaration Date	Payment Date	Quarterly Dividend	Total Amounts Distributed (millions)
March 16, 2015	April 2015	0.38	53.7
May 14, 2015	July 2015	0.45	89.5
September 18, 2015	October 2015	0.46	106.0
December 10, 2015	January 2016	0.46	106.0
March 22, 2016	April 2016	0.46	106.0
June 27, 2016	July 2016	0.46	106.0
September 23, 2016	October 2016	0.46	115.4
December 16, 2016	January 2017	0.46	115.4
January 26, 2017	April 2017	0.48	147.5
June 21, 2017	July 2017	0.50	153.7
September 22, 2017	October 2017	0.50	153.7
December 18, 2017	January 2018	0.50	153.7

Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, and its principals at December 31, 2017.

Option Plan

New Residential has a Nonqualified Stock Option and Incentive Award Plan, as amended (the “Plan”) which provides for the grant of equity-based awards, including restricted stock, options, stock appreciation rights, performance awards, tandem awards and other equity-based and non-equity based awards, in each case to the Manager, and to the directors, officers, employees, service providers, consultants and advisor of the Manager who perform services for New Residential, and to New Residential’s directors, officers, service providers, consultants and advisors. New Residential initially reserved 15,000,000 shares of its common stock for issuance under the Plan; on the first day of each fiscal year beginning during the 10-year term of the Plan in and after calendar year 2014, that number will be increased by a number of shares of New Residential’s common stock equal to 10% of the number of shares of common stock newly issued by New Residential during the immediately preceding fiscal year (and, in the case of fiscal year 2013, after the effective date of the Plan). No adjustment was made on January 1, 2014. Increases of 5,654,578, 2,000,000, 8,543,539 and 1,437,500 were made on January 1, 2018, 2017, 2016 and 2015, respectively. New Residential’s board of directors may also determine to issue options to the Manager that are not subject to the Plan, provided that the number of shares underlying any options granted to the Manager in connection with capital raising efforts would not exceed 10% of the shares sold in such offering and would be subject to NYSE rules. Upon exercise, all options will be settled in an amount of cash equal to the excess of the fair market value of a share of common stock on the date of exercise over the exercise price per share unless advance approval is made to settle options in shares of common stock.

Upon joining the board, non-employee directors were, in accordance with the Plan, granted options relating to an aggregate of 6,000 shares of common stock. The fair value of such options was not material at the date of grant.

New Residential’s outstanding options were summarized as follows:



	December 31,
	2017	2016
Held by the Manager	16,387,480	11,204,242
Issued to the Manager and subsequently transferred to certain of the Manager’s employees	2,108,708	1,986,368
Issued to the independent directors	6,000	6,000
Total	18,502,188	13,196,610

The following table summarizes New Residential’s outstanding options as of December 31, 2017. The last sales price on the New York Stock Exchange for New Residential’s common stock in the year ended December 31, 2017 was $17.88 per share.



Recipient	Date of Grant/ Exercise^(A)	Number of Unexercised Options	Options Exercisable as of December 31, 2017	Weighted Average Exercise Price^(B)		Intrinsic Value of Exercisable Options as of December 31, 2017 (millions)
Directors	Various	6,000	6,000	$	13.99	$	—
Manager^(C)	2012	25,000	25,000	7.19		0.3
Manager^(C)	2013	835,571	835,571	11.48		5.3
Manager^(C)	2014	1,437,500	1,437,500	12.20		8.2
Manager^(C)	2015	8,543,539	8,543,539	15.46		20.7
Manager^(C)	2016	2,000,000	1,066,667	14.20		3.9
Manager^(C)	2017	5,654,578	1,884,859	15.00		5.4
Outstanding		18,502,188	13,799,136


(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 to Manager	Range of Exercise Prices	Total Unexercised Inception to Date
2015	$15.25 to $15.88	1,708,708
2016	$14.20	400,000
Total		2,108,708

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^(A)	(1,100,497	)	$	10.59
Options expired unexercised	(85,000	)
December 31, 2016 outstanding options	13,196,610
Options granted	5,654,578		$	15.00
Options exercised^(A)	—		$	—
Options expired unexercised	(349,000	)
December 31, 2017 outstanding options	18,502,188		See table above


(A)	The 1.1 million options that were exercised in 2016 had an intrinsic value of approximately $4.0 million at the date of exercise.

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 years ended December 31, 2017, 2016 and 2015, based on the treasury stock method, New Residential had 2,143,323, 364,107 and 2,167,796 dilutive common stock equivalents, respectively.

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), as well as HLSS (Note 1) for the period of April 6, 2015 through October 23, 2015.