Annual report pursuant to Section 13 and 15(d)

EQUITY AND EARNINGS PER SHARE

v3.3.1.900
EQUITY AND EARNINGS PER SHARE
 12 Months Ended
Dec. 31, 2015
Stockholders' Equity Note [Abstract]  
EQUITY AND EARNINGS PER SHARE
EQUITY AND EARNINGS PER SHARE
Earnings per Share
Newcastle is required to present both basic and diluted earnings per share (“EPS”). The following table shows the amounts used in computing basic and diluted EPS:
 
 
For Year Ended December 31,
 
 
2015
 
2014
 
2013
Numerator for basic and diluted earnings per share:
 
 
 
 
 
 
Income from continuing operations after preferred dividends and noncontrolling interest
 
$
15,621

 
$
62,855

 
$
134,286

Income (loss) from discontinued operations, net of tax
 
646

 
(35,189
)
 
11,547

Income Applicable to Common Stockholders
 
$
16,267

 
$
27,666

 
$
145,833

 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
Denominator for basic earnings per share - weighted average shares
 
66,479,321

 
61,500,913

 
46,146,882

Effect of dilutive securities
 
 
 
 
 
 
Options
 
2,168,594

 
1,630,314

 
1,071,392

Denominator for diluted earnings per share - adjusted weighted average shares
 
68,647,915

 
63,131,227

 
47,218,274

 
 
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
Income from continuing operations per share of common stock, after preferred dividends and noncontrolling interest
 
$
0.23

 
$
1.02

 
$
2.91

Income (loss) from discontinued operations per share of common stock
 
$
0.01

 
$
(0.57
)
 
$
0.25

Income Applicable to Common Stock, per share
 
$
0.24

 
$
0.45

 
$
3.16

 
 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
Income from continuing operations per share of common stock, after preferred dividends and noncontrolling interest
 
$
0.23

 
$
1.00

 
$
2.84

Income (loss) from discontinued operations per share of common stock
 
$
0.01

 
$
(0.57
)
 
$
0.24

Income Applicable to Common Stock, per share
 
$
0.24

 
$
0.44

 
$
3.09


Basic EPS is calculated by dividing net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted EPS is calculated by dividing net income (loss) applicable to 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 options. During 2015, 2014 and 2013, based on the treasury stock method, Newcastle had 2,168,594, 1,630,314, and 1,071,392, dilutive common stock equivalents, respectively, resulting from its outstanding options. As of December 31, 2015, 2014 and 2013, Newcastle had 259,277, 1,931,257, and 387,044 antidilutive options, respectively. Net income (loss) applicable to common stockholders is equal to net income (loss) less preferred dividends.

Common Stock Offerings
The following table presents shares of common stock issued by Newcastle in connection with public offerings since 2013:
 
 
 
 
Price per Share
 
 
 
Aggregate Shares purchased by
Principals of Fortress
 
Options Granted to Manager (A)
Date
 
Number
of Shares
Issued
 
To
Public
 
To Underwriters
 
Net
Proceeds
(millions)
 
Number
of Shares
 
Price
 
Number
of Shares
 
Grant Date Strike
Price
 
Grant Date
Value (millions)
January 2013
 
9,583,333
 
$
56.10

 
N/A

 
$
526.2

 
35,650

 
$
56.10

 
958,333
 
$
56.10

 
$
18.0

February 2013
 
3,833,333
 
N/A

 
$
62.04

 
$
237.4

 
31,833

 
$
62.88

 
383,333
 
$
62.88

 
$
8.4

June 2013
 
6,708,333
 
N/A

 
$
29.52

 
$
197.6

 
125,000

 
$
29.82

 
670,833
 
$
29.82

 
$
3.8

November 2013
 
9,658,492
 
N/A

 
$
31.26

 
$
301.4

 
75,159

 
$
31.50

 
965,849
 
$
31.50

 
$
6.0

August 2014
 
7,654,166
 
N/A

 
$
25.92

 
$
197.9

 
83,333

 
$
26.34

 
765,416
 
$
26.34

 
$
1.7


(A)
In connection with these offerings, Newcastle granted options to the Manager for the purpose of compensating the Manager for its role in raising capital for Newcastle.
(B)
This figure also includes shares purchased by officers of Newcastle.

In December 2015, Newcastle issued an aggregate of 18,798 shares of its common stock to its independent directors as part of annual compensation.

Option Plan
In June 2002, (with the approval of our board of directors) we adopted the Newcastle Nonqualified Stock Option and Incentive Award Plan (the "Newcastle Option Plan"), for officers, directors, consultants and advisors, including the Manager and its employees.
In May 2012, our board of directors adopted the 2012 Newcastle Nonqualified Stock Option and Incentive Plan (the "2012 Plan") which was approved by our shareholders. The 2012 Plan was adopted as the successor to the Newcastle Option Plan for officers, directors, consultants and advisors, including the Manager and its employees, and facilitated the continued use of long-term equity-based awards and incentives for the benefit of the service providers to us and our Manager.

On April 8, 2014, our board of directors adopted the 2014 Plan, which was approved by our shareholders and was amended and restated by our board of directors as of September 17, 2014 to reflect the 1-for-3 reverse stock split, which was effective after the close of trading on August 18, 2014, and as of November 3, 2014 to reflect the 1-for-2 reverse stock split, which was effective after the close of trading on October 22, 2014. The 2014 Plan was adopted as the successor to the 2012 Plan for officers, directors, consultants and advisors, including the Manager and its employees, and facilitated the continued use of long-term equity-based awards and incentives for the benefit of the service providers to us and our Manager.
On April 16, 2015, our board of directors adopted the 2015 Newcastle Investment Corp. Nonqualified Option and Incentive Award Plan (the “2015 Plan”), which was approved by our shareholders. The 2015 Plan is the successor to the 2014 Plan for officers, directors, consultants and advisors, including the Manager and its employees, and is intended to facilitate the continued use of long-term equity-based awards and incentives for the benefit of the service providers to us and our Manager. The maximum number of shares available for issuance under the 2015 Plan is 300,000 shares, as increased on the date of any equity issuance by us during the one-year term of the 2015 Plan by ten percent of the equity securities issued by us in such equity issuance.

All outstanding options granted under the 2014 Plan, 2012 Plan and the Newcastle Option Plan will continue to be subject to the terms and conditions set forth in the agreements evidencing such options and the terms of the 2014 Plan, 2012 Plan and the Newcastle Option Plan. Our board of directors may also determine to issue options to the Manager that are not subject to the 2015 Plan, provided that the number of shares underlying any options granted to the Manager in connection with capital raising efforts would not exceed 10% of the shares sold in such offering and would be subject to NYSE rules. Upon exercise, all options will be settled in an amount of cash equal to the excess of the fair market value of a share of common stock on the date of exercise over the strike price per share, unless advance approval is made to settle the option in shares of common stock.

On May 7, 2015, and pursuant to the anti-dilution provisions of the the 2014 Plan, the 2012 Plan and Newcastle Option Plan, as applicable, Newcastle’s board of directors approved an equitable adjustment of all outstanding options in order to account for the impact of the 2014 return of capital distributions. The equitable adjustment entails a strike price adjustment and the issuance of additional options which were determined so as to compensate for the loss in value that would have otherwise occurred as a result of the 2014 return of capital distributions. As a result of this adjustment, options relating to a total of 178,740 shares were issued on May 7, 2015 at a strike price of $1.00 per share.
Upon joining the board, the non-employee directors were, in accordance with the Newcastle Option Plan or the 2015 Plan, as applicable, automatically granted options relating to an aggregate of 3,333 shares of common stock. The fair value of such options was not material at the date of grant.
For the purpose of compensating the Manager for its role in raising capital for Newcastle, the Manager has been granted options relating to shares of Newcastle’s common stock, with strike prices subject to adjustment as necessary to preserve the value of such options in connection with the occurrence of certain events (including capital dividends and capital distributions made by Newcastle). These options represented an amount equal to 10% of the shares of common stock of Newcastle sold in its public offerings and the value of such options was recorded as an increase in equity with an offsetting reduction of capital proceeds received. The options granted to the Manager, which may be assigned by Fortress to its employees, were fully vested on the date of grant and one thirtieth of the options become exercisable on the first day of each of the following thirty calendar months, or earlier upon the occurrence of certain events, such as a change in control of Newcastle or the termination of the Management Agreement. These options will be settled in an amount of cash equal to the excess of the fair market value of a share of common stock on the date of exercise over the strike price per share, unless a majority of the independent members of Newcastle’s board of directors determine to settle the option in shares of common stock. The options expire ten years from the date of issuance.
In connection with the spin-off of New Residential on May 15, 2013, 3.6 million options that were held by the Manager, or by the directors, officers or employees of the Manager, were converted into an adjusted Newcastle option and a new New Residential option. The strike price of each adjusted Newcastle option and New Residential option was set to collectively maintain the intrinsic value of the Newcastle option immediately prior to the spin-off of New Residential and to maintain the ratio of the strike price of the adjusted Newcastle option and the New Residential option, respectively, to the fair market value of the underlying shares as of the spin-off date, in each case based on the five day average closing price subsequent to the spin-off date.

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 spin-off of New Senior on November 6, 2014, 5.5 million options that were held by the Manager, or by the directors, officers or employees of the Manager, were converted into an adjusted Newcastle option and a new New Senior option. The strike price of each adjusted Newcastle option and New Senior option was set to collectively maintain the intrinsic value of the Newcastle option immediately prior to the spin-off of New Senior and to maintain the ratio of the strike price of the adjusted Newcastle option and the New Senior option, respectively, to the fair market value of the underlying shares as of the spin-off date, in each case based on the five day average closing price subsequent to the spin-off date.
The following is a summary of the changes in Newcastle's outstanding options for the year ended December 31, 2015.
 
 
Number of Options
 
Weighted Average Strike Price
 
Weighted Average Life Remaining (in years)
Balance at December 31, 2014
 
5,500,599

 
$
4.26

 
 
Granted
 
178,740

 
1.00

 
 
Exercised
 
(202,446
)
 
1.00

 
 
Expired
 
(55,332
)
 
14.92

 
 
Forfeited
 
—

 
—

 
 
Balance at December 31, 2015
 
5,421,561

 
$
2.85

 
6.79 years
 
 
 
 
 
 
 
Exercisable at December 31, 2015
 
4,723,210

 
$
2.75

 
6.52 years

Newcastle's outstanding options were summarized as follows:
 
Year Ended December 31, 2015
 
Year Ended December 31, 2014
 
Issued Prior
to 2011
 
Issued in 2011
and thereafter
 
Total
 

Issued Prior to 2011
 
Issued in 2011
and thereafter
 
Total
Held by the Manager
115,239

 
5,010,243

 
5,125,482

 
157,791

 
4,833,961

 
4,991,752

Issued to the Manager and subsequently transferred to certain Manager’s employees
29,422

 
266,657

 
296,079

 
41,869

 
466,645

 
508,514

Issued to the independent directors
—

 
—

 
—

 
333

 
—

 
333

Total
144,661

 
5,276,900

 
5,421,561

 
199,993

 
5,300,606

 
5,500,599



The following table summarizes Newcastle’s outstanding options at December 31, 2015. Note that the last sales price on the New York Stock Exchange for Newcastle’s common stock in the year ended December 31, 2015 was $4.08 per share.
Recipient
 
Date of Grant/Exercise
 
Number of Options (A)
 
Options Exercisable at
December 31, 2015
 
Weighted Average
Strike Price (A)
 
Fair Value At Grant
Date (millions) (B)
 
Intrinsic Value at
December 31, 2015
(millions)
Directors
 
Various
 
3,333

 
—

 
$
—

 
Not Material
 
—

Manager (C)
 
2002 - 2007
 
587,277

 
144,661

 
$
13.18

 
$
6.4

 
—

Manager (C)
 
Mar-11
 
311,853

 
206,881

 
$
1.00

 
$
7.0

(I)
$
0.6

Manager (C)
 
Sep-11
 
524,212

 
376,268

 
$
1.00

 
$
5.6

(J)
$
1.2

Manager (C)
 
Apr-12
 
348,352

 
279,452

 
$
1.00

 
$
5.6

(K)
$
0.9

Manager (C)
 
May-12
 
396,316

 
316,871

 
$
1.00

 
$
7.6

(L)
$
1.0

Manager (C)
 
Jul-12
 
437,991

 
353,674

 
$
1.00

 
$
8.3

(M)
$
1.1

Manager (C)
 
Jan-13
 
958,331

 
872,528

 
$
2.32

 
$
18.0

(N)
$
1.5

Manager (C)
 
Feb-13
 
383,331

 
349,011

 
$
2.95

 
$
8.4

(O)
$
0.4

Manager (C)
 
Jun-13
 
670,829

 
610,770

 
$
3.23

 
$
3.8

(P)
0.5

Manager (C)
 
Nov-13
 
965,847

 
804,873

 
$
3.57

 
$
6.0

(Q)
0.4

Manager (C)
 
Aug-14
 
765,416

 
408,221

 
$
4.01

 
$
1.7

(R)
0.1

Exercised (D)
 
Prior to 2008
 
(173,853
)
 
N/A

 
$
14.09

 
N/A

 
N/A

Exercised (E)
 
Oct-12
 
(15,972
)
 
N/A

 
$
1.48

 
N/A

 
N/A

Exercised (F)
 
Sep-13
 
(51,306
)
 
N/A

 
$
1.67

 
N/A

 
N/A

Exercised (G)
 
2014
 
(216,186
)
 
N/A

 
$
1.46

 
N/A

 
N/A

Exercised (H)
 
2015
 
(202,446
)
 
N/A

 
1.00

 
N/A

 
N/A

Expired unexercised
 
2002-2005
 
(271,764
)
 
N/A

 
N/A

 
N/A

 
N/A

Outstanding
 
 
 
5,421,561

 
4,723,210

 
 
 
 
 
 

(A)
The strike prices are subject to adjustment in connection with return of capital dividends and spin-offs. A portion of Newcastle’s 2008 dividends was deemed return of capital dividends. The effect on the strike prices was not significant. In the first quarter of 2014, strike prices were adjusted by $0.32 reflecting the portion of Newcastle's 2013 dividends which was deemed return of capital. The strike prices were adjusted for the New Residential, New Media and New Senior spin-offs as described above. On May 7, 2015, and pursuant to the anti-dilution provisions of the 2014 Plan, 2012 Plan and Newcastle Option Plan, as applicable, Newcastle’s board of directors approved an equitable adjustment of all outstanding options in order to account for the impact of the 2014 return of capital distributions. The equitable adjustment entails a strike price adjustment and the issuance of additional options which were determined so as to compensate for the loss in value that would have otherwise occurred as a result of the 2014 return of capital distributions. As a result of this adjustment, options relating to a total of 178,740 shares were issued on May 7, 2015 at a strike price of $1.00 per share as detailed below.
Grant Date
 
Number of Options Issued
Mar-11
 
24,354

Sep-11
 
92,963

Apr-12
 
32,105

May-12
 
12,987

Jul-12
 
16,331

Total options issued
 
178,740



As of December 31, 2015, the weighted average strike price of the outstanding options issued prior to 2011 was $13.18.
(B)
The fair value of the options was estimated using an option valuation model. Since the Newcastle Option Plan, 2012 Plan, 2014 Plan and 2015 Plan have characteristics significantly different from those of traded options, and since the assumptions used in such model, particularly the volatility assumption, are subject to significant judgment and variability, the actual value of the options could vary materially from management’s estimate. The volatility assumption for these options was estimated based primarily on the historical volatility of Newcastle’s common stock and management’s expectations regarding future volatility. The expected life assumption for options issued prior to 2011 was estimated based on the simplified term method. This simplified method was used because Newcastle did not have sufficient historical data to conclude on the appropriate expected life of its options and because historical data to date was consistent with the simplified term method. The expected life assumption for options issued in 2011 and thereafter was estimated based primarily on the historical expected life of applicable previously issued options.
(C)
The Manager assigned certain of its options to Fortress’s employees as follows:
Date of Grant
 
Range of Strike Prices
 
Total Unexercised Inception to Date
2006
 
$13.38
 
6,373

2007
 
$12.44 - $14.44
 
23,049

2011
 
$1.00
 
—

2012
 
$1.00
 
—

2013
 
$2.32 - $3.57
 
266,657

 
 
Total
 
296,079



(D)
111,770 of the total options exercised were by the Manager. 61,417 of the total options exercised were by employees of Fortress subsequent to their assignment. 666 of the total options exercised were by directors.
(E)
Exercised by employees of Fortress subsequent to their assignment. The options exercised had an intrinsic value of $0.2 million.
(F)
Exercised by employees of Fortress subsequent to their assignment. The options exercised had an intrinsic value of $0.9 million.
(G)
215,853 options were exercised by employees of Fortress subsequent to their assignment with an intrinsic value of $4.1 million. 333 options were exercised by directors with a minimal intrinsic value.
(H)
Exercised by employees of Fortress subsequent to their assignment. The options exercised had an intrinsic value of $0.8 million.
(I)
The assumptions used in valuing the options were: a 1.7% risk-free rate, 107.8% volatility and a 3.3 year expected term.
(J)
The assumptions used in valuing the options were: a 1.13% risk-free rate, 13.2% dividend yield, 151.1% volatility and a 4.6 year expected term.
(K)
The assumptions used in valuing the options were: a 1.3% risk-free rate, 12.9% dividend yield, 149.4% volatility and a 4.7 year expected term.
(L)
The assumptions used in valuing the options were: a 1.05% risk-free rate, 11.9% dividend yield, 148.4% volatility and a 4.8 year expected term.
(M)
The assumptions used in valuing the options were: a 0.75% risk-free rate, 11.9% dividend yield, 147.5% volatility and a 4.8 year expected term.rice
(N)
The assumptions used in valuing the options were: a 2.0% risk-free rate, 8.8% dividend yield, 56.2% volatility and a 10 year term.
(O)
The assumptions used in valuing the options were: a 2.1% risk-free rate, 7.8% dividend yield, 55.5% volatility and a 10 year term.
(P)
The assumptions used in valuing the options were: a 2.5% risk-free rate, 8.8% dividend yield, 36.9% volatility and a 10 year term.
(Q)
The assumptions used in valuing the options were: a 2.8% risk-free rate, 6.7% dividend yield, 32.0% volatility and a 10 year term.
(R)
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.
Preferred Stock
In March 2003, Newcastle issued 2.5 million shares ($62.5 million face amount) of its 9.75% Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred”). In October 2005, Newcastle issued 1.6 million shares ($40.0 million face amount) of its 8.05% Series C Cumulative Redeemable Preferred Stock (the “Series C Preferred”). In March 2007, Newcastle issued 2.0 million shares ($50.0 million face amount) of its 8.375% Series D Cumulative Redeemable Preferred Stock (the “Series D Preferred”). The Series B Preferred, Series C Preferred and Series D Preferred are non-voting, have a $25 per share liquidation preference, no maturity date and no mandatory redemption. Newcastle has the option to redeem the Series B Preferred, the Series C Preferred and the Series D Preferred, at their liquidation preference. If the Series C Preferred or Series D Preferred cease to be listed on the NYSE or the AMEX, or quoted on the NASDAQ, and Newcastle is not subject to the reporting requirements of the Exchange Act, Newcastle has the option to redeem the Series C Preferred or Series D Preferred, as applicable, at their liquidation preference and, during such time any shares of Series C Preferred or Series D Preferred are outstanding, the dividend will increase to 9.05% or 9.375% per annum, respectively.
In connection with the issuance of the Series B Preferred, Series C Preferred and Series D Preferred, Newcastle incurred approximately $2.4 million, $1.5 million, and $1.8 million of costs, respectively, which were netted against the proceeds of such offerings. If any series of preferred stock were redeemed, the related costs would be recorded as an adjustment to income available for common stockholders at that time.
In March 2010, Newcastle settled its offer to exchange (the “Exchange Offer”) shares of its common stock and cash for shares of its preferred stock. After settlement of the Exchange Offer, 1,347,321 shares of Series B Preferred Stock, 496,000 shares of Series C Preferred Stock and 620,000 shares of Series D Preferred Stock remain outstanding for trading on the New York Stock Exchange.
As of January 31, 2016, Newcastle had paid all current and accrued dividends on its preferred stock.
Noncontrolling Interest
Newcastle’s noncontrolling interest in 2015 and 2014 is related to our investment in the Golf business, a portion of which Newcastle does not own.