UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2013

or

For the transition period from _______________ to _______________

Commission File Number: 001-31458

Newcastle Investment Corp.

(Exact name of registrant as specified in its charter)

(Registrant's telephone number, including area code)

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: 293,488,981 shares outstanding as of October 25, 2013.

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:

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:

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

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

Statement continues on the next page.

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share data)

The following table presents certain assets of consolidated variable interest entities (“VIEs”), which are included in the Consolidated Balance Sheets above. The assets in the table below include those assets that can only be used to settle obligations of consolidated VIEs, and are in excess of those obligations. Additionally, the assets in the table below exclude intercompany balances that eliminate in consolidation.

The following table presents certain liabilities of consolidated VIEs, which are included in the Consolidated Balance Sheets above. The liabilities in the table below include 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.

See notes to consolidated financial statements.

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(dollars in thousands, except share data)

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(dollars in thousands, except share data)

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

(dollars in thousands, except share data)

See notes to consolidated financial statements

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(dollars in thousands, except share data)

Continued on next page

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(dollars in thousands, except share data)

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SEPTEMBER 30, 2013

(dollars in tables in thousands, except share data)

1.   GENERAL

Newcastle Investment Corp. (and its subsidiaries, “Newcastle”) 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 currently primarily invests in two distinct areas: (i) senior-housing assets and (ii) real estate and other debt. 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.

On April 26, 2013, Newcastle announced that its board of directors had formally declared the distribution of shares of common stock of New Residential Investment Corp. (“New Residential,” NYSE: NRZ), a then wholly owned subsidiary of Newcastle. Following the spin-off, New Residential is an independent, publicly traded REIT primarily focused on investing in residential mortgage related assets. The spin-off transaction was effected as a taxable pro rata distribution by Newcastle of all the outstanding shares of common stock of New Residential to the stockholders of record of Newcastle at the close of business on May 6, 2013. The stockholders of Newcastle as of the record date received one share of New Residential common stock for each share of Newcastle common stock held.

In connection with the spin-off, Newcastle contributed to New Residential all of its investments in excess mortgage servicing rights (“Excess MSRs”) as of May 15, 2013, the non-Agency residential mortgage backed securities (“RMBS”) Newcastle had acquired since the second quarter of 2012, certain Agency ARM RMBS, the residential mortgage loans Newcastle had acquired since the beginning of 2013, its interest in a portfolio of consumer loans and a cash and cash equivalents balance of $181.6 million.

Newcastle now conducts its business through the following segments: (i) investments in senior housing assets financed with non-recourse debt (“non-recourse senior housing”), (ii) investments financed with non-recourse collateralized debt obligations (“non-recourse CDOs”), (iii) unlevered investments in de-consolidated Newcastle CDO debt (“unlevered CDOs”), (iv) investments financed with other non-recourse debt (“non-recourse other”), (v) investments and debt repurchases financed with recourse debt (“recourse”), (vi) other unlevered investments (“unlevered other”), (vii) equity method investment in Local Media Group and (viii) corporate. With respect to the non-recourse CDOs and non-recourse other segments, subject to the passing of certain periodic coverage tests, Newcastle is generally entitled to receive the net cash flows from these structures on a periodic basis.

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

Newcastle is party to management agreements (the “Senior Housing Management Agreements”) with a subsidiary of Fortress and with a portfolio company of a private equity fund managed by an affiliate of Newcastle’s Manager (the “Senior Housing Managers”), under which the Senior Housing Managers manage the day-to-day operations of certain of the senior housing assets, subject to the supervision of Newcastle’s officers and board of directors. For their services, the Senior Housing Managers are entitled to an annual management fee as defined in, and in accordance with the terms of, the Senior Housing Management Agreements.

Newcastle is also party to a management agreement with GateHouse Media, Inc. (“GateHouse”), see Note 2.

Approximately 6.1 million shares of Newcastle’s common stock were held by Fortress, through its affiliates, and its principals at September 30, 2013. In addition, Fortress, through its affiliates, held options to purchase approximately 21.9 million shares of Newcastle’s common stock at September 30, 2013.

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, 2012 and notes thereto included in Newcastle’s Annual Report on

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SEPTEMBER 30, 2013

(dollars in tables in thousands, except share data)

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

Form 10-K filed with the SEC. Capitalized terms used herein, and not otherwise defined, are defined in Newcastle’s consolidated financial statements for the year ended December 31, 2012.

Recent Accounting Pronouncements

In February 2013, the FASB issued new guidance regarding the reporting of reclassifications out of accumulated other comprehensive income. The new guidance does not change current requirements for reporting net income or other comprehensive income in financial statements. However, it requires companies to present the effects on the line items of net income of significant amounts reclassified out of accumulated OCI if the item reclassified is required to be reclassified to net income in its entirety during the same reporting period. Presentation should occur either on the face of the income statement where net income is presented, or in the notes to the financial statements. Newcastle has adopted this accounting standard and presents this information in Note 14 to the financial statements.

The FASB has recently issued or discussed a number of proposed standards on such topics as consolidation, financial statement presentation, revenue recognition, leases, financial instruments, hedging and contingencies. 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.

2.   ACQUISITIONS

During July, August and September 2013, Newcastle completed the acquisitions of 19 senior housing facilities in five different portfolios with properties located in New York, Florida, North Carolina and Pennsylvania. Each of these acquisitions was accounted for as a business combination, under which all assets acquired and liabilities assumed are recognized at their acquisition-date fair value with acquisition-related costs being expensed as incurred. For certain properties, Newcastle has retained a portfolio company of a private equity fund managed by an affiliate of the Manager to manage the properties. Pursuant to the agreement with the portfolio company, Newcastle pays management fees equal to (i) 5% of the property’s effective gross income (as defined in the agreements) or (ii) management fees equal to 6% of the property’s effective gross income (as defined in the agreements) for the first two years and 7% thereafter. For the other property acquired, Newcastle has retained a subsidiary of the Manager to manage the property. Pursuant to the agreement with the subsidiary of the Manager, Newcastle pays management fees equal to 6% of the property’s effective gross income (as defined in the agreement) for the first two years and 7% thereafter. In addition, Newcastle will reimburse the property manager for certain expenses, primarily the compensation expense associated with the on-site employees.

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SEPTEMBER 30, 2013

(dollars in tables in thousands, except share data)

In connection with the acquisitions of the senior housing assets described above, the assets acquired and the liabilities assumed were recorded at fair value. A summary of the initial recording of each of the above acquisitions is as follows:

B. Acquisition of Media businesses

On September 3, 2013 Newcastle completed the acquisition of Dow Jones Local Media Group (“Local Media Group”) from News Corp. for $86.9 million, including capitalized transaction costs of approximately $4.3 million. Newcastle made a total equity investment of $56.3 million and financed the remainder of the purchase price with $33.0 million of debt. The purchase price is subject to a working capital adjustment. Newcastle also contributed $2.4 million to Local Media Group for working capital purposes that can be repaid from the $10.0 million of undrawn capacity described below. Newcastle assigned its interest in Local Media Group to a newly formed wholly-owned subsidiary, Local Media Group Holdings LLC (“Local Media Parent”). Local Media Group operates 33 local publications in 7 states in the United States and has been in business for over 75 years.

The above $33.0 million of debt was drawn from a $43.0 million credit agreement that Local Media Group signed on September 3, 2013 with Credit Suisse AG, Cayman Islands Branch and Credit Suisse Loan Funding LLC (collectively “Credit Suisse”) which bears interest at LIBOR + 6.5% with a LIBOR floor of 1% and matures in September 2018. The $10.0 million of undrawn capacity under the agreement which can be used for working capital and other general corporate purposes, will become available to Local Media Group on the revolver activation date pursuant to the terms of the agreement. Local Media Parent has provided a guarantee under the credit agreement and has pledged substantially all of its assets, including its interest in Local Media Group, as collateral to the credit agreement. The credit agreement contains customary financial covenants which include a maximum leverage ratio and fixed charge coverage ratio. Upon an event of default of Local Media Group, as defined in the credit agreement, some restrictions apply to Local Media Group’s ability to make dividends or other distributions.

The Local Media Group operations are managed by GateHouse, a portfolio company of a private equity fund managed by an affiliate of the Manager pursuant to a management agreement (“Media Management Agreement”). Under this agreement, GateHouse receives an annual management fee of $1.1 million, subject to adjustments (up to a maximum annual management fee of $1.2 million) plus 12.5% of the Local Media Group’s EBITDA in excess of budget (as defined in the Media Management Agreement) for overseeing and managing the Local Media Group’s businesses, assets and day-to-day operations. As a result of this agreement, management has determined that Local Media Group is a VIE and that GateHouse is the primary beneficiary because it has both the power to direct the activities that most significantly impact the

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SEPTEMBER 30, 2013

(dollars in tables in thousands, except share data)

economic performance of Local Media Group and it participates in the residual returns of Local Media Group that could be significant to Local Media Group. Therefore, since Newcastle is not the primary beneficiary it does not consolidate Local Media Group and records its investment in Local Media Group as an equity method investment.

The following tables present summarized financial information for Local Media Group:

Newcastle, which owns approximately 52.2% of GateHouse’s $1.2 billion of debt, has also announced that it has entered into an agreement with GateHouse’s other creditors related to a potential restructuring of GateHouse pursuant to a prepackaged plan of reorganization under Chapter 11 of Title 11 of the United States Bankruptcy Code (the “Plan”). Pursuant to the Plan, reorganized GateHouse will be contributed to New Media Investment Group Inc. (“New Media”), which is currently a wholly owned subsidiary of Newcastle, and GateHouse will use commercially reasonable efforts to raise a new debt facility in an amount of up to $150 million in accordance with the terms set forth in the Plan. As the Plan sponsor, Newcastle offered to purchase (or to have its designated affiliates or other designees purchase) the debt of the other creditors in cash at 40% of par (the “Cash-Out Option”). The creditors have the right to elect to receive (i) the Cash-Out Option and/or (ii) common stock of New Media and the net cash proceeds, if any, of the new debt facility (the “Equity Option”).  We and certain other creditors have elected the Equity Option, and creditors with approximately $369.9 million in debt positions, including expected accrued interest through the effective date, have elected the Cash-Out Option. In addition, Newcastle will contribute its interest in Local Media Group to New Media in exchange for common stock of New Media equal in value to the cost of the Local Media Group acquisition, as defined in the agreement. On September 27, 2013, GateHouse commenced the voluntary Chapter 11 proceedings in the United States Bankruptcy Court of the District of Delaware pursuant to the Plan. 

New Media has filed a registration statement with the SEC with respect to a planned spin-off from Newcastle. The spin-off is subject to certain conditions, such as the approval of the Plan by the Bankruptcy Court, the declaration of New Media’s registration statement effective by the SEC, the filing and approval of an application to list New Media’s common stock on the NYSE and the formal declaration of the distribution by the board of directors.

3.   SPIN-OFF OF NEW RESIDENTIAL

As previously discussed in Note 1, on May 15, 2013, Newcastle completed the spin-off of New Residential from Newcastle.

On April 1, 2013, Newcastle completed a co-investment in a portfolio of consumer loans with a UPB of approximately $4.2 billion as of December 31, 2012. The portfolio included over 400,000 personal unsecured loans and personal homeowner loans originated through subsidiaries of HSBC Finance Corporation. The investment was completed through newly formed limited liability companies (collectively, the “Consumer Loan Companies”), which acquired the portfolio from HSBC Finance Corporation and its affiliates. Newcastle invested approximately $250 million for 30% membership interests in each of the Consumer Loan Companies. Of the remaining 70% of the membership interests, Springleaf Finance Inc.

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SEPTEMBER 30, 2013

(dollars in tables in thousands, except share data)

(“Springleaf”), which is majority-owned by Fortress funds managed by the Manager, acquired 47%, and an affiliate of Blackstone Tactical Opportunities Advisors L.L.C., acquired 23%. Springleaf acts as the managing member of the Consumer Loan Companies. The Consumer Loan Companies financed $2.2 billion of the approximately $3.0 billion purchase price with asset-backed notes. The investment in the portfolio of consumer loans was made in contemplation of, and was included in the May 15, 2013 spin-off. Newcastle has no continuing involvement in the consumer loans business post spin-off. Accordingly, the operating results are presented in discontinued operations.

The following table presents the carrying value of the assets and liabilities of New Residential, immediately preceding the May 15, 2013 spin-off.

For pro-forma information relating to the May 15, 2013 spin-off, see Note 17.

As a result of the May 15, 2013 spin-off, for all periods presented, the assets, liabilities and results of operations of those components of Newcastle’s operations that (i) were part of the spin-off, and (ii) represent operations in which Newcastle has no significant continuing involvement, are presented separately in discontinued operations in Newcastle’s consolidated financial statements. These components are primarily related to Excess MSRs and consumer loans.

Assets and liabilities of discontinued operations as of December 31, 2012 were as follows:

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SEPTEMBER 30, 2013

(dollars in tables in thousands, except share data)

Results from discontinued operations were as follows:

The spin-off also resulted in a $1.2 billion reduction in the basis upon which Newcastle’s management fees are computed (and an equivalent reduction in the basis upon which the incentive compensation threshold is computed), as well as a reduction in the strike price of Newcastle’s then outstanding options (see Note 11). During the three months ended September 30, 2013, included in discontinued operations and other liabilities is $2.4 million in connection with excess mortgage servicing rights owned prior to the spin-off.

4.   SEGMENT REPORTING AND VARIABLE INTEREST ENTITIES

As previously stated in Note 1, Newcastle conducts its business through the following segments: (i) investments in senior housing assets financed with non-recourse debt (“non-recourse senior housing”), (ii) investments financed with non-recourse collateralized debt obligations (“non-recourse CDOs”), (iii) unlevered investments in de-consolidated Newcastle CDO debt (“unlevered CDOs”), (iv) investments financed with other non-recourse debt (“non-recourse other”), (v) investments and debt repurchases financed with recourse debt (“recourse”), (vi) other unlevered investments (“unlevered other”), (vii) equity method investment in Local Media Group, (viii) corporate and (ix) prior to the spin-off, investments in excess mortgage servicing rights and consumer loans (“Excess MSRs and consumer loans”). With respect to the non-recourse CDOs and non-recourse other segments, subject to the passing of certain periodic coverage tests, Newcastle is generally entitled to receive the net cash flows from these structures on a periodic basis.

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 agreements.

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SEPTEMBER 30, 2013

(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:

NEWCASTLE INVESTMENT CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

SEPTEMBER 30, 2013

(dollars in tables in thousands, except share data)