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NEW YORK, Nov. 13 /PRNewswire-FirstCall/ -- Fortress Investment Group LLC
(NYSE: FIG) today reported its results for the third quarter 2007.
Third Quarter Highlights
- Pre-tax distributable earnings of $111 million, up 66% from 3Q 2006
- Management fee paying assets under management of $31.2 billion, up 62%
from 3Q 2006
- Segment revenues of $219 million, an increase of 80% from 3Q 2006
- GAAP net income excluding principals' agreement expense is $17 million.
GAAP net loss is $38 million
- Declared third quarter dividend of $0.225 per share (or $0.90 per share
on an annualized basis)
- Closed firm's commitment to private equity investment in Florida East
Coast Industries
- A hybrid hedge fund, Fortress Partners Fund, received Moody's operations
rating of OQ1 (Operations Quality Excellent)
Nine Months Ended September 30, 2007 Highlights
- Pre-tax distributable earnings increased 83% over the first nine months
of 2006 - private equity increased 131%, the hedge funds increased 22% and the
castles increased 178%
- Segment revenues of $885 million, an increase of 85% from the first nine
months of 2006
For the three months ended September 30, 2007, our GAAP net loss was $38
million or $0.52 per diluted Class A share. The third quarter GAAP net loss
includes a $54 million non-cash charge (allocable to public shareholders) for
amortization associated with the principals' agreement. The Company will
record this charge in its GAAP income statement for the next four and a half
years, but this charge will never impact cash earnings. Pre-tax distributable
earnings for the quarter were $111 million, or $0.26 per dividend paying
share, a 66% increase over our pre-tax distributable earnings for the third
quarter 2006 of $67 million.
For the nine months ended September 30, 2007, pre-tax distributable
earnings were $474 million, or $1.12 per dividend paying share, an 83%
increase over our pre-tax distributable earnings for the first nine months of
2006 of $259 million.
For reconciliations between pre-tax distributable earnings and our GAAP
net income (loss), and between GAAP net income excluding principals' agreement
expense to GAAP net income (loss) see "Reconciliation of Pre-tax Distributable
Earnings to GAAP Net Income (Loss)" and "Reconciliation of GAAP Net Loss to
GAAP Net Income (Loss) Excluding Principals' Agreement Expense" in this
release. 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.
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 nine months of 2006 and the third quarter of 2006, may not be meaningful
because of the impact of the reorganization transactions on our financial
statements.
Supplemental Data for Three Months (2),(3):
Three Months Ended September 30, 2007
(in millions)
Hedge Funds
Private
Total Equity Liquid Hybrid Castles
Total AUM - Ending Balance $39,868 $20,860 $7,538 $8,330 $3,140
Management Fee Paying AUM
Management Fee Paying AUM -
July 1, 2007 $28,569 $10,993 $7,416 $6,987 $3,173
New capital raised,
increase
in invested capital 2,879 1,991 459 429 -
Realizations (PE) /
Redemptions (Hedge Funds) (40) - (40) - -
+/- Net Asset Value &
Foreign Exchange rate
change (223) (70) (283) 24 106
Management Fee Paying AUM -
Ending Balance $31,185 $12,914 $7,552 $7,440 $3,279
Segment Revenues
Management fee $125 $35 $45 $33 $12
Incentive income 94 84 - 10 -
Total 219 119 45 43 12
Segment Expenses
Profit sharing compensation
expenses (37) (28) (2) (6) (1)
Operating expenses (64) (9) (19) (30) (6)
Total (101) (37) (21) (36) (7)
118 82 24 7 5
Investment Income(2) (1) 1 (4) 3 (1)
Unallocated Investment
Income 4
Unallocated Expenses (10)
Pre-tax Distributable
Earnings $111 $83 $20 $10 $4
Weighted Average Dividend
Paying Shares and Units
Outstanding(3) 431
Three Months Ended September 30, 2006
Hedge Funds
Private
(in millions) Total Equity Liquid Hybrid Castles
Total AUM - Ending Balance $29,943 $17,580 $4,557 $4,823 $2,983
Management Fee Paying AUM
Management Fee Paying AUM
- July 1, 2006 $16,971 $6,654 $4,337 $4,030 $1,950
New capital raised,
increase in invested
capital 2,218 1,416 384 418 -
Realizations (PE) /
Redemptions
(Hedge Funds) (167) - (165) (2) -
+/- Net Asset Value &
Foreign Exchange rate
change 280 - 45 262 (27)
Management Fee Paying AUM
- Ending Balance $19,302 $8,070 $4,601 $4,708 $1,923
Segment Revenues
Management fee $75 $22 $24 $21 $8
Incentive income 47 - 9 33 5
Total 122 22 33 54 13
Segment Expenses
Profit sharing
compensation expenses (34) (2) (12) (19) (1)
Operating expenses (38) (4) (13) (13) (8)
Total (72) (6) (25) (32) (9)
50 16 8 22 4
Investment Income(2) 33 1 23 6 3
Unallocated Investment
Income -
Unallocated Expenses (16)
Pre-tax Distributable
Earnings $67 $17 $31 $28 $7
Weighted Average Dividend
Paying Units Outstanding(3) 367
Supplemental Data for Nine Months (2),(3):
Nine Months Ended September 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 10,211 6,242 2,235 1,533 201
Realization (PE) /
Redemptions (Hedge
Funds) (862) (691) (118) (53) -
+/- Net Asset Value
& Foreign Exchange
rate change 983 (176) 413 510 236
Management Fee Paying
AUM - Ending Balance $31,185 $12,914 $7,552 $7,440 $3,279
Segment Revenues
Management fee $341 $98 $114 $94 $35
Incentive income 544 274 158 94 18
Total 885 372 272 188 53
Segment Expenses
Profit sharing
compensation
expenses (242) (101) (89) (44) (8)
Operating expenses (185) (22) (54) (88) (21)
Total (427) (123) (143) (132) (29)
458 249 129 56 24
Investment Income(2) 40 10 3 26 1
Unallocated
Investment
Income 12
Unallocated
Expenses (36)
Pre-tax
Distributable
Earnings $474 $259 $132 $82 $25
Weighted Average
Dividend Paying
Shares and
Units
Outstanding(3) 422
Nine Months Ended September 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 8,373 4,834 1,698 1,158 683
Realization (PE) /
Redemptions (Hedge
Funds) (1,196) (399) (713) (84) -
+/- Net Asset Value
& Foreign Exchange
rate change 949 - 436 539 (26)
Management Fee Paying
AUM - Ending Balance $19,302 $8,070 $4,601 $4,708 $1,923
Segment Revenues
Management fee $204 $60 $64 $57 $23
Incentive income 274 96 80 87 11
Total 478 156 144 144 34
Segment Expenses
Profit sharing
compensation
expenses (143) (38) (54) (45) (6)
Operating expenses (108) (9) (32) (46) (21)
Total (251) (47) (86) (91) (27)
227 109 58 53 7
Investment Income(2) 69 3 51 13 2
Unallocated
Investment
Income 1
Unallocated
Expenses (38)
Pre-tax
Distributable
Earnings $259 $112 $109 $66 $9
Weighted Average
Dividend Paying
Units
Outstanding(3) 367
(2) Investment income includes earnings (loss) on deferred fee
arrangements of $0.0 and $29.0 million for the quarters ended September 30,
2007 and 2006, respectively, and earnings of $1.9 million and $59.1 million
for the nine months ended September 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 September 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
September 30, 2007, Fortress reported total assets under management of $39.9
billion and management fee paying assets under management of $31.2 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 third quarter of 2007, we generated total segment revenues of $219
million, which included management fees of $125 million and incentive income
of $94 million. In addition, we earned segment investment income of $3
million in the quarter. After segment expenses, Fortress generated pre-tax
distributable earnings of $111 million for the quarter ended September 30,
2007.
For the quarter ended September 30, 2007, the private equity segment
accounted for approximately 54% of total segment revenues; the hedge fund
segments accounted for approximately 40% of total segment revenues; and the
Castles segment accounted for approximately 6% of total segment revenues.
For the quarter ended September 30, 2007, the private equity, hedge fund
and Castles businesses accounted for approximately 71%, 26%, and 3%,
respectively, of total pre-tax distributable earnings before unallocated
items.
Private Equity Funds
For the quarter ended September 30, 2007, the Company's private equity
business generated $83 million of pre-tax distributable earnings as compared
to $17 million for the quarter ended September 30, 2006.
During the quarter ended September 30, 2007, we received an incentive
income distribution of $57 million, net of employee allocations, from our
private equity funds, as we closed the sale of the Crown Castle shares.
Management fee paying assets under management as of September 30, 2007
increased 60% to $12.9 billion from $8.1 billion for the quarter ended
September 30, 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 $3.0
billion at September 30, 2007. At September 30, 2007, our funds' private
equity capital invested in non-public transactions totaled $9.4 billion and
our private equity funds' commitments were approximately $2.7 billion.
Fortress private equity closed third party commitments in its latest
private equity investment funds, Fortress Investment Fund V and Fortress
Coinvestment Fund V, for a total of $5.0 billion in capital.
Liquid Hedge Funds
For the quarter ended September 30, 2007, the Company's liquid hedge fund
business generated $20 million of pre-tax distributable earnings as compared
to $7 million (which excludes $24 million of earnings on previously deferred
fees) for the quarter ended September 30, 2006.
Management fee paying assets under management increased 64% to $7.6
billion at September 30, 2007 from $4.6 billion at September 30, 2006.
The liquid hedge funds' gross return was -1.74%(4) for the three months
ended September 30, 2007 and 12.03% for the nine months ended September 30,
2007. For the first ten months of 2007 our liquid hedge funds' gross return
was 16.19%.
Hybrid Hedge Funds
For the quarter ended September 30, 2007, the Company's hybrid hedge fund
business generated $10 million of pre-tax distributable earnings as compared
to $28 million for the quarter ended September 30, 2006.
Management fee paying assets under management increased 58% to $7.4
billion at September 30, 2007 from $4.7 billion at September 30, 2006.
The hybrid hedge funds' gross return was 1.31%(4) for the three months
ended September 30, 2007 and 12.25% for the nine months ended September 30,
2007. For the first ten months of 2007 our hybrid hedge funds' gross return
was 14.70%.
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.
Fortress Partners Fund received Moody's operations rating of OQ1
(Operations Quality Excellent).
(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 September 30, 2007, the Company's Castles generated
$4 million of pre-tax distributable earnings as compared to $7 million for the
quarter ended September 30, 2006.
Management fee paying assets under management increased 71% to $3.3
billion from $1.9 billion at September 30, 2006.
The Castles produced a quarterly return, based on their incentive income
metric, of 5.76% for the three months ended September 30, 2007 and 10.78% for
the nine months ended September 30, 2007.
Principal Investments
The Company funded $226 million of its $275 million commitment to a co-
investment fund in connection with the acquisition by various Fortress-managed
funds of Florida East Coast Industries, Inc., a Florida-based railroad and
commercial real estate company.
For the three months ended September 30, 2007, we had no new principal
commitments to our managed funds.
Our principal investments generated a loss of $1 million for the three
months ended September 30, 2007 and generated income of $40 million for the
nine months ended September 30, 2007.
Segment Expenses
Segment expenses were $101 million in the third quarter of 2007, up $29
million from the third quarter of 2006. Segment expenses for the third
quarter of 2007 included $37 million of profit sharing compensation, which is
a function of the performance of various funds. Fortress's headcount
increased by approximately 44% since the third quarter of 2006. At September
30, 2007, the firm and its affiliates employed approximately 770 people around
the world.
The Company had $264 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 September 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.
Dividend
The Company declared a third quarter cash dividend of $0.225 per Class A
share for the quarter. The dividend was paid on October 12, 2007 to holders of
record of Fortress's common stock on September 28, 2007. This dividend
represented an annualized dividend of $0.90 per share, a 32% 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
- GAAP net income excluding principals' agreement expense
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 today, Tuesday, November 13, 2007
at 12:00 Noon eastern time. A copy of the earnings release will be posted to
the Investor Relations section of Fortress's website, www.fortress.com.
All interested parties are welcome to participate on the live call. The
conference call may be accessed by dialing (877) 717-3044 (from within the
U.S.) or (706) 679-1521 (from outside of the U.S.) ten minutes prior to the
scheduled start of the call; please reference "Fortress Investment Group Third
Quarter Earnings Call." A simultaneous webcast of the conference call will be
available to the public on a listen-only basis at 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 Wednesday, November 21, 2007 by dialing (800) 642-
1687 (from within the U.S.) or (706) 645-9291 (from outside of the U.S.);
please reference access code "2324-1920."
Fortress is a leading global alternative asset manager with approximately
$39.9 billion in assets under management as of September 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 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
(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 Statements of Operations
(dollars in thousands, except share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
Revenues
Management fees from
affiliates $124,991 $32,339 $286,956 $106,883
Incentive income from
affiliates 106,690 18,620 283,879 94,391
Other revenues 15,601 18,244 51,866 53,743
Interest and dividend
income - investment
company holdings
Interest income - 219,336 243,713 596,149
Interest income from
controlled affiliate
investments - 17,072 4,707 45,418
Dividend income - 7,435 7,436 11,747
Dividend income from
controlled affiliate
investments - 22,122 53,174 125,137
247,282 335,168 931,731 1,033,468
Expenses
Interest expense
Investment company
holdings - 145,152 132,620 390,842
Other 7,285 17,011 26,016 36,206
Compensation and benefits 101,703 85,833 507,003 269,278
Principals agreement
compensation 232,048 - 612,981 -
General, administrative
and other 17,412 21,385 80,320 71,670
Depreciation and
amortization 2,230 1,716 6,423 4,902
360,678 271,097 1,365,363 772,898
Other Income
Gains (losses) from
investments
Investment company holdings
Net realized gains (losses) - (200,640) 86,264 (127,792)
Net realized gains
from controlled affiliate
investments - 59,888 715,024 582,348
Net unrealized gains
(losses) - 271,390 (19,928) 48,227
Net unrealized gains
(losses)
from controlled
affiliate investments - 1,133,791 (1,428,837) 2,178,971
Other investments
Net realized gains
(losses) 777 (4,117) 831 (4,231)
Net realized gains
(losses)from
affiliate investments (2,475) 804 143,017 804
Net unrealized gains
(losses) (1,921) 6,970 (2,597) 4,029
Net unrealized gains
(losses) from
affiliate investments (54,579) 36,242 (221,745) 94,271
Earnings (losses) from
equity method investees (30,716) 992 (23,289) 3,412
(88,914) 1,305,320 (751,260) 2,780,039
Income (Loss) Before
Deferred Incentive Income,
Principals' and Others'
Interests in Income
of Consolidated Subsidiaries
and Income Taxes (202,310) 1,369,391 (1,184,892) 3,040,609
Deferred incentive income - (214,248) 307,034 (475,655)
Principals' and others'
interests in loss (income)
of consolidated
subsidiaries 152,534 (1,088,810) 854,550 (2,403,346)
Income (Loss) Before
Income Taxes (49,776) 66,333 (23,308) 161,608
Income tax benefit
(expense) 12,219 (1,628) (7,237) (8,898)
Net Income (Loss) $(37,557) $64,705 $(30,545) $152,710
Dividends declared per
Class A share 0.225 0.6174
January 1
Earnings Per Unit - Fortress through
Operating Group January 16
Net income per Fortress
Operating Group unit $0.18 $0.36 $0.42
Weighted average number
of Fortress Operating Group
units outstanding 367,143,000 367,143,000 367,143,000
January 17
Earnings Per Class A share through
- Fortress Investment Group September 30
Net income (loss) per Class A
share, basic $(0.41) $(1.83)
Net income (loss) per
Class A share, diluted $(0.52) $(1.83)
Weighted average number
of Class A shares
outstanding, basic 94,894,636 91,255,519
Weighted average number
of Class A shares
outstanding, diluted 406,966,186 91,255,519
Fortress Investment Group LLC
(Prior to January 17, 2007, Fortress Operating Group)
Consolidated and Combined Balance Sheets
(dollars in thousands, except share data)
September 30, December 31,
2007 2006
Assets
Cash and cash equivalents $169,492 $61,120
Cash held at consolidated
subsidiaries and restricted cash - 564,085
Due from affiliates 39,872 635,748
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 11,327 317
Equity method investees 990,441 37,250
Options in affiliates 48,351 139,266
Deferred tax asset 489,801 2,808
Other assets 58,298 187,920
$1,807,582 $23,682,573
Liabilities and Shareholders' Equity
Liabilities
Due to affiliates $409,652 $15,112
Due to brokers and counterparties - 187,495
Accrued compensation and benefits 192,589 159,931
Dividends payable 21,285 -
Other liabilities 70,577 152,604
Deferred incentive income 177,450 1,648,782
Securities sold not yet purchased, at
fair value - 97,717
Derivative liabilities, at fair value 5,132 123,907
Investment company debt obligations
payable - 2,619,456
Other debt obligations payable 425,000 687,153
1,301,685 5,692,157
Commitments and Contingencies
Principals' and Others' Interests in
Equity of Consolidated Subsidiaries 338,387 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 332,992 -
Retained earnings (accumulated
deficit) (163,942) -
Fortress Operating Group members'
equity - 119,561
Accumulated other comprehensive
income (loss) (1,540) 1,960
167,510 121,521
$1,807,582 $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
September 30, September 30,
2007 2006
Pre-tax Distributable Earnings $111 $67
Private equity incentive income 23 3
Hybrid hedge fund incentive income (9) (32)
Castle options management fee - -
Distributions of earnings from
equity method investees (2) (1)
Earnings (losses) from equity
method investees (31) 26
Unrealized gains/losses on options (58) 13
Employee equity-based compensation (32) (8)
Principal compensation (232) -
Employee portion of incentive
income 25 (1)
Principals' interest in loss of
consolidated subsidiaries 155 -
Taxes 12 (2)
GAAP Net Income (Loss)(1) $(38) $65
Nine Months Ended
September 30, September 30,
2007 2006
Pre-tax Distributable Earnings $474 $259
Private equity incentive income 44 (88)
Hybrid hedge fund incentive income (92) (85)
Castle options management fee 2 19
Distributions of earnings from
equity method investees (14) (6)
Earnings (losses) from equity
method investees (50) 36
Unrealized gains/losses on options (83) 37
Employee equity-based compensation (99) (8)
Principal compensation (613) -
Employee portion of incentive
income 5 (2)
Principals' interest in loss of
consolidated subsidiaries 402 -
Taxes (7) (9)
GAAP Net Income (Loss)(1) $(31) $153
(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 ($163.9
million) for the period from January 17, 2007 through September 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
September 30, September 30,
2007 2006
Segment Revenues $219 $122
Adjust incentive income 14 (29)
Adjust income from the receipt of
options - -
Other revenues 15 1
Consolidation and elimination - 241
GAAP Revenues $248 $335
Nine Months Ended
September 30, September 30,
2007 2006
Segment Revenues $885 $478
Adjust incentive income (48) (173)
Adjust income from the receipt of
options 2 19
Other revenues 45 3
Consolidation and elimination 48 706
GAAP Revenues $932 $1,033
"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 September 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.
Fortress Investment Group LLC
(Prior to January 17, 2007, Fortress Operating Group)
Reconciliation of GAAP Net Loss to GAAP Net Income (Loss) Excluding
Principals' Agreement Expense
(dollars in thousands)
Three months ended
September 30, 2007
GAAP net income (loss) $(37,557)
Principals' agreement expense 232,048
Portion not allocable to public
shareholders (177,981)
GAAP net income excluding principals'
agreement expense $16,510
SOURCE:
Fortress Investment Group LLC - 11/13/2007
CONTACT:
Lilly H. Donohue
Fortress Investment Group, LLC
1-212-798-6118<
