Quarterly report pursuant to Section 13 or 15(d)

EQUITY AND EARNINGS PER SHARE

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EQUITY AND EARNINGS PER SHARE
 9 Months Ended
Sep. 30, 2014
Stockholders' Equity Note [Abstract]  
EQUITY AND EARNINGS PER SHARE
13.   EQUITY AND EARNINGS PER SHARE
 
A. Stockholder's Equity
 
On August 6, 2014, Newcastle's board of directors approved a 1-for-3 reverse stock split of its common stock. The reverse stock split was effective after the close of trading on August 18, 2014, and the shares of Newcastle's common stock began trading on a reverse split-adjusted basis on the New York Stock Exchange beginning at the opening of trading on August 19, 2014.
 
On October 16, 2014, Newcastle's board of directors approved a 1-for-2 reverse stock split of its common stock. The reverse stock split was effective after the close of trading on October 22, 2014, and the shares of Newcastle's common stock began trading on a reverse split-adjusted basis on the New York Stock Exchange beginning at the opening of trading on October 23, 2014.
 
As a result of the reverse stock splits, between August 18, 2014 and October 22, 2014, every six shares of Newcastle's common stock were converted into one share of common stock, reducing the number of issued and outstanding shares of Newcastle's common stock from approximately 398 million to approximately 66 million.
 
No fractional shares were issued in connection with the reverse stock splits. Each stockholder who was otherwise entitled to receive a fractional share of Newcastle's common stock was entitled to receive a cash payment in lieu of a fractional share.
 
The reverse stock splits were not subject to stockholder approval and did not change the authorized number of shares of Newcastle or the par value of Newcastle's common stock or preferred stock.
 
All common shares, outstanding options and per share amounts for all periods were retroactively adjusted to reflect the reverse stock splits.
 
The following table presents shares of common stock issued by Newcastle in connection with public offerings during 2014:
 
 
 
 
 
 
 
 
 
Aggregate Shares Purchased
 
 
 
 
Number of
 
 
 
Net
 
by Principals of Fortress
 
Call Options Granted to Manager (A)
 
 
Shares
 
Price per Share
 
Proceeds
 
Number of
 
 
 
Number of
 
 
 
Grant Date Value
 
Date
 Issued
 
To Public
 
To Underwriters
 
(millions)
 
Shares
 
Price
 
Shares
 
Strike Price
 
(millions)
 
August 2014
7,654,166
 
 N/A
 
$
25.92

 
$
197.9

 
83,333
 
$
26.34

 
765,416
 
$
26.34

 
$
1.7

(B)
(A)
In connection with these offerings, Newcastle granted options to the Manager for the purpose of compensating the Manager for its successful efforts in raising capital for Newcastle.
(B)
The assumptions used in valuing the options were: a 2.7% risk-free rate, 8.6% dividend yield, 23.4% volatility and a 10 year term.
 
In July 2014, Newcastle issued an aggregate of 2,609 shares of its common stock to its independent directors as compensation.
 
In connection with the spin-off of New Media on February 13, 2014, the strike price of each Newcastle option was reduced by $5.34 to reflect the adjusted value of Newcastle’s shares as a result of the spin-off. The adjusted value was calculated based on the five day average closing price of the New Media's shares subsequent to the spin-off date.
 
In connection with the reverse stock splits, between August 18, 2014 and October 22, 2014, every six outstanding options were converted to one option, with no fractional options, and the strike price was increased by a factor of six.
 
Newcastle’s outstanding options at September 30, 2014 consisted of the following:
 
Number of Options
 
Strike Price (A)
 
Maturity Date
 
27,080

 
77.04

 
11/22/2014
 
54,999

 
72.18

 
1/12/2015
 
333

 
75.72

 
8/1/2015
 
28,331

 
71.70

 
11/1/2016
 
40,330

 
76.80

 
1/23/2017
 
76,000

 
67.14

 
4/11/2017
 
182,527

 
9.06

 
3/29/2021
 
283,305

 
5.16

 
9/27/2021
 
311,194

 
9.66

 
4/3/2022
 
377,500

 
11.04

 
5/21/2022
 
416,524

 
10.98

 
7/31/2022
 
958,331

 
18.18

 
1/11/2023
 
383,331

 
21.24

 
2/15/2023
 
670,829

 
22.56

 
6/17/2023
 
965,847

 
24.24

 
11/22/2023
 
765,416

 
26.34

 
8/18/2024
Total W/A
5,541,877

 
$
20.83

 
 
   
(A)
The strike prices are subject to adjustment in connection with return of capital dividends. In the first quarter of 2014 strike prices were adjusted by $1.92 (adjusted to reflect the reverse stock splits) reflecting the portion of Newcastle’s 2013 dividends which was deemed return of capital.
 
As of September 30, 2014, Newcastle’s outstanding options were summarized as follows:
 
Issued Prior to 2011
 
Issued in 2011 and thereafter
 
Total
Held by the Manager
179,186

 
4,833,961

 
5,013,147

Issued to the Manager and subsequently transferred to certain of the Manager's employees
47,554

 
480,843

 
528,397

Issued to the independent directors
333

 
—

 
333

Total
227,073

 
5,314,804

 
5,541,877

Weighted average strike price
$
71.84

 
$
18.65

 
$
20.83

 
On March 14, 2014, Newcastle declared a quarterly dividend of $0.60 per common share, and declared dividends of $0.609375, $0.503125 and $0.523438 per share on the 9.750% Series B, 8.050% Series C and 8.375% Series D preferred stock, respectively, for the quarter ended March 31, 2014. Dividends totaling $36.5 million were paid in April 2014.
 
On June 13, 2014, Newcastle declared a quarterly dividend of $0.60 per common share, and declared dividends of $0.609375, $0.503125 and $0.523438 per share on the 9.750% Series B, 8.050% Series C and 8.375% Series D preferred stock, respectively, for the quarter ended June 30, 2014. Dividends totaling $36.6 million were paid in July 2014.
 
On September 17, 2014, Newcastle declared a quarterly dividend of $0.60 per common share, and declared dividends of $0.609375, $0.503125 and $0.523438 per share on the 9.750% Series B, 8.050% Series C and 8.375% Series D preferred stock, respectively, for the quarter ended September 30, 2014. Dividends totaling $41.2 million were paid in October 2014.
 
B. Option Exercises
 
During the nine months ended September 30, 2014, employees of the Manager exercised 201,666 options with a weighted average exercise price of $6.72. Upon exercise, 160,342 shares of Newcastle common stock were issued reflecting the $4.1 million intrinsic value of the exercisable options net of the exercise price. In addition, 14,775 options were forfeited and transferred back to the Manager.
 
A Newcastle director exercised 333 options with an exercise price of $6.42 on August 27, 2014. Upon exercise, 254 shares of Newcastle common stock were issued reflecting the $6.9 thousand intrinsic value of the exercisable options net of the exercise price.
 
C. Earnings Per Share
 
Newcastle is required to present both basic and diluted earnings per share (“EPS”). Basic EPS is calculated by dividing net income available for common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted EPS is calculated by dividing net income available for common stockholders by the weighted average number of shares of common stock outstanding plus the additional dilutive effect of common stock equivalents during each period. Due to rounding, income per share from continuing operations and income per share from discontinued operations may not sum to the income per share of common stock. Newcastle’s common stock equivalents are its outstanding stock options. As of September 30, 2014, Newcastle had 227,079 antidilutive options. During the nine months ended September 30, 2014 and 2013, based on the treasury stock method, Newcastle had 1,781,669 and 1,044,116 dilutive common stock equivalents, respectively, resulting from its outstanding options. During the three months ended September 30, 2014 and 2013, based on the treasury stock method, Newcastle had 1,536,773 and 1,275,671 dilutive common stock equivalents, respectively, resulting from its outstanding options. Net income available for common stockholders is equal to net income less preferred dividends and net income attributable to noncontrolling interest.