|9 Months Ended|
Sep. 30, 2013
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. Newcaste 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 Newcastles 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 Newcastles 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 Newcastles 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 Newcastles 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 Newcastles Annual Report on Form 10-K filed with the SEC. Capitalized terms used herein, and not otherwise defined, are defined in Newcastles consolidated financial statements for the year ended December 31, 2012.
Certain prior period amounts have been reclassified to conform to the current periods presentation.
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 Newcastles reporting. Newcastle has not yet fully evaluated the potential impact of these proposals, but will make such an evaluation as the standards are finalized.
The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.
Reference 1: http://www.xbrl.org/2003/role/presentationRef