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EX-32.2 - EXHIBIT 32.2 - Drive Shack Inc.nct-2015630xexhibit32x2.htm
EX-31.1 - EXHIBIT 31.1 - Drive Shack Inc.nct-2015630xexhibit31x1.htm
EX-32.1 - EXHIBIT 32.1 - Drive Shack Inc.nct-2015630xexhibit32x1.htm
EX-31.2 - EXHIBIT 31.2 - Drive Shack Inc.nct-2015630xexhibit31x2.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______________ to _______________ 
Commission File Number: 001-31458 
Newcastle Investment Corp.
(Exact name of registrant as specified in its charter)
Maryland
 
81-0559116
(State or other jurisdiction of incorporation
 
(I.R.S. Employer Identification No.)
or organization)
 
 
1345 Avenue of the Americas, New York, NY
 
10105
(Address of principal executive offices)
 
(Zip Code)
(212) 798-6100
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
S Yes  No £ 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer S Accelerated filer £ Non-accelerated filer £ (Do not check if a smaller reporting company)
Smaller reporting company £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes £ No S
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date.
Common stock, $0.01 par value per share: 66,486,652 shares outstanding as of July 27, 2015.



CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the operating performance of our investments, the stability of our earnings, and our financing needs. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Our ability to predict results or the actual outcome of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:

changes in global, national and local economic conditions, including, but not limited to, a prolonged economic slowdown and a downturn in the real estate market;
reductions in cash flows received from our investments;
the availability and cost of capital for future investments, particularly in a rising interest rate environment, and our ability to deploy capital accretively;
our ability to profit from opportunistic investments, such as our investment in golf, and to mitigate the risks associated with managing operating businesses and asset classes with which we have limited experience;
the relationship between yields on assets which are paid off and yields on assets in which such monies can be reinvested;
changes in our asset portfolio and investment strategy, and potential changes in our ability to make distributions to our stockholders, as a result of the spin-off of our senior housing business or other factors;
adverse changes in the financing markets we access affecting our ability to finance our investments;
changing risk assessments by lenders that potentially lead to increased margin calls, not extending our repurchase agreements or other financings in accordance with their current terms or entering into new financings with us;
changes in interest rates and/or credit spreads, as well as the success of any hedging strategy we may undertake in relation to such changes;
the risks that default and recovery rates on our real estate securities and loan portfolios deteriorate compared to our underwriting estimates;
impairments in the value of the collateral underlying our investments and the relation of any such impairments to our judgments as to whether changes in the market value of our securities, loans or real estate are temporary or not and whether circumstances bearing on the value of such assets warrant changes in carrying values;
geographical concentrations with respect to our investments, including the mortgage loans underlying and collateral securing certain of our debt investments;
legislative/regulatory changes, including but not limited to, any modification of the terms of loans;
competition within the industries in which we have and/or may pursue additional investments;
our ability and willingness to maintain our qualification as a REIT; and
other risks detailed from time to time below, particularly under the heading “Risk Factors,” and in our other reports filed with or furnished to the Securities and Exchange Commission (the “SEC”).

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The factors noted above could cause our actual results to differ significantly from those contained in any forward-looking statement.

Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management’s views only as of the date of this report. We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.



SPECIAL NOTE REGARDING EXHIBITS
 
In reviewing the agreements included as exhibits to this Quarterly Report on Form 10-Q, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about Newcastle Investment Corp. (the “Company”) or the other parties to the agreements.  The agreements contain representations and warranties by each of the parties to the applicable agreement.  These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
 
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.  Additional information about the Company may be found elsewhere in this Quarterly Report on Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
 
The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading.
 





NEWCASTLE INVESTMENT CORP.  
FORM 10-Q
 
INDEX
 
 
PAGE
PART I.   FINANCIAL INFORMATION
 
 
 
 
 
 
Item 1.   
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




 




NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
 
June 30, 2015
 
December 31, 2014
 
(Unaudited)
 
Assets
 

 
 

Real estate securities, available-for-sale
$
65,499

 
$
231,754

Real estate securities, pledged as collateral
208,041

 
407,689

Real estate related and other loans, held-for-sale, net
141,826

 
230,200

Residential mortgage loans, held-for-sale, net
3,527

 
3,854

Subprime mortgage loans subject to call option
404,149

 
406,217

Investments in other real estate, net of accumulated depreciation
231,268

 
239,283

Intangibles, net of accumulated amortization
79,702

 
84,686

Other investments
19,925

 
26,788

Cash and cash equivalents
114,338

 
73,727

Restricted cash
3,385

 
15,714

Receivables from brokers, dealers and clearing organizations
392,289

 

Receivables and other assets
39,724

 
35,191

Assets of discontinued operations
53

 
6,803

Total Assets
$
1,703,726

 
$
1,761,906

 
 
 
 
 
 
 
 
Liabilities and Equity
 

 
 

Liabilities
 

 
 

CDO bonds payable
$
92,693

 
$
227,673

Other bonds and notes payable
9,871

 
27,069

Repurchase agreements
375,704

 
441,176

Credit facilities and obligations under capital leases
165,006

 
161,474

Financing of subprime mortgage loans subject to call option
404,149

 
406,217

Junior subordinated notes payable
51,228

 
51,231

Dividends payable
8,907

 
8,901

Payables to brokers, dealers and clearing organizations
207,732

 

Accounts payable, accrued expenses and other liabilities
160,692

 
179,390

Liabilities of discontinued operations

 
447

Total Liabilities
$
1,475,982

 
$
1,503,578

 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
Equity
 
 
 
Preferred stock, $0.01 par value, 100,000,000 shares authorized, 1,347,321 shares of 9.75% Series B Cumulative Redeemable Preferred Stock, 496,000 shares  of 8.05% Series C Cumulative Redeemable Preferred Stock, and 620,000 shares of 8.375% Series D Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share, issued and outstanding as of June 30, 2015 and December 31, 2014
$
61,583

 
$
61,583

Common stock, $0.01 par value, 1,000,000,000 shares authorized, 66,476,285 and 66,424,508 shares issued and outstanding, at June 30, 2015 and December 31, 2014, respectively
665

 
664

Additional paid-in capital
3,172,297

 
3,172,060

Accumulated deficit
(3,042,901
)
 
(3,041,880
)
Accumulated other comprehensive income
36,294

 
65,865

Total Newcastle Stockholders' Equity
227,938

 
258,292

Noncontrolling interests
(194
)
 
36

Total Equity
$
227,744

 
$
258,328

 
 
 
 
Total Liabilities and Equity
$
1,703,726

 
$
1,761,906

 
See notes to consolidated financial statements.

1



NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(dollars in thousands, except share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Interest income
$
24,265

 
$
29,893

 
$
51,343

 
$
76,345

Interest expense
16,950

 
20,328

 
33,677

 
42,498

Net interest income
7,315

 
9,565

 
17,666

 
33,847

Impairment/(Reversal)
 

 
 

 
 

 
 

Valuation allowance (reversal) on loans
4,317

 
1,526

 
4,674

 
2,772

Other-than-temporary impairment on securities
9,128

 

 
9,472

 

Portion of other-than-temporary impairment on securities recognized in other comprehensive income (loss), net of the reversal of other comprehensive loss into net income (loss)
234

 

 
(62
)
 

Total impairment (reversal)
13,679

 
1,526

 
14,084

 
2,772

Net interest income after impairment/reversal
(6,364
)
 
8,039

 
3,582

 
31,075

Operating Revenues
 

 
 

 
 

 
 

Golf course operations
48,778

 
50,513

 
87,732

 
90,285

Sales of food and beverages - golf
20,944

 
19,923

 
33,956

 
33,462

Other golf revenue
13,081

 
12,301

 
21,941

 
21,622

Total operating revenues
82,803

 
82,737

 
143,629

 
145,369

Other Income (Loss)
 

 
 

 
 

 
 

Gain on settlement of investments, net
26,776

 
40,435

 
27,791

 
42,769

Gain (loss) on extinguishment of debt
489

 
(3,410
)
 
489

 
(3,410
)
Other income (loss), net
2,108

 
4,682

 
1,594

 
18,156

Total other income
29,373

 
41,707

 
29,874

 
57,515

Expenses
 

 
 

 
 

 
 

Loan and security servicing expense
118

 
408

 
214

 
1,265

Operating expenses - golf
65,438

 
66,482

 
120,375

 
126,129

Cost of sales - golf
9,108

 
8,807

 
15,161

 
14,763

General and administrative expense
3,487

 
4,767

 
5,200

 
8,331

Management fee to affiliate
2,674

 
5,296

 
5,342

 
11,189

Depreciation and amortization
7,119

 
6,317

 
13,872

 
12,180

Total expenses
87,944

 
92,077

 
160,164

 
173,857

Income from continuing operations before income tax
17,868

 
40,406

 
16,921

 
60,102

Income tax expense
27

 
4

 
73

 
144

Income from continuing operations
17,841

 
40,402

 
16,848

 
59,958

Income (loss) from discontinued operations, net of tax
524

 
(8,504
)
 
639

 
(23,803
)
Net Income
18,365

 
31,898

 
17,487

 
36,155

Preferred dividends
(1,395
)
 
(1,395
)
 
(2,790
)
 
(2,790
)
Net loss attributable to noncontrolling interests
49

 
29

 
230

 
690

Income Applicable to Common Stockholders
$
17,019

 
$
30,532

 
$
14,927

 
$
34,055


Continued on next page.

2



NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(dollars in thousands, except share data)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Income Applicable to Common Stock, per share (1)
 

 
 

 
 
 
 
Basic
$
0.26

 
$
0.52

 
$
0.22

 
$
0.58

Diluted
$
0.25

 
$
0.50

 
$
0.22

 
$
0.56

Income from continuing operations per share of common stock, after preferred dividends and noncontrolling interests (1)
 

 
 

 
 

 
 

Basic
$
0.25

 
$
0.67

 
$
0.22

 
$
0.99

Diluted
$
0.24

 
$
0.65

 
$
0.21

 
$
0.96

Income (Loss) from discontinued operations per share of common stock (1)
 

 
 

 
 

 
 

Basic
$
0.01

 
$
(0.15
)
 
$
0.01

 
$
(0.41
)
Diluted
$
0.01

 
$
(0.15
)
 
$
0.01

 
$
(0.41
)
Weighted Average Number of Shares of Common Stock Outstanding (1)
 

 
 

 
 

 
 

Basic
66,426,980

 
58,599,666

 
66,425,751

 
58,587,691

Diluted
69,204,717

 
60,477,084

 
69,055,495

 
60,493,844

Dividends Declared per Share of Common Stock (1)
$
0.12

 
$
0.60

 
$
0.24

 
$
1.20

(1) All per share amounts and shares outstanding for all periods reflect the 1-for-3 reverse stock split, which was effective after the close of trading on August 18, 2014 and the 1-for-2 reverse stock split, which was effective after the close of trading on October 22, 2014.



See notes to consolidated financial statements.

3



NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(dollars in thousands, except share data)
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
18,365

 
$
31,898

 
$
17,487

 
$
36,155

Other comprehensive income (loss):
 

 
 

 
 

 
 

Net unrealized gain (loss) on available-for-sale securities
(6,610
)
 
3,889

 
(2,572
)
 
8,477

Reclassification of net realized (gain) loss on securities
into earnings
(22,694
)
 
(15,698
)
 
(28,876
)
 
(18,032
)
Net unrecognized gain and pension prior service cost
(discontinued operations)

 

 

 
9

Net unrealized gain (loss) on derivatives designated as cash flow hedges
(27
)
 
(75
)
 
(60
)
 
(152
)
Reclassification of net realized (gain) loss on derivatives designated as cash flow hedges into earnings
1,248

 
904

 
1,937

 
2,171

Other comprehensive (loss) income
(28,083
)
 
(10,980
)
 
(29,571
)
 
(7,527
)
Total comprehensive (loss) income
$
(9,718
)
 
$
20,918

 
$
(12,084
)
 
$
28,628

Comprehensive (loss) income attributable to Newcastle
stockholders' equity
$
(9,669
)
 
$
20,947

 
$
(11,854
)
 
$
29,318

Comprehensive loss attributable to noncontrolling interests
$
(49
)
 
$
(29
)
 
$
(230
)
 
$
(690
)
  
See notes to consolidated financial statements.

4



NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY (Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 2015
(dollars in thousands, except share data)
 
Newcastle Stockholders
 
 
 
 
 
 
 
Preferred Stock
 
Common Stock
 
Additional Paid-
 
Accumulated
 
Accumulated Other Comp.
 
Total Newcastle Stockholders'
 
Noncontrolling
 
Total Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
in Capital
 
Deficit
 
Income (Loss)
 
Equity
 
Interests
 
(Deficit)
Equity - December 31, 2014
2,463,321

 
$
61,583

 
66,424,508

 
$
664

 
$
3,172,060

 
$
(3,041,880
)
 
$
65,865

 
$
258,292

 
$
36

 
$
258,328

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared

 

 

 

 

 
(18,738
)
 

 
(18,738
)
 

 
(18,738
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock (directors)

 

 
51,777

 
1

 
237

 

 

 
238

 

 
238

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)


 


 


 


 


 


 


 


 


 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)

 

 

 

 

 
17,717

 

 
17,717

 
(230
)
 
17,487

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss

 

 

 

 

 

 
(29,571
)
 
(29,571
)
 

 
(29,571
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(11,854
)
 
(230
)
 
(12,084
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity - June 30, 2015
2,463,321

 
$
61,583

 
66,476,285

 
$
665

 
$
3,172,297

 
$
(3,042,901
)
 
$
36,294

 
$
227,938

 
$
(194
)
 
$
227,744

 










See notes to consolidated financial statements.

5



NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands, except share data)
 
Six Months Ended June 30,
 
2015
 
2014
Cash Flows From Operating Activities
 
 
 
Net income
$
17,487

 
$
36,155

Adjustments to reconcile net income to net cash provided by operating activities
(inclusive of amounts related to discontinued operations):
 

 
 

Depreciation and amortization
13,883

 
62,913

Accretion of discount and other amortization
1,997

 
(10,074
)
Net interest income on investments accrued to principal balance
(11,485
)
 
(11,054
)
Non-cash directors' compensation
238

 
200

Valuation allowance on loans
4,674

 
2,772

Other-than-temporary impairment on securities
9,410

 

Straight-lining of rental income

 
(12,138
)
Equity in earnings from equity method investments, net of distributions
(642
)
 
(289
)
Gain on settlement of investments (net)
(27,877
)
 
(42,735
)
Unrealized gain on non-hedge derivatives and hedge ineffectiveness
(293
)
 
(16,862
)
Loss/(gain) on extinguishment of debt
(489
)
 
3,410

Change in:
 

 
 

Restricted cash
(1,055
)
 
1,941

Receivables and other assets
(1,765
)
 
6,572

Accounts payable, accrued expenses and other liabilities
(18,670
)
 
(4,587
)
Net cash (used in) provided by operating activities
(14,587
)
 
16,224

Cash Flows From Investing Activities
 

 
 

Principal repayments from investments
112,084

 
189,723

Purchase of real estate securities
(415,917
)
 

Proceeds from sale of investments
406,269

 
763,336

Acquisition and additions of investments in real estate
(1,934
)
 
(237,197
)
Change in restricted cash from investing activities
56,774

 

Deposits paid on investments

 
(650
)
Net cash provided by investing activities
157,276

 
715,212

Cash Flows From Financing Activities
 
 
 
Repurchases of CDO bonds payable
(10,983
)
 

Borrowings under debt obligations
391,752

 
103,065

Repayments of debt obligations
(462,180
)
 
(763,347
)
Margin deposits under repurchase agreements and derivatives
(60,046
)
 
(12,277
)
Return of margin deposits under repurchase agreements and derivatives
60,531

 
12,277

Issuance of common stock

 
240

Contribution of cash to New Media/New Residential upon spin-off

 
(23,845
)
Common stock dividends paid
(15,942
)
 
(70,290
)
Preferred stock dividends paid
(2,790
)
 
(2,790
)
Payment of deferred financing costs

 
(2,491
)
Proceeds (payments) from settlement of derivative instruments
(2,555
)
 

Net cash used in financing activities
(102,213
)
 
(759,458
)
Net (Decrease) Increase in Cash and Cash Equivalents
40,476

 
(28,022
)
Cash and Cash Equivalents of Continuing Operations, Beginning of Period
73,727

 
42,721

Cash and Cash Equivalents of Discontinued Operations, Beginning of Period
135

 
63,223

Cash and Cash Equivalents, End of Period
$
114,338

 
$
77,922

 
 
 
 
Cash and Cash Equivalents of Continuing Operations, End of Period
$
114,338

 
$
29,928

Cash and Cash Equivalents of Discontinued Operations, End of Period
$

 
$
47,994

Supplemental Disclosure of Cash Flow Information
 

 
 

Cash paid during the period for income taxes
$
260

 
$
1,153

Cash paid during the period for interest expense
$
10,129

 
$
39,409

Supplemental Schedule of Non-Cash Investing and Financing Activities
 
 
 
Preferred stock dividends declared but not paid
$
930

 
$
930

Common stock dividends declared but not paid
$
7,977

 
$
35,171

Additions to capital lease assets and liabilities
$
2,634

 
$

Reduction of Assets and Liabilities relating to the spin-off of New Media
 

 
 

Property, plant and equipment, net
$

 
$
266,385

Goodwill and intangibles, net
$

 
$
271,350

Restricted cash
$

 
$
6,477

Receivables and other assets
$

 
$
101,940

Credit facilities, media
$

 
$
177,955

Accounts payable, accrued expenses and other liabilities
$

 
$
100,695

 See notes to consolidated financial statements 

6

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2015
(dollars in tables in thousands, except share data)
 


1.   GENERAL
 
Newcastle Investment Corp. (and its subsidiaries, “Newcastle” or the "Company") is a Maryland corporation that was formed in 2002. Newcastle focuses on opportunistically investing in, and actively managing, a variety of real estate-related and other investments. Newcastle is organized and conducts its operations to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. As such, Newcastle will generally not be subject to U.S. federal corporate income tax on that portion of its net income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements. However, certain of our activities are conducted through taxable REIT subsidiaries ("TRS") and therefore are subject to federal and state income taxes at regular corporate tax rates. Newcastle's common stock is traded on the New York Stock Exchange under the symbol "NCT".

Newcastle conducts its business through the following segments: (i) debt investments financed with collateralized debt obligations (“CDOs”), (ii) other debt investments (“Other Debt”), (iii) investments in golf properties and facilities (“Golf”) and (iv) corporate. With respect to the CDOs and other debt investments, subject to the passing of certain periodic coverage tests, Newcastle is generally entitled to receive the net cash flows from these structures on a periodic basis.

Newcastle is party to a management agreement (the "Management Agreement") with FIG LLC (the "Manager"), a subsidiary of Fortress Investment Group LLC (“Fortress”), under which the Manager advises Newcastle on various aspects of its business and manages its day-to-day operations, subject to the supervision of Newcastle's board of directors. For its services, the Manager is entitled to an annual management fee and incentive compensation, both as defined in, and in accordance with the terms of the Management Agreement.

Approximately 1.0 million shares of Newcastle’s common stock were held by Fortress, through its affiliates, and its principals at June 30, 2015. In addition, Fortress, through its affiliates, held options to purchase approximately 5.1 million shares of Newcastle’s common stock at June 30, 2015.

A principal of the Manager owned or leased aircraft that Newcastle chartered from a third-party aircraft operator for business purposes in the course of operations. Newcastle paid market rates for the charters.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The accompanying consolidated financial statements and related notes of Newcastle have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of Newcastle's financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These financial statements should be read in conjunction with Newcastle's consolidated financial statements for the year ended December 31, 2014 and notes thereto included in Newcastle’s Annual Report on Form 10-K filed with the SEC on March 2, 2015. Capitalized terms used herein, and not otherwise defined, are defined in Newcastle’s consolidated financial statements for the year ended December 31, 2014.

Certain prior period amounts have been reclassified to conform to the current period’s presentation. All per share amounts, common shares outstanding and options for all prior periods reflect Newcastle's 1-for-3 reverse stock split, which was effective August 18, 2014 and Newcastle's 1-for-2 reverse stock split, which was effective October 22, 2014.

As of June 30, 2015, Newcastle's significant accounting policies for these financial statements are summarized below and should be read in conjunction with the Summary of Significant Accounting Policies detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.


7

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2015
(dollars in tables in thousands, except share data)
 

REVENUE RECOGNITION

Golf Revenues - Revenue from green fees, cart rentals, food and beverage sales, merchandise sales and other income (consisting primarily of range income, banquets, instruction, and club and other rental income) are generally recognized at the time of sale, when services are rendered and collection is reasonably assured.

Revenue from membership dues is recognized in the month earned. Membership dues received in advance are included in deferred revenues and recognized as revenue ratably over the appropriate period, which is generally twelve months or less. The monthly dues are generally structured to cover the club operating costs and membership services.

Private country club members generally pay an advance initiation fee deposit upon their acceptance as a member to the country club. Initiation fee deposits are refundable 30 years after the date of acceptance as a member. The difference between the initiation fee deposit paid by the member and the present value of the refund obligation is deferred and recognized into revenue in the consolidated statements of operations on a straight-line basis over the expected life of an active membership, which is estimated to be seven years.

The present value of the refund obligation is recorded as a membership deposit liability in the consolidated balance sheet and accretes over a 30-year nonrefundable term using the effective interest method. This accretion is recorded as interest expense in the consolidated statements of operations.

EXPENSE RECOGNITION

Derivatives and Hedging Activities - All derivatives are recognized as either assets or liabilities on the balance sheet and measured at fair value. Newcastle reports the fair value of derivative instruments gross of cash paid or received pursuant to credit support agreements and fair value is reflected on a net counterparty basis when Newcastle believes a legal right of offset exists under an enforceable netting agreement. Fair value adjustments affect either equity or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. For those derivative instruments that are designated and qualify as hedging instruments, Newcastle designates the hedging instrument, based upon the exposure being hedged, as either a cash flow hedge, a fair value hedge or a hedge of a net investment in a foreign operation.

Derivative transactions are entered into by Newcastle solely for risk management purposes, except for total rate of return swaps. Such total rate of return swaps are essentially financings of certain reference assets which are treated as derivatives for accounting purposes. The decision of whether or not a given transaction/position (or portion thereof) is hedged is made on a case-by-case basis, based on the risks involved and other factors as determined by management, including restrictions imposed by the Code among others. In determining whether to hedge a risk, Newcastle may consider whether other assets, liabilities, firm commitments and anticipated transactions already offset or reduce the risk. All transactions undertaken as hedges are entered into with a view towards minimizing the potential for economic losses that could be incurred by Newcastle. Generally, all derivatives entered into are intended to qualify as hedges under GAAP, unless specifically stated otherwise. To this end, terms of hedges are matched closely to the terms of hedged items.

Description of the risks being hedged

1)
Interest rate risk, existing debt obligations - Newcastle has hedged (and may continue to hedge, when feasible and appropriate) the risk of interest rate fluctuations with respect to its borrowings, regardless of the form of such borrowings, which require payments based on a variable interest rate index. Newcastle generally intends to hedge only the risk related to changes in the benchmark interest rate (LIBOR or a Treasury rate). In order to reduce such risks, Newcastle may enter into swap agreements whereby Newcastle would receive floating rate payments in exchange for fixed rate payments, effectively converting the borrowing to fixed rate. Newcastle may also enter into cap agreements whereby, in exchange for a premium, Newcastle would be reimbursed for interest paid in excess of a certain cap rate.

2)
Interest rate risk, anticipated transactions - Newcastle may hedge the aggregate risk of interest rate fluctuations with respect to anticipated transactions, primarily anticipated borrowings. The primary risk involved in an anticipated borrowing is that interest rates may increase between the date the transaction becomes probable and the date of consummation.

8

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2015
(dollars in tables in thousands, except share data)
 

Newcastle generally intends to hedge only the risk related to changes in the benchmark interest rate (LIBOR or a Treasury rate). This is generally accomplished through the use of interest rate swaps.

Cash Flow Hedges

To qualify for cash flow hedge accounting, interest rate swaps and caps must meet certain criteria, including (1) the items to be hedged expose Newcastle to interest rate risk, (2) the interest rate swaps or caps are highly effective in reducing Newcastle’s exposure to interest rate risk, and (3) with respect to an anticipated transaction, such transaction is probable. Correlation and effectiveness are periodically assessed based upon a comparison of the relative changes in the fair values or cash flows of the interest rate swaps and caps and the items being hedged, or using regression analysis on an ongoing basis to assess retrospective and prospective hedge effectiveness.

For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss, and net payments received or made, on the derivative instrument are reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change. The premiums paid for interest rate caps, treated as cash flow hedges, are amortized into interest expense based on the estimated value of such cap for each period covered by such cap.

With respect to interest rate swaps which have been designated as hedges of anticipated financings, periodic net payments are recognized currently as adjustments to interest expense; any gain or loss from fluctuations in the fair value of the interest rate swaps is recorded as a deferred hedge gain or loss in accumulated other comprehensive income and treated as a component of the anticipated transaction. In the event the anticipated refinancing failed to occur as expected, the deferred hedge credit or charge would be recognized immediately in earnings. Newcastle’s hedges of such financings were terminated upon the consummation of such financings.

Newcastle designated certain of its derivatives, and in some cases re-designated all or a portion thereof as hedges. As a result of these designations, in the cases where the originally hedged items were still owned by Newcastle, the unrealized gain or loss was recorded in accumulated other comprehensive income as a deferred hedge gain or loss and is being amortized over the life of the hedged item.

As of June 30, 2015, Newcastle did not have any interest rate swaps.  Newcastle terminated two interest rate swaps in connection with the liquidation of CDO VIII and the interest rate swap in CDO VI matured in March 2015.

Non-Hedge Derivatives

With respect to interest rate swaps and caps that have not been designated as hedges, any net payments under, or fluctuations in the fair value of, such swaps and caps have been recognized currently in other income (loss). These derivatives may, to some extent, be economically effective as hedges. Under these agreements, we paid fixed monthly coupons at fixed rates of 4.85% of the notional amount to the counterparty and received floating rate LIBOR. Our interest rate swaps not designated as hedges matured in March 2015.

Newcastle has entered into certain transactions which financed the purchase of certain assets with the seller of these assets. The contemporaneous purchase of the asset and the associated financing are treated as a linked transaction and accordingly recorded on a net basis as a non-hedge derivative instrument, with changes in market value recorded on the statement of operations. In May 2014, the CDO VIII Class 1 notes were repaid in full and the repurchase agreement was terminated. Therefore, the associated linked transaction was effectively terminated.
Newcastle also transacts in the to be announced mortgage backed securities ("TBA") market. TBA contracts are forward contracts to purchase mortgage-backed securities that will be issued by a U.S. government sponsored enterprise in the future. Newcastle primarily engages in TBA transactions for purposes of managing interest rate risk and market risk associated with our investment strategies.  For example, Newcastle takes short positions in TBAs to offset - to varying degrees - changes in the values of our Agency residential mortgage backed securities ("RMBS") investments for which we have exposure to interest rate volatility; therefore, these derivatives may, to some extent, be economically effective as hedges.

9

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2015
(dollars in tables in thousands, except share data)
 

Newcastle typically does not take delivery of TBAs, but rather settles the associated receivable and payable with its trading counterparties on a net basis. As part of its TBA activities, Newcastle may "roll" its TBA positions, whereby we may sell (buy) securities for delivery (receipt) in an earlier month and simultaneously contract to repurchase (sell) similar securities at an agreed-upon price on a fixed date in a later month. Newcastle accounts for its TBA transactions as non-hedge instruments, with changes in market value recorded on the statement of operations. As of June 30, 2015, Newcastle held TBA contracts consisting of four short contracts totaling $600.0 million notional amount and three long contracts totaling $400.0 million notional amount of Agency RMBS.
Newcastle’s derivative financial instruments contain credit risk to the extent that its bank counterparties may be unable to meet the terms of the agreements. Newcastle reduces such risk by limiting its counterparties to major financial institutions. In addition, the potential risk of loss with any one party resulting from this type of credit risk is monitored. Management does not expect any material losses as a result of default by other parties. Newcastle does not require collateral for the derivative financial instruments within its CDO financing structures.

Operating Leases and Other Operating Expenses - Other operating expenses for the Golf business consist primarily of equipment leases, utilities, repairs and maintenance, supplies, seed, soil and fertilizer, and marketing. Many of the golf properties and related facilities are leased under long-term operating leases. In addition to minimum payments, certain leases require payment of the excess of various percentages of gross revenue or net operating income over the minimum rental payments. The leases generally require the payment of taxes assessed against the leased property and the cost of insurance and maintenance. The majority of lease terms range from 10 to 20 years, and typically, the leases contain renewal options. Certain leases include minimum scheduled increases in rental payments at various times during the term of the lease. These scheduled rent increases are recognized on a straight-line basis over the term of the lease, resulting in an accrual, which is included in accounts payable, accrued expenses and other liabilities, for the amount by which the cumulative straight-line rent exceeds the contractual cash rent.
BALANCE SHEET MEASUREMENT
Investments in CDO Servicing Rights - In February 2011, Newcastle, through one of its subsidiaries, purchased the management rights with respect to certain C-BASS Investment Management LLC (“C-BASS”) CDOs for $2.2 million pursuant to a bankruptcy proceeding. Newcastle initially recorded the cost of acquiring the collateral management rights as a servicing asset and subsequently amortizes this asset in proportion to, and over the period of, estimated net servicing income. Servicing assets are assessed for impairment on a quarterly basis, with impairment recognized as a valuation allowance. Key economic assumptions used in measuring any potential impairment of the servicing assets include the prepayment speeds of the underlying loans, default rates, loss severities and discount rates. During the three and six months ended June 30, 2015, Newcastle recorded $0.1 million and $0.2 million of servicing rights amortization and no servicing rights impairment. As of June 30, 2015, Newcastle’s servicing assets had a carrying value of $0.9 million, which is reported within receivables and other assets.
Investments in Other Real Estate, Net - Real estate and related improvements are recorded at cost less accumulated depreciation. Costs that both materially add value and appreciably extend the useful life of an asset are capitalized. Fees and costs incurred in the successful negotiation of leases are deferred and amortized on a straight-line basis over the terms of the respective leases. With respect to golf course improvements (included in buildings and improvements), only costs associated with original construction, significant replacements, or the addition of new trees, permanent landscaping, sand traps, fairways, tee boxes or greens are capitalized. Expenditures for repairs and maintenance are expensed as incurred.
Long-lived assets to be disposed of by sale, which meet certain criteria, are reclassified to real estate held-for-sale and measured at the lower of their carrying amount or fair value less costs of sale. The results of operations for such disposal, assuming such disposal qualifies as a “component of an entity” that represents a strategic shift that had (or will have) a major effect on the operations or financial results as defined, are retroactively reclassified to income (loss) from discontinued operations for all periods presented.

The Golf business leases certain golf carts and other equipment that are classified as capital leases. The value of capital leases is recorded as an asset on the balance sheet, along with a liability related to the associated payments. Amortization of capital lease assets is calculated using the straight-line method over the shorter of the estimated useful lives and the initial lease terms. The cost of equipment under capital leases is included in investments in other real estate in the consolidated balance sheets. Payments under the lease are treated as reductions of the liability, with a portion being recorded as interest expense under the effective interest method.

10

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2015
(dollars in tables in thousands, except share data)
 

Depreciation is calculated using the straight-line method based on the lesser of the lease term or the following estimated useful lives:
Buildings and improvements
10-30 years
Furniture, fixtures and equipment
3-10 years
Capital leases - equipment

4-6 years
Intangibles - Intangible assets relating to the Golf business consist primarily of leasehold advantages (disadvantages), management contracts and membership base. A leasehold advantage (disadvantage) exists to Newcastle when it pays a contracted rent that is below (above) market rents at the date of the transaction. The value of a leasehold advantage (disadvantage) is calculated based on the differential between market and contracted rent, which is tax effected and discounted to present value based on an after-tax discount rate corresponding to each golf property. The management contract intangible represents Newcastle’s golf course management contracts for both leased and managed properties. The management contract intangible for leased and managed properties is valued utilizing a discounted cash flow methodology under the income approach and is amortized over the term of the underlying lease or management agreements, respectively. The membership base intangible represents Newcastle’s relationship with its private golf club members. The membership base intangible is valued using the multi-period excess earnings method under the income approach, and is amortized over the weighted average remaining useful life of the private memberships.

Amortization of leasehold intangible assets is included within operating expense - golf and amortization of all other intangible assets is included within depreciation and amortization on the consolidated statements of operations.

Other Investment - Newcastle owns 23% of equity interest in a commercial real estate project which is recorded as an equity method investment. As of June 30, 2015 and December 31, 2014, the carrying value of this investment was $19.9 million and $26.8 million, respectively.  Newcastle evaluates its equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable. The evaluation of recoverability is based on management’s assessment of the financial condition and near term prospects of the investee, the length of time and the extent to which the market value of the investment has been less than cost and the intent and ability of Newcastle to retain its investment.

Impairment of Real Estate and Finite-lived Intangible Assets - Newcastle periodically reviews the carrying amounts of its long-lived assets, including real estate and finite-lived intangible assets, to determine whether current events or circumstances indicate that such carrying amounts may not be recoverable. The assessment of recoverability is based on management’s estimates by comparing the sum of the estimated undiscounted cash flows generated by the underlying asset, or other appropriate grouping of assets, to its carrying value to determine whether an impairment existed at its lowest level of identifiable cash flows. If the carrying amount of the asset is greater than the expected undiscounted cash flows to be generated by such asset, an impairment is recognized to the extent the carrying value of such asset exceeds its fair value. Newcastle generally measures fair value by considering sale prices for similar assets or by discounting estimated future cash flows using an appropriate discount rate. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") and the International Accounting Standards Board ("IASB") issued Accounting Standards Update ("ASU") 2014-09 Revenues from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. On July 9, 2015, the FASB decided to defer the effective date by one year though the FASB still needs to issue an ASU to make the change, the standard will be effective for annual and interim periods beginning after December 15, 2017, however all entities are allowed to adopt the standard as early as the original effective date (annual periods beginning after December 15, 2016). Entities have the option of using either a full retrospective or a modified approach to adopt the guidance. We are currently reviewing the guidance to determine the impact to the consolidated financial statements.


11

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2015
(dollars in tables in thousands, except share data)
 

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The standard amends the consolidation considerations when evaluating certain limited partnerships, variable interest entities and investment funds. The ASU is effective for Newcastle in the first quarter of 2016 and early adoption is permitted. Newcastle is currently evaluating the new guidance to determine the impact it may have to its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Topic 835): Simplifying the Presentation of Debt Issuance Costs.  The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The new guidance is effective in the first quarter of 2016 and early adoption is permitted. Newcastle elected to early adopt this new guidance effective for the first quarter of 2015 to simplify presentation of debt issuance costs and has applied the changes retrospectively to all periods presented. Accordingly, "Receivables and other assets" excludes deferred financing costs and "Credit facilities and obligations under capital leases" is reported net of deferred financing costs of $0.3 million and $0.4 million as of June 30, 2015 and December 31, 2014, respectively in the Consolidated Balance Sheets.

The FASB has recently issued or discussed a number of proposed standards on such topics as financial statement presentation, leases, financial instruments and hedging. Some of the proposed changes are significant and could have a material impact on Newcastle’s reporting. Newcastle has not yet fully evaluated the potential impact of these proposals, but will make such an evaluation as the standards are finalized. 

3.   DISCONTINUED OPERATIONS

On February 13, 2014, Newcastle completed the spin-off of New Media Investment Group Inc. ("New Media") from Newcastle.
On November 6, 2014, Newcastle completed the spin-off of New Senior Investment Group Inc. ("New Senior") from Newcastle.
In April 2015, Newcastle closed the sale of its commercial real estate properties in Beavercreek, OH for $7.0 million, net of closing costs, and recognized a net gain on the sale of these assets of approximately $0.3 million. In addition, Newcastle repaid the related debt on this property of $6.0 million held within CDO IX, which was eliminated in consolidation.

As a result of the spin-offs and the sale of the commercial real estate properties in Beavercreek, OH (which was initially reported as held-for-sale as of September 30, 2014), the assets, liabilities and results of operations of those components of Newcastle’s operations that (i) were part of the spin-offs, and/or (ii) represent operations in which Newcastle has no significant continuing involvement, are presented separately in discontinued operations in Newcastle’s consolidated financial statements for all periods presented.
With respect to the sale of the commercial real estate properties in Beavercreek, OH, the assets of discontinued operations include zero investments in other real estate as of June 30, 2015 and $6.6 million as of December 31, 2014, and cash and cash equivalents, restricted cash and receivables and other assets in the total amount of $0.1 million and $0.2 million as of June 30, 2015 and December 31, 2014, respectively. There were no liabilities of discontinued operations as of June 30, 2015. The liabilities of discontinued operations include accounts payable, accrued liabilities and other liabilities of $0.5 million as of December 31, 2014.

12

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2015
(dollars in tables in thousands, except share data)
 


Results from discontinued operations were as follows:
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2014
 
2015
 
2014
Interest income
$

 
$

 
$

 
$

Interest expense

 
13,592

 

 
29,389

Net interest income (loss)

 
(13,592
)
 

 
(29,389
)
 
 
 
 
 
 
 
 
Media income

 

 

 
68,213

Rental income
50

 
54,595

 
549

 
107,485

Care and ancillary income

 
5,666

 

 
11,127

Gain on settlement of investments
318

 

 
318

 

Other income (loss)

 
(22
)
 

 
(22
)
Total media, rental and other income
368

 
60,239

 
867

 
186,803

 
 
 
 
 
 
 
 
Media operating expenses

 

 

 
65,826

Property operating expenses
(157
)
 
26,459

 
187

 
52,419

General and administrative expenses (A)
1

 
4,911

 
30

 
12,463

Depreciation and amortization

 
23,245

 
11

 
50,733

Income tax (benefit) expense

 
536

 

 
(224
)
Total expenses
(156
)
 
55,151

 
228

 
181,217

 
 
 
 
 
 
 
 
Income (loss) from discontinued operations
$
524

 
$
(8,504
)
 
$
639

 
$
(23,803
)
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
$

 
$

 
$

 
$
522

(A)
Includes acquisition and spin-off related expenses of $3.4 million and $10.7 million for the three and six months ended June 30, 2014.

The February 13, 2014 spin-off of New Media resulted in a $0.4 billion reduction in the basis upon which Newcastle’s management fees are computed (and an equivalent reduction in the basis upon which the incentive compensation threshold is computed), as well as a reduction in the strike price of Newcastle’s then outstanding options.

The November 6, 2014 spin-off of New Senior resulted in a $0.7 billion reduction in the basis upon which Newcastle’s management fees are computed (and an equivalent reduction in the basis upon which the incentive compensation threshold is computed), as well as a reduction in the strike price of Newcastle’s then outstanding options. 

4.   SEGMENT REPORTING AND VARIABLE INTEREST ENTITIES
 
Newcastle conducts its business through the following segments: (i) debt investments financed with collateralized debt obligations (“CDOs”), (ii) other debt investments (“Other Debt”), (iii) investment in golf properties and facilities (“Golf”) and (iv) corporate. With respect to the CDOs and Other Debt segments, Newcastle is generally entitled to receive net cash flows from these structures on a periodic basis.

The corporate segment consists primarily of interest income on short term investments, general and administrative expenses, interest expense on the junior subordinated notes payable and management fees pursuant to the Management Agreement.
 

13

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2015
(dollars in tables in thousands, except share data)
 


Summary financial data on Newcastle's segments is given below, together with reconciliation to the same data for Newcastle as a whole:
 
Debt Investments (A)
 
 
 
 
 
Discontinued
 
 
 
 
 
CDOs
 
Other Debt (B)
 
Golf
 
Corporate
 
Operations
 
Eliminations
 
Total
Six Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
29,607

 
$
24,660

 
$
72

 
$
9

 
$

 
$
(3,005
)
 
$
51,343

Interest expense
(5,313
)
 
(19,173
)
 
(10,305
)
 
(1,891
)
 

 
3,005

 
(33,677
)
Inter-segment elimination
(3,005
)
 

 
3,005

 

 

 

 

Net interest income (expense)
21,289

 
5,487

 
(7,228
)
 
(1,882
)
 

 

 
17,666

Impairment (reversal)
12,206

 
1,878

 

 

 

 

 
14,084

Operating revenues

 

 
143,629

 

 

 

 
143,629

Other income (loss), net
30,271

 
(177
)
 
(228
)
 
8

 

 

 
29,874

Loan and security servicing expense
214

 

 

 

 

 

 
214

Operating expenses - golf (C)

 

 
115,988

 

 

 

 
115,988

Repairs and maintenance expenses - golf

 

 
4,387

 

 

 

 
4,387

Cost of sales - golf

 

 
15,161

 

 

 

 
15,161

General and administrative expense

 

 
1,041

 
3,821

 

 

 
4,862

Acquisition and transaction expenses (D)

 

 
321

 
17

 

 

 
338

Management fee to affiliate

 

 

 
5,342

 

 

 
5,342

Depreciation and amortization

 

 
13,872

 

 

 

 
13,872

Income tax expense

 

 
73

 

 

 

 
73

Income (loss) from continuing operations
39,140

 
3,432

 
(14,670
)
 
(11,054
)
 

 

 
16,848

Income from discontinued operations, net of tax

 

 

 

 
639

 

 
639

Net income (loss)
39,140

 
3,432

 
(14,670
)
 
(11,054
)
 
639

 

 
17,487

Preferred dividends

 

 

 
(2,790
)
 

 

 
(2,790
)
Net loss attributable to noncontrolling interests

 

 
230

 

 

 

 
230

Income (loss) applicable to common stockholders
$
39,140

 
$
3,432

 
$
(14,440
)
 
$
(13,844
)
 
$
639

 
$

 
$
14,927



14

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2015
(dollars in tables in thousands, except share data)
 

 
Debt Investments (A)
 
 
 
 
 
Discontinued
 
 
 
 
 
CDOs
 
Other Debt (B)
 
Golf
 
Corporate
 
Operations
 
Eliminations
 
Total
Three Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
13,685

 
$
12,065

 
$
36

 
$
5

 
$

 
$
(1,526
)
 
$
24,265

Interest expense
(2,730
)
 
(9,594
)
 
(5,207
)
 
(945
)
 

 
1,526

 
(16,950
)
Inter-segment elimination
(1,526
)
 

 
1,526

 

 

 

 

Net interest income (expense)
9,429

 
2,471

 
(3,645
)
 
(940
)
 

 

 
7,315

Impairment (reversal)
11,869

 
1,810

 

 

 

 

 
13,679

Operating revenues

 

 
82,803

 

 

 

 
82,803

Other income (loss), net
29,740

 
(140
)
 
(235
)
 
8

 

 

 
29,373

Loan and security servicing expense
118

 

 

 

 

 

 
118

Operating expenses - golf (C)

 

 
63,017

 

 

 

 
63,017

Repairs and maintenance expenses - golf

 

 
2,421

 

 

 

 
2,421

Cost of sales - golf

 

 
9,108

 

 

 

 
9,108

General and administrative expense

 

 
793

 
2,392

 

 

 
3,185

Acquisition and transaction expenses (D)

 

 
285

 
17

 

 

 
302

Management fee to affiliate

 

 

 
2,674

 

 

 
2,674

Depreciation and amortization

 

 
7,119

 

 

 

 
7,119

Income tax expense

 

 
27

 

 

 

 
27

Income (loss) from continuing operations
27,182

 
521

 
(3,847
)
 
(6,015
)
 

 

 
17,841

Income from discontinued operations, net of tax

 

 

 

 
524

 

 
524

Net income (loss)
27,182

 
521

 
(3,847
)
 
(6,015
)
 
524

 

 
18,365

Preferred dividends

 

 

 
(1,395
)
 

 

 
(1,395
)
Net loss attributable to noncontrolling interests

 

 
49

 

 

 

 
49

Income (loss) applicable to common stockholders
$
27,182

 
$
521

 
$
(3,798
)
 
$
(7,410
)
 
$
524

 
$

 
$
17,019



15

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2015
(dollars in tables in thousands, except share data)
 

 
Debt Investments (A)
 
 
 
 
 
Discontinued
 
 
 
CDOs
 
Other Debt (B)
 
Golf
 
Corporate
 
Operations
 
Total
June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
Investments, net (E)
$
52,139

 
$
790,828

 
$
310,970

 
$

 
$

 
$
1,153,937

Cash and restricted cash
163

 
200

 
9,320

 
108,040

 

 
117,723

Other assets
98

 
397,812

 
33,434

 
669

 

 
432,013

Assets of discontinued operations

 

 

 

 
53

 
53

Total assets
52,400

 
1,188,840

 
353,724

 
108,709

 
53

 
1,703,726

Debt, net (E)
102,564

 
779,853

 
165,006

 
51,228

 

 
1,098,651

Other liabilities
31

 
211,748

 
151,944

 
13,608

 

 
377,331

Liabilities of discontinued operations

 

 

 

 

 

Total liabilities
102,595

 
991,601

 
316,950

 
64,836

 

 
1,475,982

Preferred stock

 

 

 
61,583

 

 
61,583

Noncontrolling interests

 

 
(194
)
 

 

 
(194
)
Equity attributable to common stockholders
$
(50,195
)
 
$
197,239

 
$
36,968

 
$
(17,710
)
 
$
53

 
$
166,355

 
 
 
 
 
 
 
 
 
 
 
 
Additions to investments in real estate excluding intangibles and other liabilities, net of other assets acquired
$

 
$

 
$
3,863

 
$

 
$

 
$
3,863

















16

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2015
(dollars in tables in thousands, except share data)
 

 
Debt Investments (A)
 
 
 
 
 
Discontinued
 
 
 
 
 
CDOs
 
Other Debt (B)
 
Golf
 
Corporate
 
Operations
 
Eliminations
 
Total
Six Months Ended June 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
51,319

 
$
29,353

 
$
74

 
$
35

 
$

 
$
(4,436
)
 
$
76,345

Interest expense
(12,109
)
 
(23,001
)
 
(9,916
)
 
(1,908
)