NEW YORK, Aug. 14 /PRNewswire-FirstCall/ -- Fortress Investment Group
LLC (NYSE: FIG) today reported its results for the second quarter ended
June 30, 2007.
Second Quarter Highlights
-- Pre-tax distributable earnings of $143 million, up 86% from 2Q 2006
-- Total assets under management of $43.3 billion, up 70% from 2Q 2006
-- Management fee paying assets under management of $28.6 billion, up 68%
from 2Q 2006
-- Segment revenues of $283 million, an increase of 50% from 2Q 2006
-- GAAP net loss of $55 million in 2Q 2007 as compared to GAAP net loss of
$42 million in 2Q 2006
-- Declared second quarter dividend of $0.225 per share (or $0.90 per
share on an annualized basis), a 32.4% increase from our pre-IPO
annualized dividend of $0.68 per share
-- Refinanced existing $500 million credit facility with a new $1 billion
facility
-- Liquid Hedge Fund, Global Macro, received Moody's operations rating of
OQ1 (Operations Quality Excellent)
Subsequent Events in the Third Quarter
-- Private equity funds completed the liquidation of a public portfolio
company investment, yielding $56 million of incentive income, net of
employee allocations
-- Closed Fortress Investment Fund V and Fortress Coinvestment Fund V, for
a total of $5 billion of third party capital
-- Closed a $275 million principal co-investment through an affiliated
fund in Florida East Coast Industries, Inc. alongside various Fortress
funds
-- Hired Henry McVey as a Managing Director to lead new investment fund to
be formed by Fortress
Our GAAP net loss for the quarter was $55 million or $0.66 per diluted
Class A share. For a reconciliation between pre-tax distributable earnings
and our GAAP net loss see "Reconciliation of Pre-tax Distributable Earnings
to GAAP Net Income (Loss)" in this release. This compares to our GAAP net
loss for the quarter ended June 30, 2006 of $42 million for Fortress
Operating Group, our predecessor, or $0.12 per Fortress Operating Group
unit.
Distributable earnings and distributable earnings per dividend paying
share are supplemental measures of our operating performance that we
believe provide a meaningful basis for comparison between present and
future periods(1). We intend to target dividends that reflect a payout
ratio over time of approximately 75% of distributable earnings after tax
related payments and reserves.
Pre-tax distributable earnings for the quarter ended June 30, 2007 was
$143 million, or $0.33 per dividend paying share, which represents an
increase of 57% from our pre-tax distributable earnings of $0.21 per
dividend paying share in the second quarter of 2006.
The Company's quarterly segment revenues and distributable earnings
will fluctuate materially depending upon the realization events within our
private equity business, as well as other factors. Accordingly, the
revenues and profits in any particular quarter should not be expected to be
indicative of future results. Quarterly dividends are not necessarily
representative of the Company's earnings in the current quarter, but are
reflective of our anticipated performance over time.
The following discussion of our results is based on segment reporting
as presented in our Quarterly Report on Form 10-Q. Our GAAP income
statement and balance sheet are presented following this discussion. The
following table is a summary presentation of our segment performance with
supplemental data provided for informational purposes. For the
reconciliation of our segment results to the corresponding GAAP data, see
the reconciliation information included later in this release.
(1) Comparisons of after tax or per share amounts to periods prior to our
reorganization, including the first quarter of 2007 (prior to January
17), the first six months of 2006 and the second quarter of 2006, may
not be meaningful because of the impact of the reorganization
transactions.
Supplemental Data for Three Months(2),(3):
Three Months Ended June 30, 2007 Hedge Funds
Private
(in millions) Total Equity Liquid Hybrid Castles
Total AUM - Ending Balance $43,263 $23,432 $7,502 $8,047 $4,282
Management Fee Paying AUM
Management Fee Paying AUM -
April 1, 2007 $23,426 $8,398 $5,915 $6,146 $2,967
New capital raised, increase in
invested capital 4,495 2,681 1,024 584 206
Realizations (PE) / Redemptions
(Hedge Funds) (51) - (42) (9) -
+/- Net Asset Value change 699 (86) 519 266 -
Management Fee Paying AUM -
Ending Balance $28,569 $10,993 $7,416 $6,987 $3,173
Segment Revenues
Management fee $118 $36 $38 $32 $12
Incentive income 165 - 113 38 14
Total 283 36 151 70 26
Segment Expenses
Profit sharing compensation
expenses (82) (1) (58) (19) (4)
Operating expenses (66) (7) (18) (33) (8)
Total (148) (8) (76) (52) (12)
135 28 75 18 14
Investment Income(2) 15 - 4 10 1
Unallocated Investment Income 4
Unallocated Expenses (11)
Pre-tax Distributable Earnings $143 $28 $79 $28 $15
Weighted Average Dividend Paying
Shares and Units Outstanding(3) 431
Three Months Ended June 30, 2006 Hedge Funds
Private
(in millions) Total Equity Liquid Hybrid Castles
Total AUM - Ending Balance $25,461 $14,290 $4,347 $4,074 $2,750
Management Fee Paying AUM
Management Fee Paying AUM -
April 1, 2006 $14,489 $4,626 $4,239 $3,676 $1,948
New capital raised, increase in
invested capital 2,923 2,427 264 230 2
Realizations (PE) / Redemptions
(Hedge Funds) (737) (399) (336) (2) -
+/- Net Asset Value change 296 - 170 126 -
Management Fee Paying AUM -
Ending Balance $16,971 $6,654 $4,337 $4,030 $1,950
Segment Revenues
Management fee $73 $25 $22 $19 $7
Incentive income 116 71 16 25 4
Total 189 96 38 44 11
Segment Expenses
Profit sharing compensation
expenses (54) (27) (13) (11) (3)
Operating expenses (42) (2) (14) (19) (7)
Total (96) (29) (27) (30) (10)
93 67 11 14 1
Investment Income(2) (1) 2 (5) 3 (1)
Unallocated Investment Income -
Unallocated Expenses (15)
Pre-tax Distributable Earnings $77 $69 $6 $17 $-
Weighted Average Dividend Paying
Units Outstanding(3) 367
Supplemental Data for Six Months(2),(3):
Six Months Ended June 30, 2007 Hedge Funds
Private
(in millions) Total Equity Liquid Hybrid Castles
Management Fee Paying AUM
Management Fee Paying AUM -
January 1, 2007 $20,853 $7,539 $5,022 $5,450 $2,842
New capital raised, increase in
invested capital 7,462 4,251 1,776 1,104 331
Realizations (PE) / Redemptions
(Hedge Funds) (822) (691) (78) (53) -
+/- Net Asset Value change 1,076 (106) 696 486 -
Management Fee Paying AUM -
Ending Balance $28,569 $10,993 $7,416 $6,987 $3,173
Segment Revenues
Management fee $216 $63 $69 $61 $23
Incentive income 450 190 158 84 18
Total 666 253 227 145 41
Segment Expenses
Profit sharing compensation
expenses (205) (73) (87) (38) (7)
Operating expenses (121) (13) (35) (58) (15)
Total (326) (86) (122) (96) (22)
340 167 105 49 19
Investment Income(2) 41 9 7 23 2
Unallocated Investment Income 8
Unallocated Expenses (26)
Pre-tax Distributable Earnings $363 $176 $112 $72 $21
Weighted Average Dividend Paying
Shares and Units Outstanding(3) 417
Six Months Ended June 30, 2006 Hedge Funds
Private
(in millions) Total Equity Liquid Hybrid Castles
Management Fee Paying AUM
Management Fee Paying AUM -
January 1, 2006 $11,176 $3,635 $3,180 $3,095 $1,266
New capital raised, increase in
invested capital 6,156 3,418 1,314 740 684
Realizations (PE) / Redemptions
(Hedge Funds) (1,029) (399) (548) (82) -
+/- Net Asset Value change 668 - 391 277 -
Management Fee Paying AUM -
Ending Balance $16,971 $6,654 $4,337 $4,030 $1,950
Segment Revenues
Management fee $129 $38 $40 $36 $15
Incentive income 227 96 71 54 6
Total 356 134 111 90 21
Segment Expenses
Profit sharing compensation
expenses (109) (36) (42) (26) (5)
Operating expenses (70) (5) (19) (33) (13)
Total (179) (41) (61) (59) (18)
177 93 50 31 3
Investment Income(2) 36 2 28 7 (1)
Unallocated Investment Income 1
Unallocated Expenses (22)
Pre-tax Distributable Earnings $192 $95 $78 $38 $2
Weighted Average Dividend Paying
Units Outstanding(3) 367
(2) Investment income includes earnings (loss) on deferred fee
arrangements of $0.0 million and ($2.9 million) for the quarters ended
June 30, 2007 and 2006, respectively, and earnings of $1.9 million and
$30.1 million for the six months ended June 30, 2007 and 2006,
respectively. These deferred fee arrangements have now been
terminated.
(3) As defined in Note 8 to our consolidated and combined financial
statements included in our Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2007.
Overview
We manage private equity funds, hedge funds and publicly traded
alternative investment vehicles (which we refer to as our "Castles"). As of
June 30, 2007, Fortress reported total assets under management of
approximately $43.3 billion. Fortress's revenues consist of (i) management
fees which are based on the size of our funds, (ii) incentive income which
is based on the performance of our funds and (iii) investment income which
is based on our principal investments.
In the second quarter of 2007, we generated total segment revenues of
$283 million, which included management fees of $118 million and incentive
income of $165 million. In addition, we earned segment investment income of
$19 million in the quarter. Including segment expenses, Fortress generated
pre- tax distributable earnings of $143 million for the quarter ended June
30, 2007.
For the quarter ended June 30, 2007, the private equity segment
accounted for approximately 12.7 % of total segment revenues; the hedge
fund segments accounted for approximately 78.1% of total segment revenues;
and the Castles segment accounted for approximately 9.2% of total segment
revenues.
For the quarter ended June 30, 2007, the private equity, hedge fund and
Castles businesses accounted for approximately 18.7%, 71.3%, and 10.0%,
respectively, of total pre-tax distributable earnings before unallocated
items.
Private Equity Funds
For the quarter ended June 30, 2007, the Company's private equity
business generated $28 million of pre-tax distributable earnings as
compared to $69 million for the quarter ended June 30, 2006.
No incentive income for private equity funds was received during the
quarter ended June 30, 2007. However, an incentive income distribution of
approximately $56 million, net of employee allocations, was received in the
third quarter of 2007 related to a realization event which occurred in late
June 2007.
Management Fee Paying AUM as of June 30, 2007 increased 65.2% to $11.0
billion from June 30, 2006. Total AUM for private equity ended the quarter
at $23.4 billion, up 64.0 % from second quarter 2006.
A key measure of our ability to continue to generate incentive income
is our unrealized gains in our private equity funds. The private equity
unrealized gains can be split into (i) public company investments and (ii)
investments in non-public transactions.
Unrealized gains in our funds' public company holdings totaled $5.1
billion at June 30, 2007 quarter end as compared to $6.1 billion at March
31, 2007. At June 30, 2007, our funds' private equity capital invested in
non- public transactions totaled $6.2 billion and our funds' commitments
were approximately $5.4 billion. Shortly after June 30, 2007, we funded
$2.8 billion, over 50% of our private equity commitments, adding
substantially to our capital invested in private investments.
Subsequent to June 30, 2007, we closed our two newest private equity
funds, Fortress Investment Fund V and Fortress Coinvestment Fund V, with a
final total of $5 billion of third party capital commitments. Fortress
expects the main fund to ultimately have an additional $1 billion of
capital from Fortress and its affiliates and employees.
Liquid Hedge Funds
For the quarter ended June 30, 2007, the Company's liquid hedge fund
business generated $79 million of pre-tax distributable earnings as
compared to $6 million for the quarter ended June 30, 2006. The increase
was attributable to higher management fees and incentive income based on an
increase in Management Fee Paying AUM of $3.1 billion and stronger
performance.
Management Fee Paying AUM increased 71.0% to $7.4 billion at June 30,
2007 from June 30, 2006. Total AUM for liquid hedge funds ended the second
quarter of 2007 at $7.5 billion, up 72.6 % from second quarter 2006.
The liquid hedge funds' quarterly gross return was 8.78%(4) for the
three months ended June 30, 2007 and 14.02% on a weighted average gross
basis for the six months ended June 30, 2007.
Fortress's Global Macro Hedge Fund received a Moody's operations rating
of OQ1 (Operations Quality Excellent).
Hybrid Hedge Funds
For the quarter ended June 30, 2007, the Company's hybrid hedge fund
business generated $28 million of pre-tax distributable earnings as
compared to $17 million for the quarter ended June 30, 2006.
Management Fee Paying AUM increased 73.4% to $7.0 billion at June 30,
2007 from June 30, 2006. Total AUM for hybrid hedge funds ended the second
quarter of 2007 at $8.0 billion, up 97.5 % from second quarter 2006.
The hybrid hedge funds' quarterly gross return was 4.55%(4) for the
three months ended June 30, 2007 and 10.81% for the six months ended June
30, 2007.
Fortress's entitlement to incentive income in hybrid hedge funds is
calculated based on a full year's performance. As a result, corresponding
quarterly accruals are subject to reversal.
(4) The gross returns reflect quarterly returns for a "new issue
eligible" investor investing in the funds at their inception (before
management fees and incentive fees).
Castles
For the quarter ended June 30, 2007, the Company's Castles generated
$15 million of pre-tax distributable earnings as compared to $0.3 million
for the quarter ended June 30, 2006.
Management Fee Paying AUM increased 62.7% to $3.2 billion from June 30,
2006. Total AUM for the Castles ended the quarter at $4.3 billion, up 55.7%
from second quarter 2006.
The Castles produced a quarterly return, based on their incentive
income metric, of 4.02% for the three months ended June 30, 2007 and 6.71%
for the six months ended June 30, 2007.
Investment Income
For the three months ended June 30, 2007, we made new principal
commitments to our managed funds of $385 million. In addition, our
principal investments in hedge funds and Castles generated investment
income of $14 million and $1 million, respectively.
Segment Expenses
Segment expenses were $148 million in the second quarter of 2007, up
$52 million from the second quarter of 2006. Segment expenses for the
second quarter of 2007 included $82 million of profit sharing compensation,
which is a function of the performance of various funds. Fortress's
headcount increased by approximately 41% since the second quarter of 2006.
At June 30, 2007, the firm and its affiliates employed approximately 700
people around the world.
The Company had $271.6 million of share-based compensation expense
(primarily relating to expense recorded in connection with the principals'
forfeiture agreement and the issuance of restricted stock units to Fortress
employees in the IPO) for the quarter ended June 30, 2007 which contributed
to our reporting a net loss per Class A share. Share-based compensation
expense is not included in segment expenses or in the calculation of
distributable earnings.
Debt Obligations
On May 10, 2007 we entered into a new $1 billion credit agreement in
order to refinance our 2006 Credit Agreement and to reduce the amount of
interest and other fees payable under our credit facilities and increase
the amount of funds available for investments and other purposes.
Subsequent Events
Fortress funded a $275 million co-investment through affiliated funds
in Florida East Coast Industries, Inc. with other various Fortress funds.
The closing of the Florida East Coast Industries acquisition occurred on
July 26, 2007.
Fortress hired Henry McVey, who is based in the New York office as a
Managing Director, to lead Fortress's new business efforts focused on deep
value public equity investing. Mr. McVey, previously a Managing Director
and Chief U.S. Investment Strategist at Morgan Stanley & Co., has spent 12
years at Morgan Stanley in the equity research department.
Dividend
The Company declared a second quarter cash dividend of $0.225 per Class
A share for the quarter. The dividend was paid on July 13, 2007 to holders
of record of Fortress's common stock on June 29, 2007. This dividend
represented an annualized dividend of $0.90 per share, a 32.4% increase
from our pre-IPO annualized dividend of $0.68 per share
Fortress intends to target dividends that reflect a payout ratio over
time of approximately 75% of Fortress's distributable earnings, after tax
related payments and reserves. Quarterly dividends are not necessarily
representative of the Company's earnings in the current quarter, but are
reflective of our anticipated performance over time.
Non-GAAP Information
Fortress discloses certain non-GAAP financial information, which
management believes provides a meaningful basis for comparison among
present and future periods. The following are non-GAAP measures used in the
accompanying financial information:
-- Distributable earnings
-- Segment revenue
We urge you to read the reconciliation of such data to the related GAAP
measures appearing later in this release.
Conference Call
Management will host a conference call on Tuesday, August 14, 2007 at
8:00 A.M. eastern time. A copy of the earnings release will be posted to
the Investor Relations section of Fortress's website, http://www.fortress.com.
All interested parties are welcome to participate on the live call. The
conference call may be accessed by dialing (800) 289-0572 (from within the
U.S.) or (913) 981-5543 (from outside of the U.S.) ten minutes prior to the
scheduled start of the call; please reference "Fortress Investment Group
Second Quarter Earnings Call." A simultaneous webcast of the conference
call will be available to the public on a listen-only basis at
http://www.fortress.com. Please allow extra time prior to the call to visit the
site and download the necessary software required to listen to the internet
broadcast.
A telephonic replay of the conference call will also be available until
11:59 P.M. eastern time on August 21, 2007 by dialing (888) 203-1112 (from
within the U.S.) or (719) 457-0820 (from outside of the U.S.); please
reference access code "514-7877."
Fortress is a leading global alternative asset manager with
approximately $43.3 billion in assets under management as of June 30, 2007.
Fortress manages private equity funds, hedge funds and publicly traded
alternative investment vehicles. Fortress was founded in 1998. For more
information regarding Fortress Investment Group LLC or to be added to our
e-mail distribution list, please visit http://www.fortress.com.
Cautionary Note Regarding Forward-Looking Statements - Certain
statements in this press release may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995, including statements regarding the actual amounts of future
dividends and what they represent as a percentage of distributable
earnings, our public company surplus, sources of management fees, incentive
income and investment income, the amount and source of expected capital
commitments for the new fund and our effective tax rate. These statements
are not historical facts, but instead represent only the Company's beliefs
regarding future events, many of which, by their nature, are inherently
uncertain and outside of the Company's control. It is possible that the
actual amounts of future dividends and what they represent as a percentage
of distributable earnings, our public company surplus, sources of
management fees, incentive income and investment income, the amount and
source of expected capital commitments for the new fund or our effective
tax rate may differ, possibly materially, from these forward-looking
statements, and any such differences could cause our actual results to
differ materially from the results expressed or implied by these
forward-looking statements. For a discussion of some of the risks and
important factors that could affect such forward-looking statements, see
the sections entitled "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operation" in the Company's
Annual Report on Form 10-K and Quarterly Report on Form 10-Q, which are
available on the Company's website (http://www.fortress.com). In addition, new
risks and uncertainties emerge from time to time, and it is not possible
for the Company to predict or assess the impact of every factor that may
cause its actual results to differ from those contained in any
forward-looking statements. Accordingly, you should not place undue
reliance on any forward-looking statements contained in this press release.
The Company can give no assurance that the expectations of any
forward-looking statement will be obtained. Such forward-looking statements
speak only as of the date of this press release. The Company expressly
disclaims any obligation to release publicly any updates or revisions to
any forward-looking statements contained herein to reflect any change in
the Company's expectations with regard thereto or any change in events,
conditions or circumstances on which any statement is based.
Interests in the new fund referred to in this press release will not be
and have not been registered under the Securities Act of 1933 and may not
be offered or sold in the United States absent registration or an
applicable exemption from registration requirements.
Fortress Investment Group LLC
(Prior to January 17, 2007, Fortress Operating Group)
Consolidated and Combined Income Statements, Unaudited
(dollars in thousands, except share data)
Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
Revenues
Management fees from
affiliates $118,678 $29,568 $161,965 $74,544
Incentive income from
affiliates 132,961 15,789 177,189 75,771
Other revenues 16,480 19,101 36,265 35,499
Interest and dividend
income - investment
company holdings
Interest income - 208,804 243,713 376,813
Interest income from
controlled affiliate
investments - 14,189 4,707 28,346
Dividend income - 1,056 7,436 4,312
Dividend income from
controlled affiliate
investments - 39,762 53,174 103,015
268,119 328,269 684,449 698,300
Expenses
Interest expense
Investment company
holdings - 127,442 132,620 245,690
Other 6,711 12,338 18,731 19,195
Compensation and
benefits 187,783 100,000 405,300 183,445
Principals agreement
compensation 242,659 - 380,933 -
General,
administrative and
other 23,603 27,014 62,908 50,285
Depreciation and
amortization 2,184 1,620 4,193 3,186
462,940 268,414 1,004,685 501,801
Other Income
Gains (losses) from
investments
Investment company
holdings
Net realized gains - 22,211 86,264 72,848
Net realized gains
from controlled
affiliate investments - 501,703 715,024 522,460
Net unrealized gains
(losses) - (173,461) (19,928) (223,163)
Net unrealized gains
(losses) from
controlled
affiliate
investments - 174,787 (1,428,837) 1,045,180
Other investments
Net realized gains
(losses) (1,735) (1,154) 54 (114)
Net realized gains
from affiliate
investments 9,452 - 145,493 -
Net unrealized gains
(losses) (396) (2,392) (677) (2,941)
Net unrealized gains
(losses) from
affiliate
investments (36,338) (23,357) (167,166) 58,029
Earnings from equity
method investees 7,231 524 7,427 2,420
(21,786) 498,861 (662,346) 1,474,719
Income (Loss) Before
Deferred Incentive
Income, Principals' and
Others' Interests in
Income of Consolidated
Subsidiaries and
Income Taxes (216,607) 558,716 (982,582) 1,671,218
Deferred incentive
income - (109,701) 307,034 (261,407)
Principals' and
others' interests in
loss (income) of
consolidated
subsidiaries 166,485 (489,164) 702,016 (1,314,536)
Income (Loss) Before
Income Taxes (50,122) (40,149) 26,468 95,275
Income tax expense (5,009) (2,126) (19,456) (7,270)
Net Income (Loss) $(55,131) $(42,275) $7,012 $88,005
Dividends declared per
Class A share $0.2250 $0.3924
Earnings Per Unit -
Fortress Operating
Group January 1 through January 16
Net income per
Fortress Operating
Group unit $(0.12) $0.36 $0.24
Weighted average
number of Fortress
Operating Group
units outstanding 367,143,000 367,143,000 367,143,000
Earnings Per Class A
share - Fortress
Investment Group January 17 through June 30
Net income (loss) per
Class A share, basic $(0.59) $(1.43)
Net income (loss) per
Class A share,
diluted $(0.66) $(1.43)
Weighted average
number of Class A
shares outstanding,
basic 94,894,636 89,226,434
Weighted average
number of Class A
shares outstanding,
diluted 406,966,186 89,226,434
Fortress Investment Group LLC
(Prior to January 17, 2007, Fortress Operating Group)
Consolidated and Combined Balance Sheets
(dollars in thousands, except share data)
June 30, December 31,
2007 2006
(Unaudited)
Assets
Cash and cash equivalents $321,445 $61,120
Cash held at consolidated
subsidiaries and restricted cash - 564,085
Due from affiliates 180,429 635,748
Receivables from brokers and
counterparties - 109,463
Investment company holdings, at fair value
Loans and securities - 6,874,748
Investments in affiliates - 14,985,578
Derivatives - 84,270
Other investments
Loans and securities - 317
Equity method investees 642,518 37,250
Options in affiliates 106,324 139,266
Deferred tax asset 475,091 2,808
Other assets 61,914 187,920
$1,787,721 $23,682,573
Liabilities and Shareholders' Equity
Liabilities
Due to affiliates $415,976 $15,112
Due to brokers and counterparties - 187,495
Accrued compensation and benefits 213,767 159,931
Dividends payable 21,284 -
Other liabilities 37,333 152,604
Deferred incentive income 221,657 1,648,782
Securities sold not yet purchased, at
fair value - 97,717
Derivative liabilities, at fair value 2,652 123,907
Investment company debt obligations
payable - 2,619,456
Other debt obligations payable 350,000 687,153
1,262,669 5,692,157
Commitments and Contingencies
Principals' and Others' Interests in
Equity of Consolidated Subsidiaries 358,392 17,868,895
Shareholders' Equity
Class A shares, no par value,
1,000,000,000 shares authorized,
94,597,646 shares issued and
outstanding - -
Class B shares, no par value,
750,000,000 shares authorized,
312,071,550 shares issued and
outstanding - -
Paid-in capital 293,185 -
Retained earnings (accumulated
deficit) (126,385) -
Fortress Operating Group members'
equity - 119,561
Accumulated other comprehensive
income (loss) (140) 1,960
166,660 121,521
$1,787,721 $23,682,573
Fortress Investment Group LLC
(Prior to January 17, 2007, Fortress Operating Group)
Reconciliation of Pre-tax Distributable
Earnings to GAAP Net Income (Loss)
(dollars in millions)
Three Months Ended
June 30, 2007 June 30, 2006
Pre-tax Distributable Earnings $143 $77
Private equity incentive income 6 (72)
Hybrid hedge fund incentive income (38) (25)
Castle options management fee 1 -
Distributions of earnings from
equity method investees (2) (3)
Earnings from equity method
investees (8) 5
Unrealized gains/losses on options (30) (22)
Employee equity-based compensation (29) -
Principal compensation (243) -
Employee portion of incentive
income (20) -
Principals' interest in income of
consolidated subsidiaries 170 -
Taxes (5) (2)
GAAP Net Income (Loss)(1) $(55) $(42)
Six Months Ended
June 30, 2007 June 30, 2006
Pre-tax Distributable Earnings $363 $192
Private equity incentive income 21 (91)
Hybrid hedge fund incentive income (83) (53)
Castle options management fee 2 19
Distributions of earnings from
equity method investees (12) (5)
Earnings from equity method
investees (19) 10
Unrealized gains/losses on options (25) 24
Employee equity-based compensation (67) -
Principal compensation (381) -
Employee portion of incentive
income (20) (1)
Principals' interest in income of
consolidated subsidiaries 247 -
Taxes (19) (7)
GAAP Net Income (Loss)(1) $7 $88
(1) We had GAAP net income of $133.4 million for the period from January
1, 2007 through January 16, 2007 and a GAAP net loss of ($126.4
million) for the period from January 17, 2007 through June 30, 2007.
Fortress Investment Group LLC
(Prior to January 17, 2007, Fortress Operating Group)
Reconciliation of Segment Revenues to GAAP Revenues
(dollars in millions)
Three Months Ended
June 30, 2007 June 30, 2006
Segment Revenues $283 $189
Adjust incentive income (32) (97)
Adjust income from the receipt of
options 1 -
Other revenues 16 1
Consolidation and elimination - 235
GAAP Revenues $268 $328
Six Months Ended
June 30, 2007 June 30, 2006
Segment Revenues $666 $356
Adjust incentive income (62) (144)
Adjust income from the receipt of
options 2 19
Other revenues 30 2
Consolidation and elimination 48 465
GAAP Revenues $684 $698
"Distributable earnings" is our supplemental measure of operating
performance. It reflects the value created which management considers
available for distribution during any period. As compared to generally
accepted accounting principles ("GAAP") net income, distributable earnings
excludes the effects of unrealized gains (or losses) on illiquid
investments, reflects contingent revenue which has been received as income
to the extent it is not expected to be reversed, and disregards expenses
which do not require an outlay of assets, whether currently or on an
accrued basis. Distributable earnings is reflected on an unconsolidated and
pre-tax basis, and, therefore, the interests in consolidated subsidiaries
related to Fortress Operating Company units (held by the principals) and
income tax expense are added back in its calculation. Distributable
earnings is not a measure of cash generated by operations which is
available for distribution nor should it be considered in isolation or as
an alternative to cash flow or net income and it is not necessarily
indicative of liquidity or cash available to fund our operations. For a
complete discussion of distributable earnings and its reconciliation to
GAAP, see note 10 to our financial statements included in our Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2007.
Our management uses distributable earnings:
-- in its determination of periodic distributions to equity holders;
-- in making operating decisions and assessing the performance of each of
our core businesses;
-- for planning purposes, including the preparation of our annual
operating budgets; and
-- as a valuation measure in strategic analyses in connection with the
performance of our funds and the performance of our employees.
Growing distributable earnings is a key component to our business
strategy and distributable earnings is the supplemental measure used by our
management to evaluate the economic profitability of each of our businesses
and our total operations. Therefore, we believe that it provides useful
information to our investors in evaluating our operating performance. Our
definition of distributable earnings is not based on any definition
contained in our amended and restated operating agreement.
SOURCE Fortress Investment Group LLC
 back to top
Related links:
http://www.fortress.com
CONTACT:
Lilly H. Donohue, +1-212-798-6118, for
Fortress Investment Group LLC
|
