Quarterly report pursuant to Section 13 or 15(d)

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

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PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
3 Months Ended
Mar. 31, 2013
Pro Forma Condensed Consolidated Financial Information  
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
16.  PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
 
The following unaudited pro forma condensed consolidated financial information was derived from the application of pro forma adjustments to the consolidated financial statements of Newcastle.  These unaudited pro forma condensed consolidated financial statements should be read in conjunction with the other information contained in these financial statements and related notes and with Newcastle’s historical consolidated financial statements.
 
The unaudited pro forma information set forth below reflects the historical information of Newcastle, as adjusted to give effect to the following transaction:
 
 
A spin-off in which Newcastle would separate certain of its investments from the rest of its assets by distributing shares of common stock of New Residential, which is currently a wholly-owned subsidiary of Newcastle.
 
The unaudited pro forma condensed consolidated statements of operations give effect to the spin-off of New Residential as if the spin-off had occurred on January 1, 2012 based on New Residential’s historical consolidated statement of operations. The unaudited pro forma condensed consolidated balance sheet assumes that the spin-off of New Residential occurred on March 31, 2013.
 
In the opinion of management, all adjustments necessary to reflect the effects of the potential transaction described above have been included and are based upon available information and assumptions that Newcastle believes are reasonable.
 
Further, the historical financial information presented herein has been adjusted to give pro forma effect to events that Newcastle believes are factually supportable and which are expected to have a continuing impact on Newcastle’s results. However, such adjustments are estimates and may not prove to be accurate. Information regarding these adjustments is subject to risks and uncertainties that could cause actual results to differ materially from those anticipated.
 
These unaudited pro forma condensed consolidated financial statements are provided for information purposes only. The unaudited pro forma condensed consolidated statements of operations and the unaudited pro forma condensed consolidated balance sheet do not purport to represent what Newcastle’s results of operations would have been had such transactions been consummated on the dates indicated, nor do they represent the financial position or results of operations of either Newcastle or New Residential for any future date or period.
 
 
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
At March 31, 2013
 
                   
   
Newcastle
   
Pro Forma
   
Newcastle
 
   
Consolidated
   
Adjustments
   
Consolidated
 
   
Historical (A)
   
New Residential
   
Pro Forma
 
Assets
                 
Real estate securities, available-for-sale
  $ 2,495,473     $ (1,598,868 ) (B)   $ 896,605  
Real estate related loans, held-for-sale, net
    851,525             851,525  
Residential mortgage loans, held-for-investment, net
    317,708       (35,484 ) (C)     282,224  
Residential mortgage loans, held-for-sale, net
    2,380             2,380  
Investments in excess mortgage servicing rights at fair value
    236,555       (236,555 ) (C)      
Investments in equity method investees at fair value
    102,588       (102,588 ) (C)      
Subprime mortgage loans subject to call option
    406,115             406,115  
Investments in real estate, net of accumulated depreciation
    168,515             168,515  
Intangibles, net of accumulated amortization
    16,218             16,218  
Other investments
    24,907             24,907  
Cash and cash equivalents
    534,772             534,772  (G)
Restricted cash
    11,494             11,494  
Derivative assets
    176             176  
Receivables and other assets
    27,577       (450 ) (C)     27,127  
 
  $ 5,196,003     $ (1,973,945 )   $ 3,222,058  
Liabilities and Stockholders' Equity
                       
Liabilities
                       
CDO bonds payable
  $ 1,015,560     $     $ 1,015,560  
Other bonds and notes payable
    173,723             173,723  
Repurchase agreements
    1,473,586       (1,182,212 ) (D)     291,374  
Mortgage notes payable
    120,525             120,525  
Financing of subprime mortgage loans subject to call option
    406,115             406,115  
Junior subordinated notes payable
    51,242             51,242  
Derivative liabilities
    26,612             26,612  
Dividends payable
    56,596             56,596  
Due to affiliates
    4,611       (938 ) (E)     3,673  
Purchase price payable on investments in excess mortgage servicing rights
    59       (59 ) (C)      
Accrued expenses and other liabilities
    17,875       (2,780 ) (C)     15,095  
 
  $ 3,346,504     $ (1,185,989 )   $ 2,160,515  
Stockholders' Equity
                       
Preferred stock
  $ 61,583     $     $ 61,583  
Common stock
    2,530             2,530  
Additional paid-in capital
    2,472,931             2,472,931  
Accumulated deficit
    (790,143 )     (756,247 ) (F)     (1,546,390 )
Accumulated other comprehensive income (loss)
    102,598       (31,709 ) (C)     70,889  
    $ 1,849,499     $ (787,956 )   $ 1,061,543  
 
  $ 5,196,003     $ (1,973,945 )   $ 3,222,058  
 
(A)
Represents Newcastle’s historical consolidated balance sheet at March 31, 2013.
(B)
Represents the fair value of New Residential’s real estate securities at March 31, 2013 adjusted to include securities owned by Newcastle at March 31, 2013 and contributed by Newcastle to New Residential subsequent to March 31, 2013.
(C)
Represents New Residential’s assets, liabilities and accumulated other comprehensive income at March 31, 2013.
(D)
Represents New Residential’s repurchase agreements at March 31, 2013 adjusted for the additional repurchase agreements to finance the real estate securities described in (B) above.
(E)
Represents a reduction of Newcastle’s due to affiliates for the allocation of one month of accrued and unpaid management fees from Newcastle to New Residential.
(F)
Represents the distribution of New Residential common stock to Newcastle shareholders.
(G)
Represents Newcastle’s cash and cash equivalents at March 31, 2013.  Newcastle will contribute cash to New Residential in connection with the spin-off subsequent to March 31, 2013.
 
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended March 31, 2013
 
   
Newcastle
   
Pro Forma
   
Newcastle
 
   
Consolidated
   
Adjustments
   
Consolidated
 
   
Historical (A)
   
New Residential (B)
   
Pro Forma
 
                   
Interest income
  $ 71,367     $ (16,191 )   $ 55,176  
Interest expense
    22,710       (899 )     21,811  
Net interest income
    48,657       (15,292 )     33,365  
                         
Impairment/(Reversal)
                       
   Valuation allowance (reversal) on loans
    2,234             2,234  
   Other-than-temporary impairment on securities
    422             422  
                         
   Portion of other-than-temporary impairment on securities recognized in other comprehensive income (loss), net of the reversal of other comprehensive loss into net income (loss)
    117             117  
      2,773             2,773  
                         
        Net interest income after impairment/reversal
    45,884       (15,292 )     30,592  
                         
Other Revenues
                       
   Rental income
    12,887             12,887  
   Care and ancillary income
    613             613  
        Total other revenues
    13,500             13,500  
                         
Other Income (Loss)
                       
   Gain (loss) on settlement of investments, net
    (3 )           (3 )
   Gain on extinguishment of debt
    1,206             1,206  
   Change in fair value of investments in excess mortgage servicing rights
    1,858       (1,858 )      
   Change in fair value of investments in equity method investees
    969       (969 )      
   Other income (loss), net
    4,567             4,567  
      8,597       (2,827 )     5,770  
Expenses
                       
   Loan and security servicing expense
    1,034             1,034  
   Property operating expenses
    8,363             8,363  
   General and administrative expense
    6,911       (2,719 )     4,192  
   Management fee to affiliate
    9,565       (2,325 )     7,240  
   Depreciation and amortization
    4,079             4,079  
      29,952       (5,044 )     24,908  
Income from continuing operations
    38,029       (13,075 )     24,954  
   Preferred dividends
    (1,395 )           (1,395 )
Income from continuing operations after preferred dividends
  $ 36,634     $ (13,075 )   $ 23,559  
Income from continuing operations per share of common stock, after preferred dividends
                       
 Basic
  $ 0.16             $ 0.10  
 Diluted
  $ 0.15             $ 0.10  (C)
Weighted Average Number of Shares of Common Stock Outstanding
                       
Basic
    235,136,756               235,136,756  
Diluted
    240,079,144               240,079,144  (C)
 

 

 
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
12 Months Ended December 31, 2012
 
   
Newcastle
   
Pro Forma
   
Newcastle
 
   
Consolidated
   
Adjustments
   
Consolidated
 
   
Historical (A)
   
New Residential (B)
   
Pro Forma
 
                   
Interest income
  $ 310,459     $ (33,759 )   $ 276,700  
Interest expense
    109,924       (704 )     109,220  
Net interest income
    200,535       (33,055 )     167,480  
                         
Impairment/(Reversal)
                       
   Valuation allowance (reversal) on loans
    (24,587 )           (24,587 )
   Other-than-temporary impairment on securities
    19,359             19,359  
                         
   Portion of other-than-temporary impairment on securities recognized in other comprehensive income (loss), net of the reversal of other comprehensive loss into net income (loss)
    (436 )           (436 )
      (5,664 )           (5,664 )
                         
        Net interest income after impairment/reversal
    206,199       (33,055 )     173,144  
                         
Other Revenues
                       
   Rental income
    17,081             17,081  
   Care and ancillary income
    2,994             2,994  
        Total other revenues
    20,075             20,075  
                         
Other Income (Loss)
                       
   Gain (loss) on settlement of investments, net
    232,897             232,897  
   Gain on extinguishment of debt
    24,085             24,085  
   Change in fair value of investments in excess mortgage servicing rights
    9,023       (9,023 )      
   Other income (loss), net
    13,712       (8,400 )     5,312  
      279,717       (17,423 )     262,294  
Expenses
                       
   Loan and security servicing expense
    4,260             4,260  
   Property operating expenses
    12,943             12,943  
   General and administrative expense
    22,942       (5,878 )     17,064  
   Management fee to affiliate
    24,693       (3,353 )     21,340  
   Depreciation and amortization
    6,975             6,975  
      71,813       (9,231 )     62,582  
Income from continuing operations
    434,178       (41,247 )     392,931  
   Preferred dividends
    (5,580 )           (5,580 )
Income from continuing operations after preferred dividends
  $ 428,598     $ (41,247 )   $ 387,351  
Income from continuing operations per share of common stock, after preferred dividends
                       
 Basic
  $ 2.97             $ 2.69  
 Diluted
  $ 2.94             $ 2.66  (C)
Weighted Average Number of Shares of Common Stock Outstanding
                       
Basic
    144,146,370               144,146,370  
Diluted
    145,766,413               145,766,413  (C)
 
(A)
Represents Newcastle’s historical consolidated statement of operations for the three months ended March 31, 2013 and the year ended December 31, 2012.
(B)
Represents New Residential’s historical consolidated statement of operations for the three months ended March 31, 2013 and the year ended December 31, 2012.
(C)
Does not include potential additional diluted shares as a result of changes to outstanding Newcastle options from the spin-off.  The number of additional diluted shares will depend on various factors, including the share prices of Newcastle and New Residential subsequent to the spin-off.