Annual report pursuant to Section 13 and 15(d)

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
12 Months Ended
Dec. 31, 2013
Unaudited Pro Forma Condensed Consolidated Financial Information  
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
22. UNAUDITED 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. The unaudited pro forma condensed consolidated statement of income and unaudited pro forma condensed consolidated balance sheet 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 transactions:

     
  • The spin-off of New Residential from Newcastle in May 2013,
  • The acquisition of the Holiday Portfolio in December 2013,
  • The 17-year triple net master leases related to the Holiday Portfolio, and
  • The spin-off of New Media from Newcastle in February 2014.

The unaudited pro forma condensed consolidated statement of income gives effect to the above transactions as if they had occurred on January 1, 2013. The unaudited pro forma condensed consolidated balance sheet assumes that the Media spin-off occurred on December 31, 2013.

In the opinion of management, all adjustments necessary to reflect the effects of the transactions 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 statement of income does not purport to represent what Newcastle’s results of operations would have been had such transactions been consummated on the date indicated, nor does it represent the results of operations of either Newcastle, New Residential or New Media for any future date or period.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
At December 31, 2013

                     
    Newcastle
Consolidated
Historical (A)
  Pro Forma
Adjustments Media
Spin-off (B)
  Newcastle
Consolidated
Pro Forma
 
Assets                    
Real estate securities, available-for-sale   $ 984,263     —   $ 984,263  
Real estate related and other loans, held-for-sale, net     437,530     —     437,530  
Residential mortgage loans, held-for-investment, net     255,450     —     255,450  
Residential mortgage loans, held-for-sale, net     2,185     —     2,185  
Subprime mortgage loans subject to call option     406,217     —     406,217  
Investments in senior housing real estate, net of accumulated depreciation     1,362,900     —     1,362,900  
Investments in other real estate, net of accumulated depreciation     266,170     —     266,170  
Property, plant and equipment, net of accumulated depreciation     270,188     (270,188 )   —  
Intangibles, net of accumulated amortization     345,125     (145,401 )   199,724  
Goodwill     126,686     (126,686 )   —  
Other investments     25,468     —     25,468  
Cash and cash equivalents     105,944     (31,811 )   74,133  
Restricted cash     12,366     (6,477 )   5,889  
Receivables and other assets     252,071     (110,183 )   141,888  
                  —  
Total Assets   $ 4,852,563   $ (690,746 ) $ 4,161,817  
                     
Liabilities and Equity                    
Liabilities                    
CDO bonds payable   $ 544,525   $ —   $ 544,525  
Other bonds and notes payable     230,279     —     230,279  
Repurchase agreements     556,347     —     556,347  
Mortgage notes payable     1,076,828     —     1,076,828  
Credit facilities, media and golf     334,514     (182,016 )   152,498  
Financing of subprime mortgage loans subject to call option     406,217     —     406,217  
Junior subordinated notes payable     51,237     —     51,237  
Dividends payable     36,075     —     36,075  
Accounts payable, accrued expenses and other liabilities     390,417     (113,164 )   277,253  
Total Liabilities   $ 3,626,439   $ (295,180 ) $ 3,331,259  
 
Equity                    
Preferred stock   $ 61,583   $ —   $ 61,583  
Common stock     3,515     —     3,515  
Additional paid-in capital     2,970,786     (334,653 )   2,636,133  
Accumulated deficit     (1,947,913 )   —     (1,947,913 )
Accumulated other comprehensive income     76,874     —     76,874  
Noncontrolling interests     61,279     (60,913 )   366  
Total Equity   $ 1,226,124   $ (395,566 ) $ 830,558  
 
Total Liabilities and Equity   $ 4,852,563   $ (690,746 ) $ 4,161,817  
   
(A) Represents Newcastle’s historical consolidated balance sheet at December 31, 2013.
(B) Represents New Media’s historical consolidated balance sheet at December 31, 2013.

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year ended December 31, 2013

                                 
        Pro Forma Adjustments      
                       
    Newcastle
Consolidated
Historical (A)
  New Residential
Spin-off (B)
  Holiday
Portfolio
Acquisition
  Media
Spin-off (C)
  Newcastle
Consolidated Pro
Forma
 
Interest income   $ 213,715   $ (12,019 ) $ —   $ (8,399 )   193,297  
Interest expense     90,973     (2,152 )   33,844 (D)   (1,591 )   121,074  
Net interest income     122,742     (9,867 )   (33,844 )   (6,808 )   72,223  
Impairment (Reversal)                                
Valuation allowance (reversal) on loans     (25,035 )   —     —     12,027     (13,008 )
Other-than-temporary impairment on securities     5,222     (3,756 )   —     —     1,466  
Impairment of long-lived assets     —     —     —     —     —  
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)     44     —     —     —     44  
      (19,769 )   (3,756 )   —     12,027     (11,498 )
Net interest income (loss) after impairment/reversal     142,511     (6,111 )   (33,844 )   (18,835 )   83,721  
Other Revenues                                
Rental income     74,936     —     87,625 (E)   —     162,561  
Care and ancillary income - senior housing     12,387     —     —     —     12,387  
Advertising income - media     38,757     —     —     (38,757 )   —  
Circulation income - media     16,649     —     —     (16,649 )   —  
Commercial printing and other income - media     6,231     —     —     (6,231 )   —  
Total other revenues     148,960     —     87,625     (61,637 )   174,948  
Other Income (Loss)                                
Gain (loss) on settlement of investments, net     17,369     (58 )   —   (7,216 )   10,095  
Gain on extinguishment of debt     4,565     —     —     —     4,565  
Equity in earnings of Local Media Group     1,870     —     —     (1,870 )   —  
Other income (loss), net     13,340     —     —     (1,514 )   11,826  
      37,144     (58 )   —     (10,600 )   26,486  
Expenses                                
Loan and security servicing expense     3,857     (108 )   —     —     3,749  
Property operating expenses     53,718     —     —     —     53,718  
Media operating expenses     49,092     —     —     (49,092 )   —  
General and administrative expense     36,775     (38 )   —     (1,579 )   35,158  
Management fee to affiliate     33,091     (4,134 )   4,038 (F)    —     32,995  
Depreciation and amortization     30,973     —     48,264 (G)   (3,845 )   75,392  
      207,506     (4,280 )   52,302   (54,516 )   201,012  
Income (loss) from continuing operations before income tax     121,109     (1,889 )   1,479     (36,556 )   84,143  
Income tax expense     2,100     —     —     (1,062 )   1,038  
Income from continuing operations     119,009     (1,889 )   1,479     (35,494 )   83,105  
Income from discontinued operations     33,332     —     —     —     33,332  
Net income     152,341     (1,889 )   1,479     (35,494 )   116,437  
Preferred dividends     (5,580 )   —     —   —     (5,580 )
Net income attributable to noncontrolling interests     (928 )   —     —     928     —  
Income (loss) applicable to common stockholders   $ 145,833   $ (1,889 ) $ 1,479   $ (34,566 ) $ 110,857  
                                 
Income (loss) from continuing operations per share of common stock, after preferred dividends and noncontrolling interest                                
Basic     0.41                       0.24 (H)
Diluted     0.40                       0.23 (H)
Weighted Average Number of Shares of Common Stock Outstanding                                
Basic     276,881,294                       328,481,457 (H)
Diluted     283,309,645                       334,909,808 (H)

   
(A) Represents Newcastle’s historical consolidated statement of income for the year ended December 31, 2013, excluding discontinued operations.
(B) Represents the portion of New Residential’s historical consolidated statement of income for the period from January 1, 2013 to May 15, 2013 that is not included in Newcastle’s income (loss) from discontinued income. After the May 15, 2013 spin-off of New Residential from Newcastle, no results of New Residential have been reported in Newcastle’s consolidated statement of income.
(C) Represents the portion of New Media’s historical consolidated statement of income for the year ended December 31, 2013, the impact of the GateHouse debt held by Newcastle through the November 26, 2013 restructuring and the equity method investment income recorded for the investment in Local Media Group for the period from September 3, 2013 until November 26, 2013.
(D) Represents the estimated interest expense on the loan related to the acquisition of the Holiday Portfolio including the estimated amortization of deferred financing costs.
(E) Represents the estimated rental income from the independent senior housing properties acquired under a triple net lease agreement for the year ended December 31, 2013.
(F) Represents the estimated management fees for the year ended December 31, 2013 that Newcastle would have paid Fortress Investment Group LLC as a result of the public offering of common stock in November 2013.
(G) Represents the estimated depreciation expense for the year ended December 31, 2013 based on the carrying value of the assets acquired and their estimated useful life.
(H) Weighted average number of shares of common stock outstanding and income from continuing operations per share of common stock, after preferred dividends and noncontrolling interest, were adjusted retrospectively to reflect the issuance of 57,950,952 shares on November 22, 2013, the proceeds of which were used to fund a portion of the purchase price for the Holiday Portfolio. Weighted average number of shares of common stock outstanding and income from continuing operations per share of common stock, after preferred dividends and noncontrolling interest were not adjusted to include potential additional diluted shares as a result of the changes to outstanding Newcastle options from the spin-offs. The number of additional diluted shares will depend on various factors, including the share prices of Newcastle, New Residential and New Media subsequent to the spin-offs.
(I) The effect of the Holiday Portfolio acquisition on 2012 revenue if Newcastle had consummated the acquisition as of January 1, 2012 would have been $89.3 million. The effect of this acquisition on income from continuing operations would have been $0.1 million.