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, 2015
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______________ to _______________ 
Commission File Number: 001-31458 
Newcastle Investment Corp.
(Exact name of registrant as specified in its charter)
Maryland
 
81-0559116
(State or other jurisdiction of incorporation
 
(I.R.S. Employer Identification No.)
or organization)
 
 
1345 Avenue of the Americas, New York, NY
 
10105
(Address of principal executive offices)
 
(Zip Code)
(212) 798-6100
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
S Yes  No £ 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer S Accelerated filer £ Non-accelerated filer £ (Do not check if a smaller reporting company)
Smaller reporting company £
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes £ No S
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date.
Common stock, $0.01 par value per share: 66,486,652 shares outstanding as of October 26, 2015.


CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

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

•
changes in global, national and local economic conditions, including, but not limited to, a prolonged economic slowdown and a downturn in the real estate market;
•
reductions in cash flows received from our investments;
•
the availability and cost of capital for future investments, particularly in a rising interest rate environment, and our ability to deploy capital accretively;
•
our ability to profit from opportunistic investments, such as our investment in golf, and to mitigate the risks associated with managing operating businesses and asset classes with which we have limited experience;
•
the relationship between yields on assets which are paid off and yields on assets in which such monies can be reinvested;
•
changes in our asset portfolio and investment strategy, and potential changes in our ability to make distributions to our stockholders, as a result of the spin-off of our senior housing business or other factors;
•
adverse changes in the financing markets we access affecting our ability to finance our investments;
•
changing risk assessments by lenders that potentially lead to increased margin calls, not extending our repurchase agreements or other financings in accordance with their current terms or entering into new financings with us;
•
changes in interest rates and/or credit spreads, as well as the success of any hedging strategy we may undertake in relation to such changes;
•
the risks that default and recovery rates on our real estate securities and loan portfolios deteriorate compared to our underwriting estimates;
•
impairments in the value of the collateral underlying our investments and the relation of any such impairments to our judgments as to whether changes in the market value of our securities, loans or real estate are temporary or not and whether circumstances bearing on the value of such assets warrant changes in carrying values;
•
geographical concentrations with respect to our investments, including the mortgage loans underlying and collateral securing certain of our debt investments;
•
legislative/regulatory changes, including but not limited to, any modification of the terms of loans;
•
competition within the industries in which we have and/or may pursue additional investments;
•
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, 2015
 
December 31, 2014
 
(Unaudited)
 
Assets
 

 
 

Real estate securities, available-for-sale
$
61,508

 
$
231,754

Real estate securities, pledged as collateral
370,342

 
407,689

Real estate related and other loans, held-for-sale, net
142,802

 
230,200

Residential mortgage loans, held-for-sale, net
569

 
3,854

Subprime mortgage loans subject to call option
392,342

 
406,217

Investments in other real estate, net of accumulated depreciation
230,735

 
239,283

Intangibles, net of accumulated amortization
77,198

 
84,686

Other investments
20,258

 
26,788

Cash and cash equivalents
31,493

 
73,727

Restricted cash
5,759

 
15,714

Receivables from brokers, dealers and clearing organizations
363,981

 
—

Receivables and other assets
41,550

 
35,191

Assets of discontinued operations
53

 
6,803

Total Assets
$
1,738,590

 
$
1,761,906

 
 
 
 
 
 
 
 
Liabilities and Equity
 

 
 

Liabilities
 

 
 

CDO bonds payable
$
92,812

 
$
227,673

Other bonds and notes payable
7,494

 
27,069

Repurchase agreements
415,442

 
441,176

Credit facilities and obligations under capital leases
12,003

 
161,474

Financing of subprime mortgage loans subject to call option
392,342

 
406,217

Junior subordinated notes payable
51,226

 
51,231

Dividends payable
8,908

 
8,901

Payables to brokers, dealers and clearing organizations
370,473

 
—

Accounts payable, accrued expenses and other liabilities
164,078

 
179,390

Liabilities of discontinued operations
—

 
447

Total Liabilities
$
1,514,778

 
$
1,503,578

 
 
 
 
Commitments and contingencies


 


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

 
$
61,583

Common stock, $0.01 par value, 1,000,000,000 shares authorized, 66,486,652 and 66,424,508 shares issued and outstanding, at September 30, 2015 and December 31, 2014, respectively
665

 
664

Additional paid-in capital
3,172,297

 
3,172,060

Accumulated deficit
(3,044,381
)
 
(3,041,880
)
Accumulated other comprehensive income
33,829

 
65,865

Total Newcastle Stockholders' Equity
223,993

 
258,292

Noncontrolling interests
(181
)
 
36

Total Equity
$
223,812

 
$
258,328

 
 
 
 
Total Liabilities and Equity
$
1,738,590

 
$
1,761,906

 See notes to consolidated financial statements.

1


NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(dollars in thousands, except share data)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Interest income
$
23,010

 
$
27,544

 
$
74,353

 
$
103,889

Interest expense
(14,715
)
 
(18,411
)
 
(48,392
)
 
(60,909
)
Net interest income
8,295

 
9,133

 
25,961

 
42,980

Impairment/(Reversal)
 

 
 

 
 

 
 

Valuation allowance (reversal) on loans
3,010

 
(4,015
)
 
7,684

 
(1,243
)
Other-than-temporary impairment on securities and other investments
427

 
—

 
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
23

 
—

 
(39
)
 
—

Total impairment (reversal)
3,460

 
(4,015
)
 
17,544

 
(1,243
)
Net interest income after impairment/reversal
4,835

 
13,148

 
8,417

 
44,223

Operating Revenues
 

 
 

 
 

 
 

Golf course operations
49,418

 
50,414

 
137,150

 
140,699

Sales of food and beverages - golf
20,035

 
18,871

 
53,991

 
52,333

Other golf revenue
13,411

 
12,209

 
35,352

 
33,831

Total operating revenues
82,864

 
81,494

 
226,493

 
226,863

Other Income (Loss)
 

 
 

 
 

 
 

Gain (loss) on settlement of investments, net
(3,168
)
 
7,763

 
24,623

 
50,532

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

 
—

 
15,367

 
(3,410
)
Other income, net
277

 
4,855

 
1,871

 
23,011

Total other income
11,987

 
12,618

 
41,861

 
70,133

Expenses
 

 
 

 
 

 
 

Loan and security servicing expense
41

 
159

 
255

 
1,424

Operating expenses - golf
67,984

 
68,747

 
188,359

 
194,875

Cost of sales - golf
8,842

 
8,420

 
24,003

 
23,183

General and administrative expense
3,876

 
3,132

 
9,076

 
11,464

Management fee to affiliate
2,675

 
5,664

 
8,017

 
16,853

Depreciation and amortization
7,111

 
7,204

 
20,983

 
19,384

Total expenses
90,529

 
93,326

 
250,693

 
267,183

Income from continuing operations before income tax
9,157

 
13,934

 
26,078

 
74,036

Income tax expense
1,257

 
—

 
1,330

 
144

Income from continuing operations
7,900

 
13,934

 
24,748

 
73,892

Income (loss) from discontinued operations, net of tax
7

 
(8,624
)
 
646

 
(32,427
)
Net Income
7,907

 
5,310

 
25,394

 
41,465

Preferred dividends
(1,395
)
 
(1,395
)
 
(4,185
)
 
(4,185
)
Net (income) loss attributable to noncontrolling interests
(13
)
 
21

 
217

 
711

Income Applicable to Common Stockholders
$
6,499

 
$
3,936

 
$
21,426

 
$
37,991


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,
 
2015
 
2014
 
2015
 
2014
Income Applicable to Common Stock, per share
 

 
 

 
 
 
 
Basic
$
0.10

 
$
0.06

 
$
0.32

 
$
0.63

Diluted
$
0.09

 
$
0.06

 
$
0.31

 
$
0.62

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

 
 

 
 

 
 

Basic
$
0.10

 
$
0.20

 
$
0.31

 
$
1.18

Diluted
$
0.09

 
$
0.20

 
$
0.30

 
$
1.14

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

 
 

 
 

 
 

Basic
$
—

 
$
(0.14
)
 
$
0.01

 
$
(0.54
)
Diluted
$
—

 
$
(0.14
)
 
$
0.01

 
$
(0.54
)
Weighted Average Number of Shares of Common Stock Outstanding
 

 
 

 
 

 
 

Basic
66,484,962

 
62,329,023

 
66,445,705

 
59,848,506

Diluted
69,069,659

 
63,865,796

 
69,053,302

 
61,630,175

Dividends Declared per Share of Common Stock
$
0.12

 
$
0.60

 
$
0.36

 
$
1.80



See notes to consolidated financial statements.

3


NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(dollars in thousands, except share data)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
7,907

 
$
5,310

 
$
25,394

 
$
41,465

Other comprehensive income (loss):
 

 
 

 
 

 
 

Net unrealized gain (loss) on available-for-sale securities
5,149

 
(3,743
)
 
2,577

 
4,734

Reclassification of net realized (gain) on securities
into earnings
(7,594
)
 
—

 
(36,470
)
 
(18,032
)
Net unrecognized gain and pension prior service cost
(discontinued operations)
—

 
—

 
—

 
9

Net unrealized gain (loss) on derivatives designated as cash flow hedges
—

 
6

 
(60
)
 
(148
)
Reclassification of net realized (gain) loss on derivatives designated as cash flow hedges into earnings
(20
)
 
1,200

 
1,917

 
3,372

Other comprehensive loss
(2,465
)
 
(2,537
)
 
(32,036
)
 
(10,065
)
Total comprehensive income (loss)
$
5,442

 
$
2,773

 
$
(6,642
)
 
$
31,400

Comprehensive income (loss) attributable to Newcastle
stockholders' equity
$
5,429

 
$
2,794

 
$
(6,425
)
 
$
32,111

Comprehensive income (loss) attributable to noncontrolling interests
$
13

 
$
(21
)
 
$
(217
)
 
$
(711
)
  
See notes to consolidated financial statements.

4


NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

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

 
$
61,583

 
66,424,508

 
$
664

 
$
3,172,060

 
$
(3,041,880
)
 
$
65,865

 
$
258,292

 
$
36

 
$
258,328

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared
—

 
—

 
—

 
—

 
—

 
(28,112
)
 
—

 
(28,112
)
 
—

 
(28,112
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of common stock
—

 
—

 
62,144

 
1

 
237

 
—

 
—

 
238

 
—

 
238

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)


 


 


 


 


 


 


 


 


 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
—

 
—

 
—

 
—

 
—

 
25,611

 
—

 
25,611

 
(217
)
 
25,394

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
—

 
(32,036
)
 
(32,036
)
 
—

 
(32,036
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(6,425
)
 
(217
)
 
(6,642
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity - September 30, 2015
2,463,321

 
$
61,583

 
66,486,652

 
$
665

 
$
3,172,297

 
$
(3,044,381
)
 
$
33,829

 
$
223,993

 
$
(181
)
 
$
223,812

 










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,
 
2015
 
2014
Cash Flows From Operating Activities
 
 
 
Net income
$
25,394

 
$
41,465

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

 
 

Depreciation and amortization
20,994

 
102,585

Accretion of discount and other amortization
4,942

 
(12,393
)
Net interest income on investments accrued to principal balance
(19,147
)
 
(15,628
)
Non-cash directors' compensation
238

 
275

Valuation allowance (reversal) on loans
7,684

 
(1,243
)
Other-than-temporary impairment on securities
9,860

 
—

Change in fair value of contingent consideration
—

 
(1,500
)
Straight-lining of rental income
—

 
(19,035
)
Equity in earnings from equity method investments, net of distributions
(975
)
 
(621
)
Gain on settlement of investments (net)
(24,451
)
 
(49,742
)
Unrealized loss (gain) on non-hedge derivatives and hedge ineffectiveness
89

 
(18,432
)
Loss/(gain) on extinguishment of debt, net
(15,367
)
 
3,410

Change in:
 

 
 

Restricted cash
(1,725
)
 
1,530

Receivables and other assets
(1,555
)
 
6,441

Accounts payable, accrued expenses and other liabilities
(22,415
)
 
(11,494
)
Net cash (used in) provided by operating activities
(16,434
)
 
25,618

Cash Flows From Investing Activities
 

 
 

Principal repayments from investments
124,015

 
232,630

Purchase of real estate securities
(1,039,220
)
 
—

Proceeds from sale of investments
1,061,499

 
798,122

Acquisition and additions of investments in real estate
(2,894
)
 
(313,519
)
Change in restricted cash from investing activities
56,774

 
—

Deposits paid on investments
—

 
(150
)
Net cash provided by investing activities
200,174

 
717,083

Cash Flows From Financing Activities
 
 
 
Repurchases of debt obligations
(152,281
)
 
—

Borrowings under debt obligations
1,454,435

 
167,232

Repayments of debt obligations
(1,485,065
)
 
(819,980
)
Margin deposits under repurchase agreements and derivatives
(113,899
)
 
(23,716
)
Return of margin deposits under repurchase agreements and derivatives
112,631

 
23,716

Issuance of common stock
—

 
198,671

Costs related to issuance of common stock
—

 
(254
)
Contribution of cash to New Media/New Residential upon spin-off
—

 
(23,845
)
Common stock dividends paid
(23,919
)
 
(105,462
)
Preferred stock dividends paid
(4,185
)
 
(4,185
)
Payment of deferred financing costs
(500
)
 
(3,002
)
Payments from settlement of derivative instruments
(13,326
)
 
—

Net cash used in financing activities
(226,109
)
 
(590,825
)
Net (Decrease) Increase in Cash and Cash Equivalents
(42,369
)
 
151,876

Cash and Cash Equivalents of Continuing Operations, Beginning of Period
73,727

 
42,721

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

 
63,223

Cash and Cash Equivalents, End of Period
$
31,493

 
$
257,820

 
 
 
 
Cash and Cash Equivalents of Continuing Operations, End of Period
$
31,493

 
$
215,035

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

 
$
42,785


Continued on next page. 







6



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


Supplemental Disclosure of Cash Flow Information
 

 
 

Cash paid during the period for income taxes
$
268

 
$
1,351

Cash paid during the period for interest expense
$
13,583

 
$
58,093

Supplemental Schedule of Non-Cash Investing and Financing Activities
 
 
 
Costs associated with issuance of common stock
$
—

 
$
346

Preferred stock dividends declared but not paid
$
930

 
$
930

Common stock dividends declared but not paid
$
7,978

 
$
39,840

Additions to capital lease assets and liabilities
$
7,231

 
$
5,162

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

 
 

Property, plant and equipment, net
$
—

 
$
266,385

Goodwill and intangibles, net
$
—

 
$
271,350

Restricted cash
$
—

 
$
6,477

Receivables and other assets
$
—

 
$
101,940

Credit facilities, media
$
—

 
$
177,955

Accounts payable, accrued expenses and other liabilities
$
—

 
$
100,695


See notes to consolidated financial statements. 


7
NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2015
(dollars in tables in thousands, except share data)
 


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

Newcastle conducts its business through the following segments: (i) debt investments financed with collateralized debt obligations (“CDOs”), (ii) other debt investments (“Other Debt”), (iii) investments in golf properties and facilities (“Golf”) and (iv) corporate.

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

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

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

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

REVENUE RECOGNITION

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


8
NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2015
(dollars in tables in thousands, except share data)
 

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

Private country club members generally pay an advance initiation fee deposit upon their acceptance as a member to the 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 sheet and accretes over a 30-year nonrefundable term using the effective interest method. This accretion is recorded as interest expense in the consolidated statements of operations.

EXPENSE RECOGNITION

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

Derivative transactions are entered into by Newcastle solely for risk management purposes, except for total rate of return swaps. Such total rate of return swaps are essentially financings of certain reference assets which are treated as derivatives for accounting purposes. The decision of whether or not a given transaction/position (or portion thereof) is hedged is made on a case-by-case basis, based on the risks involved and other factors as determined by management, including restrictions imposed by the Internal Revenue Code of 1986, as amended (the “Code”) among others. In determining whether to hedge a risk, Newcastle may consider whether other assets, liabilities, firm commitments and anticipated transactions already offset or reduce the risk. All transactions undertaken as hedges are entered into with a view towards minimizing the potential for economic losses that could be incurred by Newcastle. Generally, all derivatives entered into are intended to qualify as hedges under GAAP, unless specifically stated otherwise. To this end, terms of hedges are matched closely to the terms of hedged items.

Description of the risks being hedged

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

2)
Interest rate risk, anticipated transactions - Newcastle may hedge the aggregate risk of interest rate fluctuations with respect to anticipated transactions, primarily anticipated borrowings. The primary risk involved in an anticipated borrowing is that interest rates may increase between the date the transaction becomes probable and the date of consummation. Newcastle generally intends to hedge only the risk related to changes in the benchmark interest rate (LIBOR or a Treasury rate). This is generally accomplished through the use of interest rate swaps.

Cash Flow Hedges

To qualify for cash flow hedge accounting, interest rate swaps and caps must meet certain criteria, including (1) the items to be hedged expose Newcastle to interest rate risk, (2) the interest rate swaps or caps are highly effective in reducing Newcastle’s

9
NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2015
(dollars in tables in thousands, except share data)
 

exposure to interest rate risk, and (3) with respect to an anticipated transaction, such transaction is probable. Correlation and effectiveness are periodically assessed based upon a comparison of the relative changes in the fair values or cash flows of the interest rate swaps and caps and the items being hedged, or using regression analysis on an ongoing basis to assess retrospective and prospective hedge effectiveness.

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

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

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

As of September 30, 2015, Newcastle no longer has derivative instruments that are designated and qualify as hedging instruments based on ASC 815, Derivatives and Hedging. Newcastle terminated two interest rate swaps in connection with the liquidation of CDO VIII and the interest rate swap in CDO VI matured in March 2015.

Non-Hedge Derivatives

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

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

Newcastle typically does not take delivery of TBAs, but rather settles the associated receivable and payable with its trading counterparties on a net basis. As part of its TBA activities, Newcastle may "roll" its TBA positions, whereby we may sell (buy) securities for delivery (receipt) in an earlier month and simultaneously contract to repurchase (sell) similar securities at an agreed-upon price on a fixed date in a later month. Newcastle accounts for its TBA transactions as non-hedge instruments, with changes in market value recorded on the statement of operations. As of September 30, 2015, Newcastle held TBA contracts consisting of

10
NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2015
(dollars in tables in thousands, except share data)
 

four short contracts totaling $1,100.9 million notional amount and three long contracts totaling $745.8 million notional amount of Agency RMBS.
Newcastle’s derivative financial instruments contain credit risk to the extent that its bank counterparties may be unable to meet the terms of the agreements. Newcastle reduces such risk by limiting its counterparties to major financial institutions. In addition, the potential risk of loss with any one party resulting from this type of credit risk is monitored. Management does not expect any material losses as a result of default by other parties. Newcastle does not require collateral for the derivative financial instruments within its CDO financing structures.

Operating Leases and Other Operating Expenses - Other operating expenses for the Golf business consist primarily of equipment leases, utilities, repairs and maintenance, supplies, seed, soil and fertilizer, and marketing. Many of the golf properties and related facilities are leased under long-term operating leases. In addition to minimum payments, certain leases require payment of the excess of various percentages of gross revenue or net operating income over the minimum rental payments. The leases generally require the payment of taxes assessed against the leased property and the cost of insurance and maintenance. The majority of lease terms range from 10 years to 20 years, and typically, the leases contain renewal options. Certain leases include minimum scheduled increases in rental payments at various times during the term of the lease. These scheduled rent increases are recognized on a straight-line basis over the term of the lease, resulting in an accrual, which is included in accounts payable, accrued expenses and other liabilities, for the amount by which the cumulative straight-line rent exceeds the contractual cash rent.
BALANCE SHEET MEASUREMENT
Investments in CDO Servicing Rights - In February 2011, Newcastle, through one of its subsidiaries, purchased the management rights with respect to certain C-BASS Investment Management LLC (“C-BASS”) CDOs for $2.2 million pursuant to a bankruptcy proceeding. Newcastle initially recorded the cost of acquiring the collateral management rights as a servicing asset and subsequently amortizes this asset in proportion to, and over the period of, estimated net servicing income. Servicing assets are assessed for impairment on a quarterly basis, with impairment recognized as a valuation allowance. Key economic assumptions used in measuring any potential impairment of the servicing assets include the prepayment speeds of the underlying loans, default rates, loss severities and discount rates. During the three and 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, 2015, Newcastle’s servicing assets had a carrying value of $0.8 million, which is reported within receivables and other assets.
Investments in Other Real Estate, Net - Real estate and related improvements are recorded at cost less accumulated depreciation. Costs that both materially add value and appreciably extend the useful life of an asset are capitalized. Fees and costs incurred in the successful negotiation of leases are deferred and amortized on a straight-line basis over the terms of the respective leases. With respect to golf course improvements (included in buildings and improvements), only costs associated with original construction, significant replacements, or the addition of new trees, permanent landscaping, sand traps, fairways, tee boxes or greens are capitalized. Expenditures for repairs and maintenance are expensed as incurred.
Long-lived assets to be disposed of by sale, which meet certain criteria, are reclassified to assets and liabilities of discontinued operations and measured at the lower of their carrying amount or fair value less costs of sale. The results of operations for such disposal, assuming such disposal qualifies as a strategic shift that had (or will have) a major effect on the operations or financial results as defined, are retroactively reclassified to income (loss) from discontinued operations for all periods presented.

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

11
NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2015
(dollars in tables in thousands, except share data)
 

Depreciation is calculated using the straight-line method based on the lesser of the lease term or the following estimated useful lives:
Buildings and improvements
10-30 years
Furniture, fixtures and equipment
3-10 years
Capital leases - equipment
4-6 years
Intangibles - Intangible assets relating to the Golf business consist primarily of leasehold advantages (disadvantages), management contracts and membership base. A leasehold advantage (disadvantage) exists to Newcastle when it pays a contracted rent that is below (above) market rents at the date of the transaction. The value of a leasehold advantage (disadvantage) is calculated based on the differential between market and contracted rent, which is tax effected and discounted to present value based on an after-tax discount rate corresponding to each golf property. The management contract intangible represents Newcastle’s golf course management contracts for both leased and managed properties. The management contract intangible for leased and managed properties is valued utilizing a discounted cash flow methodology under the income approach and is amortized over the term of the underlying lease or management agreements, respectively. The membership base intangible represents Newcastle’s relationship with its private golf club members. The membership base intangible is valued using the multi-period excess earnings method under the income approach, and is amortized over the weighted average remaining useful life of the private memberships.

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

Other Investment - Newcastle owns 23% of equity interest in a commercial real estate project which is recorded as an equity method investment. As of September 30, 2015 and December 31, 2014, the carrying value of this investment was $20.3 million and $26.8 million, respectively.  Newcastle evaluates its equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable. The evaluation of recoverability is based on management’s assessment of the financial condition and near term prospects of the investee, the length of time and the extent to which the market value of the investment has been less than cost and the intent and ability of Newcastle to retain its investment.

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

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") and the International Accounting Standards Board ("IASB") issued Accounting Standards Update ("ASU") 2014-09 Revenues from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. 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. We are currently reviewing the guidance to determine the impact to the consolidated financial statements.


12
NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2015
(dollars in tables in thousands, except share data)
 

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The standard amends the consolidation considerations when evaluating certain limited partnerships, variable interest entities and investment funds. The ASU is effective for Newcastle in the first quarter of 2016 and early adoption is permitted. The adoption of the new guidance will have no impact on the consolidated financial statements.

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

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

3.   DISCONTINUED OPERATIONS

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

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

13
NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2015
(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,
 
2015
 
2014
 
2015
 
2014
Interest income
$
—

 
$
—

 
$
—

 
$
—

Interest expense
—

 
14,138

 
—

 
43,525

Net interest income (loss)
—

 
(14,138
)
 
—

 
(43,525
)
 
 
 
 
 
 
 
 
Media income
—

 
—

 
—

 
68,213

Rental income
7

 
61,355

 
556

 
168,838

Care and ancillary income
—

 
6,428

 
—

 
17,555

Gain on settlement of investments
—

 
—

 
318

 
—

Other income
—

 
1,481

 
—

 
1,457

Total media, rental and other income
7

 
69,264

 
874

 
256,063

 
 
 
 
 
 
 
 
Media operating expenses
—

 
—

 
—

 
65,826

Property operating expenses
—

 
29,288

 
187

 
81,696

General and administrative expenses (A)
—

 
5,416

 
30

 
17,888

Depreciation and amortization
—

 
28,712

 
11

 
79,445

Income tax expense
—

 
334

 
—

 
110

Total expenses
—

 
63,750

 
228

 
244,965

 
 
 
 
 
 
 
 
Income (loss) from discontinued operations
$
7

 
$
(8,624
)
 
$
646

 
$
(32,427
)
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
$
—

 
$
—

 
$
—

 
$
522

(A)
Includes acquisition and spin-off related expenses of $4.0 million and $14.7 million for the three and nine months ended September 30, 2014.

The February 13, 2014 spin-off of New Media resulted in a $391.3 million reduction in the basis upon which Newcastle’s management fees are computed (and an equivalent reduction in the basis upon which the incentive compensation threshold is computed), as well as a reduction in the strike price of Newcastle’s then outstanding options.

The November 6, 2014 spin-off of New Senior resulted in a $673.0 million reduction in the basis upon which Newcastle’s management fees are computed (and an equivalent reduction in the basis upon which the incentive compensation threshold is computed), as well as a reduction in the strike price of Newcastle’s then outstanding options. 

4.   SEGMENT REPORTING AND VARIABLE INTEREST ENTITIES
 
Newcastle conducts its business through the following segments: (i) debt investments financed with collateralized debt obligations (“CDOs”), (ii) other debt investments (“Other Debt”), (iii) investment in golf properties and facilities (“Golf”) and (iv) corporate.

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

14
NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2015
(dollars in tables in thousands, except share data)
 


Summary financial data on Newcastle's segments is given below, together with reconciliation to the same data for Newcastle as a whole:
 
Debt Investments (A)
 
 
 
 
 
Discontinued
 
 
 
 
 
CDOs
 
Other Debt (B)
 
Golf
 
Corporate
 
Operations
 
Eliminations
 
Total
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 (reversal)
12,569

 
4,975

 
—

 
—

 
—

 
—

 
17,544

Total operating revenues
—

 
—

 
226,493

 
—

 
—

 
—

 
226,493

Total other income (loss)
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, net of tax
—

 
—

 
—

 
—

 
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 noncontrolling interests
—

 
—

 
217

 
—

 
—

 
—

 
217

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

 
$
9,346

 
$
(7,222
)
 
$
(20,782
)
 
$
646

 
$
—

 
$
21,426










15
NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2015
(dollars in tables in thousands, except share data)
 


Summary segment financial data (continued).
 
Debt Investments (A)
 
 
 
 
 
Discontinued
 
 
 
 
 
CDOs
 
Other Debt (B)
 
Golf
 
Corporate
 
Operations
 
Eliminations
 
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
)
Inter-segment elimination
—

 
—

 
—

 
—

 
—

 
—

 
—

Net interest income (expense)
695

 
11,970

 
(3,435
)
 
(935
)
 
—

 
—

 
8,295

Total impairment (reversal)
363

 
3,097

 
—

 
—

 
—

 
—

 
3,460

Total operating revenues
—

 
—

 
82,864

 
—

 
—

 
—

 
82,864

Total other income (loss)
—

 
(2,893
)
 
14,834

 
46

 
—

 
—

 
11,987

Loan and security servicing expense
35

 
6

 
—

 
—

 
—

 
—

 
41

Operating expenses - golf (C)
—

 
—

 
65,518

 
—

 
—

 
—

 
65,518

Operating expenses - golf, repairs and maintenance expenses
—

 
—

 
2,466

 
—

 
—

 
—

 
2,466

Cost of sales - golf
—

 
—

 
8,842

 
—

 
—

 
—

 
8,842

General and administrative expense
—

 
—

 
919

 
1,946

 
—

 
—

 
2,865

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

 
60

 
918

 
33

 
—

 
—

 
1,011

Management fee to affiliate
—

 
—

 
—

 
2,675

 
—

 
—

 
2,675

Depreciation and amortization
—

 
—

 
7,111

 
—

 
—

 
—

 
7,111

Income tax expense
—

 
—

 
1,257

 
—

 
—

 
—

 
1,257

Income (loss) from continuing operations
297

 
5,914

 
7,232

 
(5,543
)
 
—

 
—

 
7,900

Income from discontinued operations, net of tax
—

 
—

 
—

 
—

 
7

 
—

 
7

Net income (loss)
297

 
5,914

 
7,232

 
(5,543
)
 
7

 
—

 
7,907

Preferred dividends
—

 
—

 
—

 
(1,395
)
 
—

 
—

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

 
—

 
(13
)
 
—

 
—

 
—

 
(13
)
Income (loss) applicable to common stockholders
$
297

 
$
5,914

 
$
7,219

 
$
(6,938
)
 
$
7

 
$
—

 
$
6,499






16
NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2015
(dollars in tables in thousands, except share data)
 


Summary segment financial data (continued).
 
Debt Investments (A)
 
 
 
 
 
Discontinued
 
 
 
CDOs
 
Other Debt (B)
 
Golf
 
Corporate
 
Operations
 
Total
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
Investments
$
49,397

 
$
938,424

 
$
307,933

 
$
—

 
$
—

 
$
1,295,754

Cash and restricted cash
110

 
2,528

 
6,156

 
28,458

 
—

 
37,252

Other assets
95

 
371,036

 
33,954

 
446

 
—

 
405,531

Assets of discontinued operations
—

 
—

 
—

 
—

 
53

 
53

Total assets
49,602

 
1,311,988

 
348,043

 
28,904

 
53

 
1,738,590

Debt, net
100,306

 
738,201

 
81,586

 
51,226

 
—

 
971,319

Other liabilities
22

 
379,197

 
150,915

 
13,325

 
—

 
543,459

Liabilities of discontinued operations
—

 
—

 
—

 
—

 
—

 
—

Total liabilities
100,328

 
1,117,398

 
232,501

 
64,551

 
—

 
1,514,778

Preferred stock
—

 
—

 
—

 
61,583

 
—

 
61,583

Noncontrolling interests
—

 
—

 
(181
)
 
—

 
—

 
(181
)
Equity attributable to common stockholders
$
(50,726
)
 
$
194,590

 
$
115,723

 
$
(97,230
)
 
$
53

 
$
162,410

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

 
$
—

 
$
9,028

 
$
—

 
$
—

 
$
9,028

















17
NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2015
(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, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
70,635

 
$
39,102

 
$
112

 
$
41

 
$
—

 
$
(6,001
)
 
$
103,889

Interest expense
(16,932
)
 
(32,344
)
 
(14,764
)
 
(2,870
)
 
—

 
6,001

 
(60,909
)
Inter-segment elimination
(6,001
)
 
1,748

 
4,253

 
—

 
—

 
—

 
—

Net interest income (expense)
47,702

 
8,506

 
(10,399
)
 
(2,829
)
 
—

 
—

 
42,980

Total impairment (reversal)
(2,185
)
 
942

 
—

 
—

 
—

 
—

 
(1,243
)
Total operating revenues
—

 
—

 
226,863

 
—

 
—

 
—

 
226,863

Total other income
34,717

 
32,698

 
2,718

 
—

 
—

 
—

 
70,133

Loan and security servicing expense
466

 
958

 
—