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Section 1: 10-Q (10-Q)

Document
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, 2016
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 £ Accelerated filer S 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: 66,734,136 shares outstanding as of August 2, 2016.



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;
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;
the impact of any current or further legal proceedings and regulatory investigations and inquiries;
the impact of any material transactions with FIG LLC (the “Manager”) or one of its affiliates, including the impact of any actual, potential or predicted conflicts of interest;
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, 2016
 
December 31, 2015
 
(Unaudited)
 
Assets
 

 
 

Real estate securities, available-for-sale
$
12,988

 
$
59,034

Real estate securities, available-for-sale - pledged as collateral
452,815

 
105,963

Real estate related and other loans, held-for-sale, net
143,526

 
149,198

Residential mortgage loans, held-for-sale, net
442

 
532

Subprime mortgage loans subject to call option
362,931

 
380,806

Investments in real estate, net of accumulated depreciation
228,195

 
227,907

Intangibles, net of accumulated amortization
69,908

 
74,472

Other investments
21,339

 
20,595

Cash and cash equivalents
52,261

 
45,651

Restricted cash
5,864

 
4,469

Receivables from brokers, dealers and clearing organizations
373,097

 
361,341

Receivables and other assets
44,288

 
38,014

Total Assets
$
1,767,654

 
$
1,467,982

 
 
 
 
 
 
 
 
Liabilities and Equity
 

 
 

Liabilities
 

 
 

CDO bonds payable
$

 
$
92,933

Other bonds and notes payable

 
16,162

Repurchase agreements
361,085

 
418,458

Credit facilities and obligations under capital leases
112,843

 
11,258

Financing of subprime mortgage loans subject to call option
362,931

 
380,806

Junior subordinated notes payable
51,221

 
51,225

Dividends payable

 
8,929

Membership deposit liabilities
86,027

 
83,210

Payables to brokers, dealers and clearing organizations
453,116

 
105,940

Accounts payable, accrued expenses and other liabilities
84,792

 
88,939

Total Liabilities
$
1,512,015

 
$
1,257,860

 
 
 
 
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, 2016 and December 31, 2015
$
61,583

 
$
61,583

Common stock, $0.01 par value, 1,000,000,000 shares authorized, 66,712,338 and 66,654,598 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively
667

 
667

Additional paid-in capital
3,172,619

 
3,172,370

Accumulated deficit
(2,990,932
)
 
(3,057,538
)
Accumulated other comprehensive income
11,971

 
33,297

Total Newcastle Stockholders’ Equity
255,908

 
210,379

Noncontrolling interests
(269
)
 
(257
)
Total Equity
$
255,639

 
$
210,122

 
 
 
 
Total Liabilities and Equity
$
1,767,654

 
$
1,467,982

 
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,
 
2016
 
2015
 
2016
 
2015
Interest income
$
20,421

 
$
24,265

 
$
41,460

 
$
51,343

Interest expense
(12,417
)
 
(16,950
)
 
(25,951
)
 
(33,677
)
Net interest income
8,004

 
7,315

 
15,509

 
17,666

Impairment (Reversal)
 

 
 

 
 

 
 

Valuation allowance on loans
645

 
4,317

 
2,843

 
4,674

Other-than-temporary impairment on securities and other investments

 
9,128

 
56

 
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

 
54

 
(62
)
Total impairment
645

 
13,679

 
2,953

 
14,084

Net interest income (loss) after impairment
7,359

 
(6,364
)
 
12,556

 
3,582

Operating Revenues
 

 
 

 
 

 
 

Golf course operations
48,057

 
48,778

 
86,776

 
87,732

Sales of food and beverages - golf
21,612

 
20,944

 
35,173

 
33,956

Other golf revenue
14,815

 
13,081

 
24,693

 
21,941

Total operating revenues
84,484

 
82,803

 
146,642

 
143,629

Other Income (Loss)
 

 
 

 
 

 
 

Gain (loss) on settlement of investments, net
154

 
26,776

 
(1,512
)
 
27,791

Gain on deconsolidation

 

 
82,130

 

Other income (loss), net
(1,102
)
 
2,597

 
(1,123
)
 
2,083

Total other income (loss)
(948
)
 
29,373

 
79,495

 
29,874

Expenses
 

 
 

 
 

 
 

Loan and security servicing expense
1

 
118

 
38

 
214

Operating expenses - golf
65,499

 
65,438

 
122,104

 
120,375

Cost of sales - golf
9,217

 
9,108

 
15,428

 
15,161

General and administrative expense
3,722

 
3,487

 
6,622

 
5,200

Management fee to affiliate
2,676

 
2,674

 
5,351

 
5,342

Depreciation and amortization
6,484

 
7,119

 
12,515

 
13,872

Total expenses
87,599

 
87,944

 
162,058

 
160,164

Income from continuing operations before income tax
3,296

 
17,868

 
76,635

 
16,921

Income tax expense
138

 
27

 
182

 
73

Income from continuing operations
3,158

 
17,841

 
76,453

 
16,848

Income from discontinued operations, net of tax

 
524

 

 
639

Net Income
3,158

 
18,365

 
76,453

 
17,487

Preferred dividends
(1,395
)
 
(1,395
)
 
(2,790
)
 
(2,790
)
Net (income) loss attributable to noncontrolling interests
(112
)
 
49

 
12

 
230

Income Applicable to Common Stockholders
$
1,651

 
$
17,019

 
$
73,675

 
$
14,927


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,
 
2016
 
2015
 
2016
 
2015
Income Applicable to Common Stock, per share
 

 
 

 
 
 
 
Basic
$
0.02

 
$
0.26

 
$
1.11

 
$
0.22

Diluted
$
0.02

 
$
0.25

 
$
1.07

 
$
0.22

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

 
 

 
 

 
 

Basic
$
0.02

 
$
0.25

 
$
1.11

 
$
0.22

Diluted
$
0.02

 
$
0.24

 
$
1.07

 
$
0.21

Income from discontinued operations per share of common stock
 

 
 

 
 

 
 

Basic
$

 
$
0.01

 
$

 
$
0.01

Diluted
$

 
$
0.01

 
$

 
$
0.01

Weighted Average Number of Shares of Common Stock Outstanding
 

 
 

 
 

 
 

Basic
66,681,248

 
66,426,980

 
66,667,923

 
66,425,751

Diluted
68,899,515

 
69,204,717

 
68,592,206

 
69,055,495

Dividends Declared per Share of Common Stock
$

 
$
0.12

 
$
0.12

 
$
0.24



See notes to Consolidated Financial Statements.

3



NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(dollars in thousands, except share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
3,158

 
$
18,365

 
$
76,453

 
$
17,487

Other comprehensive income (loss):
 

 
 

 
 

 
 

Net unrealized gain (loss) on available-for-sale securities
2,501

 
(6,610
)
 
7,802

 
(2,572
)
Reclassification of net realized gain on securities into earnings
(2,563
)
 
(22,694
)
 
(8,426
)
 
(28,876
)
Reclassification of net realized gain on deconsolidation of CDO VI

 

 
(20,682
)
 

Net unrealized loss on derivatives designated as cash flow hedges

 
(27
)
 

 
(60
)
Reclassification of net realized (gain) loss on derivatives designated as cash flow hedges into earnings

 
1,248

 
(20
)
 
1,937

Other comprehensive loss
(62
)
 
(28,083
)
 
(21,326
)
 
(29,571
)
Total comprehensive income (loss)
$
3,096

 
$
(9,718
)
 
$
55,127

 
$
(12,084
)
Comprehensive income (loss) attributable to Newcastle
stockholders’ equity
$
2,984

 
$
(9,669
)
 
$
55,139

 
$
(11,854
)
Comprehensive income (loss) attributable to noncontrolling interests
$
112

 
$
(49
)
 
$
(12
)
 
$
(230
)
  
See notes to Consolidated Financial Statements.

4



NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY (Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 2016
(dollars in thousands, except share data)
 
Newcastle Stockholders
 
 
 
 
 
Preferred Stock
 
Common Stock
 

 

 

 

 

 

 
Shares
 
Amount
 
Shares
 
Amount
 
Additional Paid-
in Capital
 
Accumulated
Deficit
 
Accumulated Other Comp.
Income (Loss)
 
Total Newcastle Stockholders
Equity
 
Noncontrolling
Interests
 
Total Equity
(Deficit)
Equity (deficit) - December 31, 2015
2,463,321

 
$
61,583

 
66,654,598

 
$
667

 
$
3,172,370

 
$
(3,057,538
)
 
$
33,297

 
$
210,379

 
$
(257
)
 
$
210,122

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared

 

 

 

 

 
(9,859
)
 

 
(9,859
)
 

 
(9,859
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock (directors)

 

 
57,740

 

 
249

 

 

 
249

 

 
249

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)


 


 


 


 


 


 


 


 


 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)

 

 

 

 

 
76,465

 

 
76,465

 
(12
)
 
76,453

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deconsolidation of net unrealized gain on securities

 

 

 

 

 

 
(20,682
)
 
(20,682
)
 

 
(20,682
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss

 

 

 

 

 

 
(644
)
 
(644
)
 

 
(644
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
55,139

 
(12
)
 
55,127

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity (deficit) - June 30, 2016
2,463,321

 
$
61,583

 
66,712,338

 
$
667

 
$
3,172,619

 
$
(2,990,932
)
 
$
11,971

 
$
255,908

 
$
(269
)
 
$
255,639


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,
 
2016
 
2015
Cash Flows From Operating Activities
 
 
 
Net income
$
76,453

 
$
17,487

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

 
 

Depreciation and amortization
12,515

 
13,883

Accretion of discount and other amortization
6,412

 
1,997

Net interest income on investments accrued to principal balance
(16,458
)
 
(11,485
)
Amortization of revenue on golf membership deposit liabilities
(401
)
 
(217
)
Amortization of prepaid golf membership dues
(13,181
)
 
(13,275
)
Non-cash directors’ compensation
249

 
238

Valuation allowance on loans
2,843

 
4,674

Other-than-temporary impairment on securities and other investments
110

 
9,410

Equity in earnings from equity method investments, net of distributions
(745
)
 
(642
)
Gain on deconsolidation
(82,130
)
 

(Gain) loss on settlement of investments, net
1,400

 
(27,877
)
Unrealized (gain) loss on non-hedge derivatives
1,957

 
(293
)
Loss (gain) on extinguishment of debt, net
380

 
(489
)
Change in:
 

 
 

Restricted cash
(2,214
)
 
(1,055
)
Receivables and other assets
(3,852
)
 
(1,765
)
Accounts payable, accrued expenses and other liabilities
5,183

 
(7,270
)
Net cash used in operating activities
(11,479
)
 
(16,679
)
Cash Flows From Investing Activities
 

 
 

Principal repayments from investments
12,268

 
112,084

Purchase of real estate securities
(745,196
)
 
(415,917
)
Proceeds from sale of investments
745,865

 
406,269

Payments for settlement of TBAs
(9,945
)
 

Acquisition and additions of investments in real estate
(6,540
)
 
(1,934
)
Change in restricted cash from investing activities

 
56,774

Funds reserved for capital expenditures
(230
)
 

Net cash (used in) provided by investing activities
(3,778
)
 
157,276

Cash Flows From Financing Activities
 
 
 
Repurchases of debt obligations

 
(10,983
)
Borrowings under debt obligations
832,174

 
391,752

Repayments of debt obligations
(790,369
)
 
(462,180
)
Margin deposits under repurchase agreements and derivatives
(18,695
)
 
(60,046
)
Return of margin deposits under repurchase agreements and derivatives
19,753

 
60,531

Golf membership deposits received
1,948

 
2,440

Common stock dividends paid
(15,998
)
 
(15,942
)
Preferred stock dividends paid
(2,790
)
 
(2,790
)
Payment of deferred financing costs
(3,654
)
 

Payments for settlement of derivative instruments

 
(2,555
)
Other financing activities
(502
)
 
(348
)
Net cash provided by (used in) financing activities
21,867

 
(100,121
)
Net Increase in Cash and Cash Equivalents
6,610

 
40,476

Cash and Cash Equivalents of Continuing Operations, Beginning of Period
45,651

 
73,727

Cash and Cash Equivalents of Discontinued Operations, Beginning of Period

 
135

Cash and Cash Equivalents, End of Period
$
52,261

 
$
114,338

 
 
 
 
Cash and Cash Equivalents of Continuing Operations, End of Period
$
52,261

 
$
114,338

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

 
$
930

Common stock dividends declared but not paid
$

 
$
7,977

Financing costs accrued but not paid
$
616

 
$

Additions to capital lease assets and liabilities
$
4,731

 
$
2,634


See notes to Consolidated Financial Statements. 

6

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2016
(dollars in tables in thousands, except share data)
 


1.   ORGANIZATION
 
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 currently 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.

Newcastle is party to a management agreement (the “Management Agreement”) with FIG LLC (the “Manager”), a subsidiary of Fortress Investment Group LLC (“Fortress”), pursuant to which the Manager provides for a management team and other professionals who are responsible for implementing Newcastle’s business strategy, 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. For further discussion of the Management Agreement, see Note 15.

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, 2015 and notes thereto included in Newcastle’s Annual Report on Form 10-K filed with the SEC on March 10, 2016. Capitalized terms used herein, and not otherwise defined, are defined in Newcastle’s Consolidated Financial Statements for the year ended December 31, 2015.

Certain prior period amounts have been reclassified to conform to the current period’s presentation.

As of June 30, 2016, 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, 2015.

REVENUE RECOGNITION

Golf Revenues - Revenue from green fees, cart rentals, food and beverage sales, merchandise sales and other activities (consisting primarily of range income, banquets, instruction, and club and other rental income) is 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 into revenue ratably over the appropriate period, which is generally 12 months or less. The membership dues are generally structured to cover country club operating costs and membership services.


7

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2016
(dollars in tables in thousands, except share data)
 

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 a cash flow hedge or a fair value hedge.

Derivative transactions are entered into by Newcastle solely for risk management purposes in the ordinary course of business. 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. As of June 30, 2016, Newcastle has no derivative instruments that qualify and are designated as hedging instruments, but has one interest rate cap in the amount of $0.2 million which is not designated as a hedge.

Newcastle 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.

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 it 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 in the Statement of Operations. As of June 30, 2016, Newcastle held five short TBA contracts totaling $788.0 million in notional amount and two long contracts totaling $358.0 million in notional amount of Agency RMBS. As of June 30, 2016 and December 31, 2015, Newcastle funded approximately $2.0 million and $1.0 million, respectively, for margin calls related to TBA contracts.
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 seeks to reduce 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 scheduled increases or decreases in minimum rental payments at various times during the term of the lease. These scheduled rent increases or decreases are recognized on a straight-line basis over the term of the lease. Increases result in an accrual, which is included in accounts payable, accrued expenses and other liabilities, and decreases result in a receivable, which is included in receivables and other assets, for the amount by which the cumulative straight-line rent differs from the contractual cash rent.
BALANCE SHEET MEASUREMENT
Investments in Real Estate, Net - Real estate and related improvements are recorded at cost less accumulated depreciation. Costs that both materially add value to an asset and extend the useful life of an asset by more than a year are capitalized. With respect to golf course improvements (included in buildings and improvements), costs associated with original construction, significant

8

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2016
(dollars in tables in thousands, except share data)
 

replacements, permanent landscaping, sand traps, fairways, tee boxes or greens are capitalized. All other asset-related costs that do not meet these criteria, such as minor repairs and routine 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. A disposal of a component of an entity or a group of components of an entity are reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on Newcastle’s operations and financial results. Discontinued operations 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. Depreciation of capital lease assets is calculated using the straight-line method over the shorter of the estimated useful lives and the expected lease terms. The cost of equipment under capital leases is included in investments in real estate in the Consolidated Balance Sheets. Payments under the leases are treated as reductions of the liability, with a portion being recorded as interest expense under the effective interest method.
Depreciation is calculated using the straight-line method based on the following estimated useful lives:
Buildings and improvements
10-30 years
Capital leases - equipment
4-7 years
Furniture, fixtures and equipment
3-7 years
Intangibles - Intangible assets and liabilities 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 and is amortized over the term of the underlying lease agreement. 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 country club members. The membership base intangible is valued using the multi-period excess earnings method under the income approach, and is amortized over the expected life of an active membership.

Amortization of leasehold intangible assets and liabilities is included within operating expenses - golf, and amortization of all other intangible assets is included within depreciation and amortization in the Consolidated Statements of Operations.
Membership Deposit Liabilities - In our Golf business, private country club members generally pay an advance initiation fee deposit upon their acceptance as a member to the respective 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 Sheets 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.

Other Investment - Newcastle owns 23% of equity interests in a commercial real estate project which is recorded as an equity method investment. As of June 30, 2016 and December 31, 2015, the carrying value of this investment was $21.3 million and $20.6 million, respectively.  Newcastle evaluates its 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

9

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2016
(dollars in tables in thousands, except share data)
 

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.
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, 2016, Newcastle recorded $0.1 million and $0.2 million, respectively, of servicing rights amortization and no servicing rights impairment. During the three and six months ended June 30, 2015, Newcastle recorded $0.1 million and $0.2 million, respectively, of servicing rights amortization and no servicing rights impairment. As of June 30, 2016 and December 31, 2015, Newcastle’s servicing assets had a carrying value of $0.5 million and $0.7 million, respectively, recorded in receivables and other assets.

Variable Interest Entities (“VIEs”) - Newcastle’s subprime securitizations (see Note 6), CDO V, and CDO VI are considered VIEs, but Newcastle does not control the decisions that most significantly impact their economic performance and no longer receives a significant portion of their returns. Newcastle deconsolidated CDO V as of June 17, 2011 as a result of an event of default which allowed Newcastle to be removed as collateral manager and prevents purchasing and selling of certain collateral within CDO V.

In March 2016, Newcastle sold to third parties $11.0 million face amount of NCT 2013-VI Class I-MM-2 at a price of 93.0% of par.  This tranche was previously held by Newcastle since issuance and was eliminated in consolidation.  By selling this tranche, Newcastle was no longer deemed the primary beneficiary of CDO VI. As a result of this sale, Newcastle deconsolidated CDO VI from its Consolidated Balance Sheet, which included $43.9 million carrying value of real estate securities available-for-sale, $93.1 million of CDO bonds payable, and $12.4 million of other bonds payable. In addition, Newcastle reclassified $20.7 million of related other comprehensive income into earnings, and recognized a total gain of approximately $82.1 million as a result of deconsolidating CDO VI. Newcastle continues to receive servicing fees as collateral manager, which are not considered variable interests in CDO VI.

The following table presents certain assets of consolidated VIEs which are included in the Consolidated Balance Sheets. The assets in the table below include only those assets that can be used to settle obligations of consolidated VIEs, and are equal to or in excess of those obligations. Additionally, the assets in the table below exclude intercompany balances that eliminate in consolidation.

 
June 30, 2016
 
 
 
(Unaudited)
 
December 31, 2015
Assets of consolidated VIEs that can only be used to settle obligations of consolidated VIEs
 
 
 
Real estate securities, available-for-sale
$

 
$
46,392

Subprime mortgage loans subject to call option
362,931

 
380,806

Restricted cash

 
128

Receivables and other assets

 
77

Total assets of consolidated VIEs that can only be used to settle obligations of consolidated VIEs
$
362,931

 
$
427,403


The following table presents certain liabilities of consolidated VIEs, which are included in the Consolidated Balance Sheets. The liabilities in the table below include third-party liabilities of consolidated VIEs due to third parties only, and exclude intercompany balances that eliminate in consolidation. The liabilities also exclude amounts where creditors or beneficial interest holders have recourse to the general credit of Newcastle.

10

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2016
(dollars in tables in thousands, except share data)
 

 
June 30, 2016
 
 
 
(Unaudited)
 
December 31, 2015
Liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the general credit of Newcastle
 
 
 
CDO bonds payable
$

 
$
92,933

Other bonds and notes payable

 
4,672

Financing of subprime mortgage loans subject to call option
362,931

 
380,806

Accounts payable, accrued expenses and other liabilities

 
29

Total liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the general credit of Newcastle
$
362,931

 
$
478,440


In addition, Newcastle’s investments in RMBS, commercial mortgage backed securities (“CMBS”), CDO securities and real estate related and other loans may be deemed to be variable interests in VIEs, depending on their structure. Newcastle monitors these investments and analyzes the potential need to consolidate the related securitization entities pursuant to the VIE consolidation requirements. These analyses require considerable judgment in determining whether an entity is a VIE and determining the primary beneficiary of a VIE, which involve subjective determinations of significance, with respect to both power and economics. The result could be the consolidation of an entity that otherwise would not have been consolidated or the de-consolidation of an entity that otherwise would have been consolidated. 

As of June 30, 2016, Newcastle has not consolidated these potential VIEs. This determination is based, in part, on the assessment that Newcastle does not have the power to direct the activities that most significantly impact the economic performance of these entities (e.g., if Newcastle were to own a majority of the currently controlling class). In addition, Newcastle is not obligated to provide, and has not provided, any financial support to these entities.

The following represents Newcastle's unconsolidated VIEs at June 30, 2016, in addition to the subprime securitizations which are described in Note 6:
Entity
Gross Assets (A)
 
Debt (B)
 
Carrying Value of Newcastles Investment (C)
Newcastle CDO V
$
78,890

 
$
106,086

 
$
9,910

Newcastle CDO VI
$
53,089

 
$
180,213

 
$


(A)
Face amount.
(B)
Newcastle CDO V includes $45.2 million face amount of debt owned by Newcastle with a carrying value of $9.9 million at June 30, 2016. Newcastle CDO VI includes $76.5 million face amount of debt owned by Newcastle with zero carrying value at June 30, 2016.
(C)
Represents Newcastle’s maximum exposure to loss from this entity.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 Revenue 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. In August 2015, the FASB issued ASU 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date by one year. 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. In March 2016, the FASB issued ASU 2016-08 Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations which clarifies how an entity should identify the unit of accounting for the principal versus agent evaluation and how to apply the control principle to certain types of arrangements. In April 2016, the FASB issued ASU 2016-10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies when a promised good

11

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2016
(dollars in tables in thousands, except share data)
 

or service is separately identifiable. In May 2016, the FASB issued ASU 2016-12 Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients which amends the new revenue recognition guidance on transition, collectibility, noncash consideration and the presentation of sales and other similar taxes. Newcastle is currently reviewing the guidance to determine its impact on the Consolidated Financial Statements.

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. Newcastle adopted this guidance in the first quarter of 2016.

In January 2016, the FASB issued ASU 2016-01 Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The standard addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The effective date of the standard will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Newcastle is currently evaluating the new guidance to determine the impact it may have on its Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842). The standard requires lessees to recognize most leases on the balance sheet and addresses certain aspects of lessor accounting. The effective date of the standard will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 and early adoption is permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with an option to use certain relief. Newcastle is currently evaluating the new guidance to determine the impact it may have on its Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13 Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount under the other-than-temporary impairment model. The effective date of the standard will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and early adoption is permitted for annual periods beginning after December 15, 2018. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Newcastle is currently evaluating the new guidance to determine the impact it may have on its Consolidated Financial Statements.

The FASB has recently issued or discussed a number of proposed standards on such topics as financial statement presentation, 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

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 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 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.

12

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2016
(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,
 
2016
 
2015
 
2016
 
2015
Rental income
$

 
$
50

 
$

 
$
549

Gain on settlement of investments

 
318

 

 
318

Total income

 
368

 

 
867

 
 
 
 
 
 
 
 
Property operating expenses

 
(157
)
 

 
187

General and administrative expenses

 
1

 

 
30

Depreciation and amortization

 

 

 
11

Total expenses

 
(156
)
 

 
228

Income from discontinued operations
$

 
$
524

 
$

 
$
639



4.   SEGMENT REPORTING
 
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, which 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, 2016
(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)
 
 
 
 
 
 
 
CDOs
 
Other Debt (B)
 
Golf
 
Corporate
 
Total
Six Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
Interest income
$
1,097

 
$
40,278

 
$
77

 
$
8

 
$
41,460

Interest expense
(491
)
 
(18,586
)
 
(5,363
)
 
(1,511
)
 
(25,951
)
Net interest income (expense)
606

 
21,692

 
(5,286
)
 
(1,503
)
 
15,509

Total impairment
110

 
2,843

 

 

 
2,953

Total operating revenues

 

 
146,642

 

 
146,642

Total other income (loss), net
82,130

 
(2,343
)
 
(292
)
 

 
79,495

Loan and security servicing expense
30

 
8

 

 

 
38

Operating expenses - golf (C)

 

 
117,818

 

 
117,818

Operating expenses - golf, repairs and maintenance expenses

 

 
4,286

 

 
4,286

Cost of sales - golf

 

 
15,428

 

 
15,428

General and administrative expense

 

 
1,546

 
3,666

 
5,212

General and administrative expense - acquisition and transaction expenses (D)

 

 
1,239

 
171

 
1,410

Management fee to affiliate

 

 

 
5,351

 
5,351

Depreciation and amortization

 

 
12,515

 

 
12,515

Income tax expense

 

 
182

 

 
182

Income (loss) from continuing operations
82,596

 
16,498

 
(11,950
)
 
(10,691
)
 
76,453

Net income (loss)
82,596

 
16,498

 
(11,950
)
 
(10,691
)
 
76,453

Preferred dividends

 

 

 
(2,790
)
 
(2,790
)
Net loss attributable to noncontrolling interests

 

 
12

 

 
12

Income (loss) applicable to common stockholders
$
82,596

 
$
16,498

 
$
(11,938
)
 
$
(13,481
)
 
$
73,675











14

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2016
(dollars in tables in thousands, except share data)
 

Summary segment financial data (continued).
 
Debt Investments (A)
 
 
 
 
 
 
 
CDOs
 
Other Debt (B)
 
Golf
 
Corporate
 
Total
Three Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
Interest income
$

 
$
20,382

 
$
36

 
$
3

 
$
20,421

Interest expense

 
(9,153
)
 
(2,698
)
 
(566
)
 
(12,417
)
Net interest income (expense)

 
11,229

 
(2,662
)
 
(563
)
 
8,004

Total impairment

 
645

 

 

 
645

Total operating revenues

 

 
84,484

 

 
84,484

Total other income (loss), net

 
(940
)
 
(8
)
 

 
(948
)
Loan and security servicing expense

 
1

 

 

 
1

Operating expenses - golf (C)

 

 
63,105

 

 
63,105

Operating expenses - golf, repairs and maintenance expenses

 

 
2,394

 

 
2,394

Cost of sales - golf

 

 
9,217

 

 
9,217

General and administrative expense

 

 
706

 
1,782

 
2,488

General and administrative expense - acquisition and transaction expenses (D)

 

 
1,100

 
134

 
1,234

Management fee to affiliate

 

 

 
2,676

 
2,676

Depreciation and amortization

 

 
6,484

 

 
6,484

Income tax expense

 

 
138

 

 
138

Income (loss) from continuing operations

 
9,643

 
(1,330
)
 
(5,155
)
 
3,158

Net income (loss)

 
9,643

 
(1,330
)
 
(5,155
)
 
3,158

Preferred dividends

 

 

 
(1,395
)
 
(1,395
)
Net income attributable to noncontrolling interests

 

 
(112
)
 

 
(112
)
Income (loss) applicable to common stockholders
$

 
$
9,643

 
$
(1,442
)
 
$
(6,550
)
 
$
1,651











15

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2016
(dollars in tables in thousands, except share data)
 

Summary segment financial data (continued).
 
Debt Investments (A)
 
 
 
 
 
 
 
CDOs
 
Other Debt (B)
 
Golf
 
Corporate
 
Total
June 30, 2016
 
 
 
 
 
 
 
 
 
Investments
$

 
$
994,041

 
$
298,103

 
$

 
$
1,292,144

Cash and restricted cash

 
665

 
10,718

 
46,742

 
58,125

Other assets

 
379,119

 
38,184

 
82

 
417,385

Total assets

 
1,373,825

 
347,005

 
46,824

 
1,767,654

Debt, net

 
724,016

 
112,843

 
51,221

 
888,080

Other liabilities

 
456,694

 
164,100

 
3,141

 
623,935

Total liabilities

 
1,180,710

 
276,943

 
54,362

 
1,512,015

Preferred stock

 

 

 
61,583

 
61,583

Noncontrolling interests

 

 
(269
)
 

 
(269
)
Equity (deficit) attributable to common stockholders
$

 
$
193,115

 
$
70,331

 
$
(69,121
)
 
$
194,325

 
 
 
 
 
 
 
 
 
 
Additions to investments in real estate during the six months ended June 30, 2016
$

 
$

 
$
10,822

 
$

 
$
10,822



16

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2016
(dollars in tables in thousands, except share data)
 

Summary segment financial data (continued).

 
Debt Investments (A)
 
 
 
 
 
Discontinued
 
 
 
 
 
CDOs
 
Other Debt
 
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

Total impairment
12,206

 
1,878

 

 

 

 

 
14,084

Total operating revenues

 

 
143,629

 

 

 

 
143,629

Total 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

Operating expenses - golf, repairs and maintenance expenses

 

 
4,387

 

 

 

 
4,387

Cost of sales - golf

 

 
15,161

 

 

 

 
15,161

General and administrative expense

 

 
1,041

 
3,821

 

 

 
4,862

General and administrative expense - 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

 

 

 

 
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 non-controlling interests

 

 
230

 

 

 

 
230

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

 
$
3,432

 
$
(14,440
)
 
$
(13,844
)
 
$
639

 
$

 
$
14,927







17

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2016
(dollars in tables in thousands, except share data)
 

Summary segment financial data (continued).
 
Debt Investments (A)
 
 
 
 
 
Discontinued
 
 
 
 
 
CDOs
 
Other Debt
 
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
)