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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 September 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 October 31, 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)
 
September 30, 2016
 
December 31, 2015
 
(Unaudited)
 
Assets
 

 
 

Real estate securities, available-for-sale
$
3,430

 
$
59,034

Real estate securities, available-for-sale - pledged as collateral
663,559

 
105,963

Real estate related and other loans, held-for-sale, net
52,874

 
149,198

Subprime mortgage loans subject to call option
353,347

 
380,806

Investments in real estate, net of accumulated depreciation
227,327

 
227,907

Intangibles, net of accumulated amortization
67,738

 
74,472

Other investments
21,724

 
20,595

Cash and cash equivalents
134,289

 
45,651

Restricted cash
7,295

 
4,469

Receivables from brokers, dealers and clearing organizations
858,233

 
361,341

Receivables and other assets
47,123

 
38,546

Total Assets
$
2,436,939

 
$
1,467,982

 
 
 
 
 
 
 
 
Liabilities and Equity
 

 
 

Liabilities
 

 
 

CDO bonds payable
$

 
$
92,933

Other bonds and notes payable

 
16,162

Repurchase agreements
831,741

 
418,458

Credit facilities and obligations under capital leases
114,697

 
11,258

Financing of subprime mortgage loans subject to call option
353,347

 
380,806

Junior subordinated notes payable
51,219

 
51,225

Dividends payable

 
8,929

Membership deposit liabilities
87,539

 
83,210

Payables to brokers, dealers and clearing organizations
663,456

 
105,940

Accounts payable, accrued expenses and other liabilities
77,292

 
88,939

Total Liabilities
$
2,179,291

 
$
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 September 30, 2016 and December 31, 2015
$
61,583

 
$
61,583

Common stock, $0.01 par value, 1,000,000,000 shares authorized, 66,734,136 and 66,654,598 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively
667

 
667

Additional paid-in capital
3,172,721

 
3,172,370

Accumulated deficit
(2,980,016
)
 
(3,057,538
)
Accumulated other comprehensive income
2,785

 
33,297

Total Newcastle Stockholders’ Equity
257,740

 
210,379

Noncontrolling interests
(92
)
 
(257
)
Total Equity
$
257,648

 
$
210,122

 
 
 
 
Total Liabilities and Equity
$
2,436,939

 
$
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 September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Interest income
$
32,310

 
$
23,010

 
$
73,770

 
$
74,353

Interest expense
(13,138
)
 
(14,715
)
 
(39,089
)
 
(48,392
)
Net interest income
19,172

 
8,295

 
34,681

 
25,961

Impairment (Reversal)
 

 
 

 
 

 
 

Valuation allowance on loans
611

 
3,010

 
3,454

 
7,684

Other-than-temporary impairment on securities and other investments

 
427

 
56

 
9,899

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)

 
23

 
54

 
(39
)
Total impairment
611

 
3,460

 
3,564

 
17,544

Net interest income after impairment
18,561

 
4,835

 
31,117

 
8,417

Operating Revenues
 

 
 

 
 

 
 

Golf course operations
48,515

 
49,418

 
135,291

 
137,150

Sales of food and beverages - golf
19,913

 
20,035

 
55,086

 
53,991

Other golf revenue
14,734

 
13,411

 
39,427

 
35,352

Total operating revenues
83,162

 
82,864

 
229,804

 
226,493

Other Income (Loss)
 

 
 

 
 

 
 

Gain (loss) on settlement of investments, net
6,350

 
(3,168
)
 
4,838

 
24,623

Gain (loss) on extinguishment of debt, net
(227
)
 
14,878

 
(607
)
 
15,367

Gain on deconsolidation

 

 
82,130

 

Other income, net
987

 
277

 
244

 
1,871

Total other income
7,110

 
11,987

 
86,605

 
41,861

Expenses
 

 
 

 
 

 
 

Loan and security servicing expense
32

 
41

 
70

 
255

Operating expenses - golf
67,027

 
67,984

 
189,131

 
188,359

Cost of sales - golf
8,250

 
8,842

 
23,678

 
24,003

General and administrative expense
3,656

 
3,876

 
10,278

 
9,076

Management fee to affiliate
2,676

 
2,675

 
8,027

 
8,017

Depreciation and amortization
6,735

 
7,111

 
19,250

 
20,983

Total expenses
88,376

 
90,529

 
250,434

 
250,693

Income from continuing operations before income tax
20,457

 
9,157

 
97,092

 
26,078

Income tax expense (benefit)
(38
)
 
1,257

 
144

 
1,330

Income from continuing operations
20,495

 
7,900

 
96,948

 
24,748

Income from discontinued operations, net of tax

 
7

 

 
646

Net Income
20,495

 
7,907

 
96,948

 
25,394

Preferred dividends
(1,395
)
 
(1,395
)
 
(4,185
)
 
(4,185
)
Net (income) loss attributable to noncontrolling interests
(177
)
 
(13
)
 
(165
)
 
217

Income Applicable to Common Stockholders
$
18,923

 
$
6,499

 
$
92,598

 
$
21,426


Continued on next page.

2



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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Income Applicable to Common Stock, per share
 

 
 

 
 
 
 
Basic
$
0.28

 
$
0.10

 
$
1.39

 
$
0.32

Diluted
$
0.27

 
$
0.09

 
$
1.35

 
$
0.31

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

 
 

 
 

 
 

Basic
$
0.28

 
$
0.10

 
$
1.39

 
$
0.31

Diluted
$
0.27

 
$
0.09

 
$
1.35

 
$
0.30

Income from discontinued operations per share of common stock
 

 
 

 
 

 
 

Basic
$

 
$

 
$

 
$
0.01

Diluted
$

 
$

 
$

 
$
0.01

Weighted Average Number of Shares of Common Stock Outstanding
 

 
 

 
 

 
 

Basic
66,730,583

 
66,484,962

 
66,688,962

 
66,445,705

Diluted
69,072,676

 
69,069,659

 
68,753,532

 
69,053,302

Dividends Declared per Share of Common Stock
$
0.12

 
$
0.12

 
$
0.24

 
$
0.36



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 September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
20,495

 
$
7,907

 
$
96,948

 
$
25,394

Other comprehensive income (loss):
 

 
 

 
 

 
 

Net unrealized gain on available-for-sale securities
894

 
5,149

 
8,696

 
2,577

Reclassification of net realized gain on securities into earnings
(10,080
)
 
(7,594
)
 
(18,506
)
 
(36,470
)
Reclassification of net realized gain on deconsolidation of CDO VI

 

 
(20,682
)
 

Net unrealized loss on derivatives designated as cash flow hedges

 

 

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

 
(20
)
 
(20
)
 
1,917

Other comprehensive loss
(9,186
)
 
(2,465
)
 
(30,512
)
 
(32,036
)
Total comprehensive income (loss)
$
11,309

 
$
5,442

 
$
66,436

 
$
(6,642
)
Comprehensive income (loss) attributable to Newcastle
stockholders’ equity
$
11,132

 
$
5,429

 
$
66,271

 
$
(6,425
)
Comprehensive income (loss) attributable to noncontrolling interests
$
177

 
$
13

 
$
165

 
$
(217
)
  
See notes to Consolidated Financial Statements.

4



NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EQUITY (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 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

 

 

 

 

 
(19,261
)
 

 
(19,261
)
 

 
(19,261
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock (directors)

 

 
79,538

 

 
351

 

 

 
351

 

 
351

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income


 


 


 


 


 


 


 


 


 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 

 
96,783

 

 
96,783

 
165

 
96,948

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deconsolidation of net unrealized gain on securities

 

 

 

 

 

 
(20,682
)
 
(20,682
)
 

 
(20,682
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss

 

 

 

 

 

 
(9,830
)
 
(9,830
)
 

 
(9,830
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
66,271

 
165

 
66,436

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

 
$
61,583

 
66,734,136

 
$
667

 
$
3,172,721

 
$
(2,980,016
)
 
$
2,785

 
$
257,740

 
$
(92
)
 
$
257,648


See notes to Consolidated Financial Statements.

5




NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands, except share data)
 
Nine Months Ended September 30,
 
2016
 
2015
Cash Flows From Operating Activities
 
 
 
Net income
$
96,948

 
$
25,394

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

 
 

Depreciation and amortization
19,250

 
20,994

Amortization of discount and premium
(8,156
)
 
(3,166
)
Other amortization
7,998

 
8,108

Net interest income on investments accrued to principal balance
(25,570
)
 
(19,147
)
Amortization of revenue on golf membership deposit liabilities
(646
)
 
(312
)
Amortization of prepaid golf membership dues
(20,951
)
 
(20,923
)
Non-cash directors’ compensation
351

 
238

Valuation allowance on loans
3,454

 
7,684

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

 
9,860

Equity in earnings from equity method investments, net of distributions
(1,129
)
 
(975
)
Gain on deconsolidation
(82,130
)
 

Gain on settlement of investments, net
(5,146
)
 
(24,451
)
Unrealized loss on non-hedge derivatives
1,702

 
89

Loss (gain) on extinguishment of debt, net
607

 
(15,367
)
Change in:
 

 
 

Restricted cash
(2,487
)
 
(1,725
)
Receivables and other assets
(4,307
)
 
(1,555
)
Accounts payable, accrued expenses and other liabilities
5,405

 
(4,303
)
Net cash used in operating activities
(14,697
)
 
(19,557
)
Cash Flows From Investing Activities
 

 
 

Principal repayments from investments
133,756

 
124,015

Purchase of real estate securities
(1,618,090
)
 
(1,039,220
)
Proceeds from sale of investments
1,128,906

 
1,061,499

Payments for settlement of TBAs
(13,675
)
 

Acquisition and additions of investments in real estate
(9,147
)
 
(2,894
)
Change in restricted cash from investing activities

 
56,774

Net cash (used in) provided by investing activities
(378,250
)
 
200,174

Cash Flows From Financing Activities
 
 
 
Repurchases of debt obligations

 
(152,281
)
Borrowings under debt obligations
1,670,481

 
1,454,435

Repayments of debt obligations
(1,158,754
)
 
(1,485,065
)
Margin deposits under repurchase agreements and derivatives
(41,131
)
 
(113,899
)
Return of margin deposits under repurchase agreements and derivatives
40,442

 
112,631

Golf membership deposits received
3,117

 
3,623

Common stock dividends paid
(24,006
)
 
(23,919
)
Preferred stock dividends paid
(4,185
)
 
(4,185
)
Payment of deferred financing costs
(3,670
)
 
(500
)
Payments for settlement of derivative instruments

 
(13,326
)
Other financing activities
(709
)
 
(500
)
Net cash provided by (used in) financing activities
481,585

 
(222,986
)
Net Increase (Decrease) in Cash and Cash Equivalents
88,638

 
(42,369
)
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
$
134,289

 
$
31,493

 
 
 
 
Cash and Cash Equivalents of Continuing Operations, End of Period
$
134,289

 
$
31,493

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

 
$
930

Common stock dividends declared but not paid
$

 
$
7,978

Financing costs accrued but not paid
$
600

 
$

Additions to capital lease assets and liabilities
$
7,018

 
$
7,231

Option exercise
$

 
$
48

See notes to Consolidated Financial Statements. 

6

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 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 investing in, and actively managing, real estate related assets, including traditional and innovative golf assets. 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 September 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)
SEPTEMBER 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 September 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 September 30, 2016, Newcastle held six short TBA contracts totaling $1,457.2 million in notional amount and four long contracts totaling $823.0 million in notional amount of Agency RMBS. As of September 30, 2016 and December 31, 2015, Newcastle funded approximately $2.9 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.

Operating Leases and Operating Expenses - Operating expenses for the Golf business consist primarily of payroll, 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)
SEPTEMBER 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 a 23% economic interest within a commercial real estate project which is recorded as an equity method investment. As of September 30, 2016 and December 31, 2015, the carrying value of this investment was $21.7 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

9

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

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.
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 nine months ended September 30, 2016, Newcastle recorded $0.1 million and $0.3 million, respectively, of servicing rights amortization and no servicing rights impairment. During the three and nine months ended September 30, 2015, Newcastle recorded $0.1 million and $0.3 million, respectively, of servicing rights amortization and no servicing rights impairment. As of September 30, 2016 and December 31, 2015, Newcastle’s servicing assets had a carrying value of $0.4 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 August 2016, Newcastle settled on a trade to sell $14.8 million face amount of two CDO V securities for total proceeds of $9.9 million (see Note 5). As a result of this trade, Newcastle no longer has a variable or economic interest in 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. As a result of this transaction, Newcastle no longer has a variable interest in 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.

 
September 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
353,347

 
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
$
353,347

 
$
427,403



10

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

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.
 
September 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
353,347

 
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
$
353,347

 
$
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 September 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.

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 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 and has not yet determined the method by which it will adopt the standard.

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.

11

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


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.

In August 2016, the FASB issued ASU 2016-15 Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. The standard provides specific guidance over eight identified cash flow issues in order to reduce diversity in practice over the presentation and classification of certain types of cash receipts and cash payments. The effective date of the standard will be for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 and early adoption is permitted. Entities should apply the standard using a retrospective transition method to each period presented. 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)
SEPTEMBER 30, 2016
(dollars in tables in thousands, except share data)
 

Results from discontinued operations were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Rental income
$

 
$
7

 
$

 
$
556

Gain on settlement of investments

 

 

 
318

Total income

 
7

 

 
874

 
 
 
 
 
 
 
 
Property operating expenses

 

 

 
187

General and administrative expenses

 

 

 
30

Depreciation and amortization

 

 

 
11

Total expenses

 

 

 
228

Income from discontinued operations
$

 
$
7

 
$

 
$
646


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)
SEPTEMBER 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
Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
Interest income
$
1,097

 
$
72,564

 
$
94

 
$
15

 
$
73,770

Interest expense
(491
)
 
(27,991
)
 
(8,703
)
 
(1,904
)
 
(39,089
)
Net interest income (expense)
606

 
44,573

 
(8,609
)
 
(1,889
)
 
34,681

Total impairment
110

 
3,454

 

 

 
3,564

Total operating revenues

 

 
229,804

 

 
229,804

Total other income (loss), net
82,130

 
4,782

 
(307
)
 

 
86,605

Loan and security servicing expense
30

 
40

 

 

 
70

Operating expenses - golf (C)

 

 
182,919

 

 
182,919

Operating expenses - golf, repairs and maintenance expenses

 

 
6,212

 

 
6,212

Cost of sales - golf

 

 
23,678

 

 
23,678

General and administrative expense

 

 
2,212

 
5,602

 
7,814

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

 

 
2,093

 
371

 
2,464

Management fee to affiliate

 

 

 
8,027

 
8,027

Depreciation and amortization

 

 
19,250

 

 
19,250

Income tax expense

 

 
144

 

 
144

Income (loss) from continuing operations
82,596

 
45,861

 
(15,620
)
 
(15,889
)
 
96,948

Net income (loss)
82,596

 
45,861

 
(15,620
)
 
(15,889
)
 
96,948

Preferred dividends

 

 

 
(4,185
)
 
(4,185
)
Net income attributable to noncontrolling interests

 

 
(165
)
 

 
(165
)
Income (loss) applicable to common stockholders
$
82,596

 
$
45,861

 
$
(15,785
)
 
$
(20,074
)
 
$
92,598











14

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 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 September 30, 2016
 
 
 
 
 
 
 
 
 
Interest income
$

 
$
32,286

 
$
17

 
$
7

 
$
32,310

Interest expense

 
(9,405
)
 
(3,340
)
 
(393
)
 
(13,138
)
Net interest income (expense)

 
22,881

 
(3,323
)
 
(386
)
 
19,172

Total impairment

 
611

 

 

 
611

Total operating revenues

 

 
83,162

 

 
83,162

Total other income (loss), net

 
7,125

 
(15
)
 

 
7,110

Loan and security servicing expense

 
32

 

 

 
32

Operating expenses - golf (C)

 

 
65,101

 

 
65,101

Operating expenses - golf, repairs and maintenance expenses

 

 
1,926

 

 
1,926

Cost of sales - golf

 

 
8,250

 

 
8,250

General and administrative expense

 

 
665

 
1,936

 
2,601

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

 

 
855

 
200

 
1,055

Management fee to affiliate

 

 

 
2,676

 
2,676

Depreciation and amortization

 

 
6,735

 

 
6,735

Income tax benefit

 

 
(38
)
 

 
(38
)
Income (loss) from continuing operations

 
29,363

 
(3,670
)
 
(5,198
)
 
20,495

Net income (loss)

 
29,363

 
(3,670
)
 
(5,198
)
 
20,495

Preferred dividends

 

 

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

 

 
(177
)
 

 
(177
)
Income (loss) applicable to common stockholders
$

 
$
29,363

 
$
(3,847
)
 
$
(6,593
)
 
$
18,923











15

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 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
September 30, 2016
 
 
 
 
 
 
 
 
 
Investments
$

 
$
1,094,934

 
$
295,065

 
$

 
$
1,389,999

Cash and restricted cash

 
2,017

 
9,640

 
129,927

 
141,584

Other assets

 
867,921

 
37,359

 
76

 
905,356

Total assets

 
1,964,872

 
342,064

 
130,003

 
2,436,939

Debt, net

 
1,185,088

 
114,697

 
51,219

 
1,351,004

Other liabilities

 
666,490

 
157,705

 
4,092

 
828,287

Total liabilities

 
1,851,578

 
272,402

 
55,311

 
2,179,291

Preferred stock

 

 

 
61,583

 
61,583

Noncontrolling interests

 

 
(92
)
 

 
(92
)
Equity attributable to common stockholders
$

 
$
113,294

 
$
69,754

 
$
13,109

 
$
196,157

 
 
 
 
 
 
 
 
 
 
Additions to investments in real estate during the nine months ended September 30, 2016
$

 
$

 
$
15,883

 
$

 
$
15,883



16

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 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
Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
30,983

 
$
46,246

 
$
110

 
$
19

 
$

 
$
(3,005
)
 
$
74,353

Interest expense
(5,993
)
 
(28,789
)
 
(13,779
)
 
(2,836
)
 

 
3,005

 
(48,392
)
Inter-segment elimination
(3,005
)
 

 
3,005

 

 

 

 

Net interest income (expense)
21,985

 
17,457

 
(10,664
)
 
(2,817
)
 

 

 
25,961

Total impairment
12,569

 
4,975

 

 

 

 

 
17,544

Total operating revenues

 

 
226,493

 

 

 

 
226,493

Total other income (loss), net
30,271

 
(3,070
)
 
14,606

 
54

 

 

 
41,861

Loan and security servicing expense
249

 
6

 

 

 

 

 
255

Operating expenses - golf (C)

 

 
181,506

 

 

 

 
181,506

Operating expenses - golf, repairs and maintenance expenses

 

 
6,853

 

 

 

 
6,853

Cost of sales - golf

 

 
24,003

 

 

 

 
24,003

General and administrative expense

 

 
1,960

 
5,767

 

 

 
7,727

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

 
60

 
1,239

 
50

 

 

 
1,349

Management fee to affiliate

 

 

 
8,017

 

 

 
8,017

Depreciation and amortization

 

 
20,983

 

 

 

 
20,983

Income tax expense

 

 
1,330

 

 

 

 
1,330

Income (loss) from continuing operations
39,438

 
9,346

 
(7,439
)
 
(16,597
)
 

 

 
24,748

Income from discontinued operations

 

 

 

 
646

 

 
646

Net income (loss)
39,438

 
9,346

 
(7,439
)
 
(16,597
)
 
646

 

 
25,394

Preferred dividends

 

 

 
(4,185
)
 

 

 
(4,185
)
Net loss attributable to non-controlling interests

 

 
217

 

 

 

 
217

Income (loss) applicable to common stockholders
$
39,438

 
$
9,346

 
$
(7,222
)
 
$
(20,782
)
 
$
646

 
$

 
$
21,426







17

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 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
 
Total
Three Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
1,375

 
$
21,587

 
$
38

 
$
10

 
$

 
$
23,010

Interest expense
(680
)
 
(9,617
)
 
(3,473
)
 
(945
)
 

 
(14,715
)
Net interest income (expense)
695

 
11,970

 
(3,435
)
 
(935
)
 

 
8,295

Total impairment
363

 
3,097

 

 

 

 
3,460

Total operating revenues

 

 
82,864

 

 

 
82,864

Total other income (loss), net

 
(2,893
)
 
14,834

 
46