Fortress - SEC Filings

Fortress Investment Group LLC
(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheet as of March 31, 2007 (unaudited) and Combined Balance Sheet as of December 31, 2006		1
	The following statements are presented on a combined basis prior to the date of Fortress’s reorganization (Note 1) on January 17, 2007 and consolidated thereafter:
	Income Statements (unaudited) for the three months ended March 31, 2007 and 2006		2
	Statement of Members’ and Shareholders’ Equity (unaudited) for the three months ended March 31, 2007		3
	Statements of Cash Flows (unaudited) for the three months ended March 31, 2007 and 2006		4
	Notes to Consolidated and Combined Financial Statements (unaudited)		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		72
Item 4.	Controls and Procedures		75
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		76
Item 1A.	Risk Factors		77
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		102
Item 3.	Defaults upon Senior Securities		102
Item 4.	Submission of Matters to a Vote of Security Holders		102
Item 5.	Other Information		102
Item 6.	Exhibits		103
	SIGNATURES		106

As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires:

‘‘Assets Under Management,’’ or ‘‘AUM,’’ refers to the assets we manage, including capital we have the right to call from our investors pursuant to their capital commitments to various funds. Our AUM equals the sum of:

We earn management fees pursuant to management agreements on a basis which varies from Fortress Fund to Fortress Fund (e.g., any of ‘‘net asset value’’, ‘‘capital commitments’’, ‘‘invested equity’’ or ‘‘gross equity,’’ each as defined in the applicable management agreement, may form the basis for a management fee calculation). Our calculation of AUM may differ from the calculations of other asset managers and, as a result, this measure may not be comparable to similar measures presented by other asset managers. Our AUM measure includes, for instance, assets under management for which we charge either no or nominal fees, generally related to our principal investments in funds as well as investments in funds by our principals, directors and employees. Our definition of AUM is not based on any definition of assets under management contained in our operating agreement or in any of our Fortress Fund management agreements.

‘‘Fortress,’’ ‘‘we,’’ ‘‘us,’’ ‘‘our,’’ and the ‘‘company’’ refer, (i) following the consummation of the reorganization and the Nomura transaction, collectively, to Fortress Investment Group LLC and its subsidiaries, including the Fortress Operating Group and all of its subsidiaries, and, (ii) prior to the consummation of the reorganization and the Nomura transaction on January 17, 2007, to the Fortress Operating Group and all of its subsidiaries, in each case not including funds that, prior to March 31, 2007, were consolidated funds, except with respect to our historical financial statements and discussion thereof unless otherwise specified. Effective March 31, 2007, all of our previously consolidated funds were deconsolidated. The financial statements contained herein represent consolidated financial statements of Fortress Investment Group LLC subsequent to the reorganization and combined financial statements of Fortress Operating Group, considered the predecessor, prior to the reorganization. See Part I, Item 1, ‘‘Financial Statements.’’

‘‘Fortress Funds’’ and ‘‘our funds’’ refers to the private investment funds and alternative asset companies that are managed by the Fortress Operating Group.

‘‘Fortress Operating Group’’ refers to the combined entities, which were wholly-owned by the Principals prior to the Nomura transaction and in each of which Fortress Investment Group LLC acquired an indirect controlling interest upon completion of the Nomura transaction (described below).

‘‘principals’’ refers to Peter Briger, Wesley Edens, Robert Kauffman, Randal Nardone and Michael Novogratz, collectively, who prior to the completion of our initial public offering and the Nomura transaction directly owned 100% of the Fortress Operating Group units and following completion of our initial public offering and the Nomura transaction own approximately 76.7% of the Fortress Operating Group units and all of the Class B shares, representing approximately 76.7% of the total combined voting power of all of our outstanding Class A and Class B shares.

Some of the statements under Part I, Item 2, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations,’’ Part I, Item 3, ‘‘Quantitative and Qualitative Disclosures About Market Risk,’’ Part II, Item 1A, ‘‘Risk Factors,’’ and elsewhere in this Quarterly Report on Form 10-Q may contain forward-looking statements which reflect our current views with respect to, among other things, future events and financial performance. Readers can identify these forward-looking statements by the use of forward-looking words such as ‘‘outlook,’’ ‘‘believes,’’ ‘‘expects,’’ ‘‘potential,’’ ‘‘continues,’’ ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘seeks,’’ ‘‘approximately,’’ ‘‘predicts,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘estimates,’’ ‘‘anticipates’’ or the negative version of those words or other comparable words. Any forward-looking statements contained in this report are based upon the historical performance of us and our subsidiaries and on our current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. We do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

FORTRESS INVESTMENT GROUP LLC
(PRIOR TO JANUARY 17, 2007, FORTRESS OPERATING GROUP – NOTE 1)

CONSOLIDATED AND COMBINED BALANCE SHEETS
(dollars in thousands, except share data)


	March 31, 2007				December 31, 2006
	(Unaudited)
Assets
Cash and cash equivalents		$	352,509			$	61,120
Cash held at consolidated subsidiaries and restricted cash			—				564,085
Due from affiliates			137,833				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			620,434				37,250
Options in affiliates			136,915				139,266
Deferred tax asset			477,568				2,808
Other assets			54,123				187,920
		$	1,779,382			$	23,682,573
Liabilities and Shareholders’ Equity Liabilities
Due to affiliates		$	404,132			$	15,112
Due to brokers and counterparties			—				187,495
Accrued compensation and benefits			96,884				159,931
Other liabilities			97,848				152,604
Deferred incentive income			225,797				1,648,782
Securities sold not yet purchased, at fair value			—				97,717
Derivative liabilities, at fair value			2,125				123,907
Investment company debt obligations payable			—				2,619,456
Other debt obligations payable			352,153				687,153
			1,178,939				5,692,157
Commitments and Contingencies
Principals’ and Others’ Interests in Equity of Consolidated Subsidiaries			419,324				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			252,323				—
Retained earnings (accumulated deficit)			(71,254	)			—
Fortress Operating Group members’ equity			—				119,561
Accumulated other comprehensive income			50				1,960
			181,119				121,521
		$	1,779,382			$	23,682,573

FORTRESS INVESTMENT GROUP LLC
(PRIOR TO JANUARY 17, 2007, FORTRESS OPERATING GROUP – NOTE 1)

CONSOLIDATED AND COMBINED INCOME STATEMENTS (Unaudited)
(dollars in thousands, except share data)


	Three Months Ended March 31,
	2007				2006
Revenues
Management fees from affiliates		$	43,287			$	44,976
Incentive income from affiliates			44,229				59,982
Other revenues			19,784				16,398
Interest and dividend income – investment company holdings
Interest income			243,713				168,009
Interest income from controlled affiliate investments			4,707				14,157
Dividend income			7,436				3,256
Dividend income from controlled affiliate investments			53,174				63,253
			416,330				370,031
Expenses
Interest expense
Investment company holdings			132,620				118,248
Other			12,019				6,857
Compensation and benefits			355,791				83,445
General, administrative and other			39,305				23,271
Depreciation and amortization			2,009				1,566
			541,744				233,387
Other Income
Gains (losses) from investments
Investment company holdings
Net realized gains			86,264				50,637
Net realized gains from controlled affiliate investments			715,024				20,757
Net unrealized gains (losses)			(19,928	)			(49,702	)
Net unrealized gains (losses) from controlled affiliate investments			(1,428,837	)			870,393
Other investments
Net realized gains			1,789				1,040
Net realized gains from affiliate investments			136,041				—
Net unrealized gains (losses)			(280	)			(549	)
Net unrealized gains (losses) from affiliate investments			(130,828	)			81,386
Earnings from equity method investees			195				1,896
			(640,560	)			975,858
Income (Loss) Before Deferred Incentive Income, Principals’ and Others’ Interests in Income of Consolidated Subsidiaries and Income Taxes			(765,974	)			1,112,502
Deferred incentive income			307,034				(151,706	)
Principals’ and others’ interests in loss (income) of consolidated subsidiaries			535,530				(825,372	)
Income Before Income Taxes			76,590				135,424
Income tax expense			(14,447	)			(5,144	)
Net Income (Loss)		$	62,143			$	130,280
Dividends declared per Class A share		$	0.1674
Earnings Per Unit – Fortress Operating Group	January 1 through January 16
Net income per Fortress Operating Group unit		$	0.36			$	0.35
Weighted average number of Fortress Operating Group units outstanding			367,143,000				367,143,000
Earnings Per Class A share – Fortress Investment Group	January 17 through March 31
Net income (loss) per Class A share, basic		$	(0.87	)
Net income (loss) per Class A share, diluted		$	(0.87	)
Weighted average number of Class A shares outstanding, basic			82,256,078
Weighted average number of Class A shares outstanding, diluted			82,256,078

FORTRESS INVESTMENT GROUP LLC
(PRIOR TO JANUARY 17, 2007, FORTRESS OPERATING GROUP – NOTE 1)

CONSOLIDATED AND COMBINED STATEMENT OF MEMBERS’ AND SHAREHOLDERS’ EQUITY (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2007
(dollars in thousands)


	Class A Shares		Class B Shares		Paid-In Capital				Retained Earnings (Accumulated Deficit) (Subsequent to January 16, 2007)			Fortress Operating Group Members’ Equity (Prior to January 17, 2007)				Accumulated Other Comprehensive Income			Total Shareholders’/ Members’ Equity
Fortress Operating Group Members’ equity – December 31, 2006		—		—		$	—			$	—		$	119,561			$	1,960		$	121,521
Distributions declared by Fortress Operating Group prior to January 17, 2007		—		—			—				—			(415,876	)			—			(415,876	)
Reorganization and issuance of shares to Nomura		55,071,450		312,071,550			888,000				—			—				—			888,000
Dilution impact of Nomura transaction		—		—			(912,437	)			—			162,918				—			(749,519	)
Dividends declared after January 16, 2007 but prior to initial public offering		—		—			(2,474	)			—			—				—			(2,474	)
Initial public offering of Class A shares		39,428,900		—			652,669				—			—				—			652,669
Dilution impact of initial public offering		—		—			(490,648	)			—			—				—			(490,648	)
Deferred tax effects resulting from acquisition of Fortress Operating Group units		—		—			89,026				—			—				—			89,026
Director restricted share grant		97,296		—			84				—			—				—			84
Dividends declared subsequent to initial public offering		—