Downloadable PDF
NEW YORK, March 25 /PRNewswire-FirstCall/ -- Fortress Investment Group LLC
(NYSE: FIG) today reported its fourth quarter and year end results for 2007.
Full Year 2007 Highlights
-- Management fee paying assets under management of $33.2 billion, up 59%
from 2006
-- Pre-tax distributable earnings of $552 million, up 39% from 2006
-- Segment revenues of $1.1 billion, up 48% from 2006
-- GAAP net income, excluding principals agreement expense, of $139
million. GAAP net loss of $60 million
Fourth Quarter 2007 Highlights
-- Pre-tax distributable earnings of $78 million
-- Segment revenues of $196 million
-- GAAP net income, excluding principals agreement expense, of $27
million. GAAP net loss of $29 million
-- Fourth quarter dividend of $0.225 per share
First Quarter 2008 Highlights
-- Declared first quarter dividend of $0.225 per share
Full Year 2007
For the year ended December 31, 2007, our GAAP net loss was $60 million or
$2.14 per diluted share. Excluding principals agreement charges, 2007 GAAP net
income was $139 million. This charge was in connection with the reorganization
and the initial public offering in February 2007, which is likely to result in
GAAP net losses for the next four and a quarter years, but this charge will
never impact cash, distributable earnings or equity.
For the full year ended December 31, 2007, pre-tax distributable earnings
were $552 million, or $1.30 per dividend paying share, a 39% increase over our
pre-tax distributable earnings for the full year of 2006 of $397 million.
Fourth Quarter 2007
For the quarter ended December 31, 2007, our GAAP net loss was $29 million
or $0.43 per diluted share. Excluding principals agreement charges, fourth
quarter GAAP net income was $27 million.
Pre-tax distributable earnings for the quarter were $78 million, or $0.18
per dividend paying share, a 43% decrease over our pre-tax distributable
earnings for the fourth quarter 2006 of $138 million.
For reconciliations between pre-tax distributable earnings and GAAP net
income (loss), and between GAAP net income excluding principals agreement
compensation and GAAP net income (loss) see "Reconciliation of Pre-tax
Distributable Earnings to GAAP Net Income (Loss)" and "Reconciliation of GAAP
Net Income Excluding Principals Agreement Compensation to GAAP Net Income
(Loss)" 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).
The Company's quarterly segment revenues and distributable earnings will
fluctuate materially depending upon the performance of our funds and the
realization of 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.
The following discussion of our results is based on segment reporting as
presented in our Annual Report on Form 10-K. Our GAAP statement of operations
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 a 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) and the year ended December 31, 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 December 31, 2007 Private Equity Hedge Funds
(in millions) Total Funds Castles Liquid Hybrid
Total AUM - Ending Balance $37,817 $19,191 $2,246 $8,126 $8,254
Management Fee Paying AUM
Management Fee Paying AUM
- October 1, 2007 31,674 12,914 3,279 7,582 7,899
New capital raised,
increase in
invested capital 1,739 577 2 386 774
Realizations (PE) /
Redemptions
(Hedge Funds) (360) (39) - (162) (159)
+/- Net Asset Value &
Foreign Exchange rate
change 181 (174) 47 322 (14)
Management Fee Paying AUM
- Ending Balance $33,234 $13,278 $3,328 $8,128 $8,500
Segment Revenues
Management fee $129 $34 $14 $45 $36
Incentive income 67 1 22 41 3
Total 196 35 36 86 39
Segment Expenses
Profit sharing compensation
expenses (41) (1) (6) (33) (1)
Operating expenses (79) (12) (9) (23) (35)
Total (120) (13) (15) (56) (36)
76 22 21 30 3
Investment Income(2) 7 1 1 3 2
Unallocated Investment Income 2
Unallocated Expenses (7)
Pre-tax Distributable Earnings $78 $23 $22 $33 $5
Weighted Average Dividend Paying
Shares and Units Outstanding(3) 431
Three Months Ended December 31, 2006 Private Equity Hedge Funds
(in millions) Total Funds Castles Liquid Hybrid
Total AUM - Ending Balance $32,807 $17,587 $4,668 $5,007 $5,545
Management Fee Paying AUM
Management Fee Paying AUM
- October 1, 2006 19,302 8,070 1,923 4,601 4,708
New capital raised,
increase in invested
capital 1,798 144 869 332 453
Realizations (PE)
/ Redemptions
(Hedge Funds) (889) (742) - (14) (133)
+/- Net Asset Value & Foreign
Exchange rate change 642 67 50 103 422
Management Fee Paying AUM
- Ending Balance $20,853 $7,539 $2,842 $5,022 $5,450
Segment Revenues
Management fee $90 $24 $10 $29 $27
Incentive income 162 34 5 74 49
Total 252 58 15 103 76
Segment Expenses
Profit sharing compensation
expenses (97) (13) (6) (48) (30)
Operating expenses (56) (4) (11) (12) (29)
Total (153) (17) (17) (60) (59)
99 41 (2) 43 17
Investment Income(2) 56 2 - 33 21
Unallocated Investment Income -
Unallocated Expenses (17)
Pre-tax Distributable Earnings $138 $43 $(2) $76 $38
Weighted Average Dividend Paying
Units Outstanding(3) 367
Supplemental Data for Year(2,3):
Year Ended December 31, 2007 Private Equity Hedge Funds
(in millions) Total Funds Castles Liquid Hybrid
Total AUM - Ending Balance $37,817 $19,191 $2,246 $8,126 $8,254
Management Fee Paying AUM
Management Fee Paying AUM
- January 1, 2007 20,853 7,539 2,842 5,022 5,450
New capital raised,
increase in invested
capital 12,439 6,819 203 2,651 2,766
Realizations (PE)
/ Redemptions
(Hedge Funds) (1,222) (730) - (280) (212)
+/- Net Asset Value & Foreign
Exchange rate change 1,164 (350) 283 735 496
Management Fee Paying AUM
- Ending Balance $33,234 $13,278 $3,328 $8,128 $8,500
Segment Revenues
Management fee $470 $132 $49 $159 $130
Incentive income 611 275 40 199 97
Total 1,081 407 89 358 227
Segment Expenses
Profit sharing compensation
expenses (283) (102) (14) (122) (45)
Operating expenses (264) (34) (30) (77) (123)
Total (547) (136) (44) (199) (168)
534 271 45 159 59
Investment Income(2) 47 11 2 6 28
Unallocated Investment Income 14
Unallocated Expenses (43)
Pre-tax Distributable Earnings $552 $282 $47 $165 $87
Weighted Average Dividend Paying
Shares and Units Outstanding(3) 424
Year Ended December 31, 2006 Private Equity Hedge Funds
(in millions) Total Funds Castles Liquid Hybrid
Total AUM - Ending Balance $32,807 $17,587 $4,668 $5,007 $5,545
Management Fee Paying AUM
Management Fee Paying AUM
- January 1, 2006 11,176 3,635 1,266 3,180 3,095
New capital raised,
increase in invested
capital 10,171 4,978 1,552 2,030 1,611
Realizations (PE)
/ Redemptions
(Hedge Funds) (2,085) (1,141) - (727) (217)
+/- Net Asset Value & Foreign
Exchange rate change 1,591 67 24 539 961
Management Fee Paying AUM
- Ending Balance $20,853 $7,539 $2,842 $5,022 $5,450
Segment Revenues
Management fee $294 $84 $33 $93 $84
Incentive income 436 130 16 154 136
Total 730 214 49 247 220
Segment Expenses
Profit sharing compensation
expenses (240) (51) (12) (102) (75)
Operating expenses (164) (13) (32) (44) (75)
Total (404) (64) (44) (146) (150)
326 150 5 101 70
Investment Income(2) 125 5 2 84 34
Unallocated Investment Income 1
Unallocated Expenses (55)
Pre-tax Distributable Earnings $397 $155 $7 $185 $104
Weighted Average Dividend Paying
Units Outstanding(3) 367
(2) Investment income includes earnings on deferred fee arrangements of
$0.0 and $33.6 million for the quarters ended December 31, 2007 and
2006, respectively, and earnings of $1.9 million and $92.7 million for
the years ended December 31, 2007 and 2006, respectively. These
deferred fee arrangements have now been terminated.
(3) As defined in Note 9 to our consolidated and combined financial
statements included in our Annual Report on Form 10-K for the year
ended December 31, 2007.
Overview
We manage private equity funds and hedge funds. As of December 31, 2007,
Fortress reported management fee paying assets under management of $33.2
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 2007, we generated total segment revenues of $1.1 billion, which
included management fees of $470 million and incentive income of $611 million.
In addition, we earned segment investment income of $61 million for the year.
After segment expenses, Fortress generated pre-tax distributable earnings of
$552 million for the year ended December 31, 2007.
For the year ended December 31, 2007, the private equity segments
accounted for approximately 46% of total segment revenues and the hedge fund
segments accounted for approximately 54% of total segment revenues.
For the year ended December 31, 2007, the private equity and hedge fund
businesses accounted for approximately 57% and 43%, respectively, of total
pre-tax distributable earnings before unallocated items.
In the fourth quarter of 2007, we generated total segment revenues of $196
million, which included management fees of $129 million and incentive income
of $67 million. In addition, we earned segment investment income of $9
million in the quarter. After segment expenses, Fortress generated pre-tax
distributable earnings of $78 million for the quarter ended December 31, 2007.
For the quarter ended December 31, 2007, the private equity segments
accounted for approximately 36% of total segment revenues and the hedge fund
segments accounted for approximately 64% of total segment revenues.
For the quarter ended December 31, 2007, the private equity and hedge fund
businesses accounted for approximately 54% and 46%, respectively, of total
pre-tax distributable earnings before unallocated items.
Private Equity -- Funds
For 2007, the Company's private equity business generated $282 million of
pre-tax distributable earnings as compared to $155 million for 2006.
For the quarter ended December 31, 2007, the Company's private equity
business generated $23 million of pre-tax distributable earnings as compared
to $43 million for the quarter ended December 31, 2006.
Management fee paying assets under management as of December 31, 2007
increased 76% to $13.3 billion from $7.5 billion as of December 31, 2006.
A key measure of our ability to continue to generate incentive income is
our unrealized gains in our private equity funds. Unrealized gains in our
funds' public company holdings totaled $1.7 billion as of December 31, 2007.
As of December 31, 2007, our funds' private equity capital invested in non-
public transactions totaled approximately $9.9 billion and our private equity
funds' unfunded commitments were approximately $2.1 billion.
Private Equity -- Castles
For 2007, the Company's Castles generated $47 million of pre-tax
distributable earnings as compared to $7 million for 2006.
For the quarter ended December 31, 2007, the Company's Castles generated
$22 million of pre-tax distributable earnings as compared to a loss of
$2 million for the quarter ended December 31, 2006.
Management fee paying assets under management increased 17% to
$3.3 billion as of December 31, 2007 from $2.8 billion as of December 31,
2006.
The Castles produced a loss, based on their incentive income metric, of
3.71% for the three months ended December 31, 2007 and a positive return of
5.54% for the year ended December 31, 2007.
Liquid Hedge Funds
For 2007, the Company's liquid hedge fund business generated $163 million
of pre-tax distributable earnings (which excludes $2 million of earnings on
previously deferred fees) as compared to $106 million (which excludes
$79 million of earnings on previously deferred fees) for 2006.
For the quarter ended December 31, 2007, the Company's liquid hedge fund
business generated $33 million of pre-tax distributable earnings as compared
to $47 million (which excludes $29 million of earnings on previously deferred
fees) for the quarter ended December 31, 2006.
Management fee paying assets under management increased 62% to
$8.1 billion as of December 31, 2007 from $5.0 billion as of December 31,
2006.
The liquid hedge funds' gross return was 5.47%(4) for the three months
ended December 31, 2007 and 18.16% for the full year ended December 31, 2007.
Hybrid Hedge Funds
For 2007, the Company's hybrid hedge fund business generated $87 million
of pre-tax distributable earnings as compared to $90 million (which excludes
$14 million of earnings on previously deferred fees) for 2006.
For the quarter ended December 31, 2007, the Company's hybrid hedge fund
business generated $5 million of pre-tax distributable earnings as compared to
$34 million (which excludes $4 million of earnings on previously deferred
fees) for the quarter ended December 31, 2006.
Management fee paying assets under management increased 56% to
$8.5 billion as of December 31, 2007 from $5.5 billion as of December 31,
2006.
The hybrid hedge funds' gross return was 1.94%(4) for the three months
ended December 31, 2007 and 14.43% for the year ended December 31, 2007.
(4) The gross returns reflect returns for the applicable period for a "new
issue eligible" investor investing in the funds at their inception
(before management fees and incentive fees).
Principal Investments
Our principal investments generated a gain of $1 million for the three
months ended December 31, 2007 and generated a gain of $27 million for the
year ended December 31, 2007. These results are included in the segment
distributable earnings discussed above.
Segment Expenses
Segment expenses for 2007 were $547 million, as compared to $404 million
for 2006. Segment expenses for 2007 and 2006 included $283 million and
$240 million of profit sharing compensation, respectively, which is a function
of the performance of various funds.
Segment expenses were $120 million in the fourth quarter of 2007, down
from $153 million from the fourth quarter of 2006. Segment expenses for the
fourth quarter of 2007 and 2006 included $41 million and $97 million of profit
sharing compensation, respectively, which is a function of the performance of
various funds.
Fortress's headcount increased by approximately 38% since the fourth
quarter of 2006. As of December 31, 2007, the firm and its affiliates
employed 806 people around the world.
The Company had $271 million of share-based compensation expense
(primarily relating to expense recorded in connection with the principals
agreement and the issuance of restricted stock units to Fortress employees in
the IPO) for the quarter ended December 31, 2007, which contributed to our
reporting a GAAP net loss per share. Share-based compensation expense is not
included in segment expenses or in the calculation of distributable earnings.
Dividend
The Company's Board of Directors declared a first quarter cash dividend of
$0.225 per share on its common stock for the quarter ending March 31, 2008, to
be paid on April 15, 2008 to stockholders of record on March 31, 2008. In
addition, the Company paid a fourth quarter dividend of $0.225 per share on
January 15, 2008.
Withholding Information
For U.S. federal income tax purposes, the dividend will be treated as a
partnership distribution. Based on the best information currently available,
when calculating withholding taxes, 16.50 cents of the per share dividend will
be treated as U.S. source dividend income, and 6.00 cents of the per share
dividend will be treated as U.S. source interest income. Accordingly, for
non-U.S. holders of Class A shares, unless an exception to withholding tax
applies, the per share amount of the dividend will be subject to a U.S.
federal withholding tax of 6.75 cents and the per share amount of the dividend
received after taking into account such withholding taxes will be 15.75 cents.
Non-U.S. holders of Class A shares are generally subject to U.S. federal
withholding tax at a rate of 30% (subject to reduction by applicable treaty or
other exception) on their shares of U.S. source dividends and certain other
types of U.S. source income realized by the Company. With respect to interest,
however, no withholding is generally required if proper certification (on an
IRS Form W-8) of a beneficial owner's foreign status has been filed with the
withholding agent. In addition, non-U.S. holders must generally provide the
withholding agent with a properly completed IRS Form W-8 to obtain any
reduction in withholding.
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 revenues
-- GAAP net income excluding principals agreement compensation
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, March 25, 2008 at
10:00 AM 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 1-877-717-3044 (from within the
U.S.) or 1-706-679-1521 (from outside of the U.S.) ten minutes prior to the
scheduled start of the call; please reference "Fortress Fourth 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 Friday, April 4, 2008 by dialing 1-800-642-1687
(from within the U.S.) or 1-706-645-9291 (from outside of the U.S.); please
reference access code "37943758."
Fortress is a leading global alternative asset manager with approximately
$37.8 billion in total assets under management as of December 31, 2007.
Fortress manages private equity funds and hedge funds. 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, which is
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.
Fortress Investment Group LLC
(Prior to January 17, 2007, Fortress Operating Group)
Consolidated and Combined Statements of Operations
(dollars in thousands, except share data)
Year Ended December 31,
2007 2006 2005
Revenues
Management fees from affiliates $414,166 $154,649 $81,356
Incentive income from affiliates 442,892 185,364 172,623
Other revenues 69,927 70,802 30,334
Interest and dividend income -
investment company holdings
Interest income 243,713 843,589 529,221
Interest income from controlled
affiliate investments 4,707 54,003 58,539
Dividend income 7,436 9,184 7,691
Dividend income from controlled
affiliate investments 53,174 203,713 163,635
1,236,015 1,521,304 1,043,399
Expenses
Interest expense
Investment company holdings 132,620 505,340 318,010
Other 34,313 54,026 11,682
Compensation and benefits 658,815 436,004 259,216
Principals agreement compensation 852,956 - -
General, administrative and other 99,885 115,095 94,054
Depreciation and amortization 8,454 6,818 2,267
1,787,043 1,117,283 685,229
Other Income (Losses)
Gains (losses) from investments
Investment company holdings
Net realized gains (losses) 86,264 (47,494) 184,644
Net realized gains from
controlled affiliate investments 715,024 998,212 396,062
Net unrealized gains (losses) (19,928) 86,404 46,727
Net unrealized gains (losses)
from controlled affiliate
investments (1,428,837) 5,556,907 2,276,545
Other investments
Net realized gains (losses) (2,037) (13,608) 3,750
Net realized gains (losses)
from affiliate investments 145,449 977 120
Net unrealized gains (losses) 1,316 4,044 232
Net unrealized gains (losses)
from affiliate investments (253,888) 182,228 33,079
Earnings (losses) from equity
method investees (61,674) 5,039 10,465
(818,311) 6,772,709 2,951,624
Income (Loss) Before Deferred
Incentive Income, Principals'
and Others' Interests in Income of
Consolidated Subsidiaries
and Income Taxes (1,369,339) 7,176,730 3,309,794
Deferred incentive income 307,034 (1,066,137) (444,567)
Principals' and others' interests
in (income) loss of consolidated
subsidiaries 996,870 (5,655,184) (2,662,926)
Income (Loss) Before Income Taxes (65,435) 455,409 202,301
Income tax benefit (expense) 5,632 (12,525) (9,625)
Net Income (Loss) $(59,803) $442,884 $192,676
Dividends Declared Per Class A Share 0.8424
Jan 1 through
Earnings Per Unit - Fortress Jan 16
Operating Group
Net income per Fortress Operating
Group unit $0.36 $1.21 $0.52
Weighted average number of Fortress
Operating Group units outstanding 367,143,000 367,143,000 367,143,000
Jan 17 through
Earnings Per Class A Share - Dec 31
Fortress Investment Group
Net income (loss) per Class A
share, basic $(2.14)
Net income (loss) per Class A
share, diluted $(2.14)
Weighted average number of Class A
shares outstanding, basic 92,214,827
Weighted average number of Class A
shares outstanding, diluted 92,214,827
Fortress Investment Group LLC
(Prior to January 17, 2007, Fortress Operating Group)
Consolidated and Combined Balance Sheets
(dollars in thousands, except share data)
December 31,
2007 2006
Assets
Cash and cash equivalents $100,409 $61,120
Cash held at consolidated subsidiaries
and restricted cash - 564,085
Due from affiliates 198,669 635,748
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 1,091,918 37,250
Options in affiliates 16,001 139,266
Deferred tax asset 511,204 2,808
Other assets 71,580 187,920
$1,989,781 $23,682,573
Liabilities and Shareholders' Equity
Liabilities
Due to affiliates $455,734 $15,112
Due to brokers and counterparties - 187,495
Accrued compensation and benefits 269,324 159,931
Dividends payable 21,285 -
Other liabilities 36,729 152,604
Deferred incentive income 173,561 1,648,782
Securities sold not yet purchased, at
fair value - 97,717
Derivative liabilities, at fair value - 123,907
Investment company debt obligations payable - 2,619,456
Other debt obligations payable 535,000 687,153
1,491,633 5,692,157
Commitments and Contingencies
Principals' and Others' Interests in
Equity of Consolidated Subsidiaries 308,023 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 384,700 -
Retained earnings (accumulated deficit) (193,200) -
Fortress Operating Group members' equity - 119,561
Accumulated other comprehensive
income (loss) (1,375) 1,960
190,125 121,521
$1,989,781 $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
December 31, 2007 December 31, 2006
Pre-tax Distributable Earnings $78 $138
Private equity incentive income 2 (20)
Hybrid hedge fund incentive income 92 85
Castle option incentive income (2) -
Castle option management fee - 13
Distributions of earnings from
equity method investees (3) (4)
Earnings from equity method investees (42) 41
Gains/losses on options (30) 49
Employee equity-based compensation (31) (8)
Principal compensation (240) -
Employee portion of incentive income (9) (1)
Principals' interest in income of
consolidated subsidiaries 143 -
Taxes 13 (3)
GAAP Net Income (Loss)1 $(29) $290
Year Ended
December 31, 2007 December 31, 2006
Pre-tax Distributable Earnings $552 $397
Private equity incentive income 46 (108)
Hybrid hedge fund incentive income - -
Castle option incentive income (2) -
Castle option management fee 2 32
Distributions of earnings from
equity method investees (17) (10)
Earnings from equity method investees (92) 77
Gains/losses on options (113) 86
Employee equity-based compensation (130) (16)
Principal compensation (853) -
Employee portion of incentive income (4) (3)
Principals' interest in income of
consolidated subsidiaries 545 -
Taxes 6 (12)
GAAP Net Income (Loss)1 $(60) $443
(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
$193.2 million for the period from January 17, 2007 through
December 31, 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
December 31, 2007 December 31, 2006
Segment Revenues $196 $252
Adjust incentive income 92 65
Adjust income from the receipt of options - 13
Other revenues 16 -
Consolidation and elimination - 158
GAAP Revenues $304 $488
Year Ended
December 31, 2007 December 31, 2006
Segment Revenues $1,081 $730
Adjust incentive income 44 (108)
Adjust income from the receipt of options 2 32
Other revenues 61 3
Consolidation and elimination 48 864
GAAP Revenues $1,236 $1,521
"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 11 to our financial statements included in our Annual Report on
Form 10-K for the annual period ended December 31, 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 Income Excluding Principals Agreement
Compensation to GAAP Net Income (Loss)
(dollars in thousands)
Three months ended Year ended
December 31, 2007 December 31, 2007
GAAP net loss $(29,258) $(59,803)
Principals agreement compensation 239,975 852,956
Portion not allocable to public
shareholders (184,157) (654,558)
GAAP net income excluding principals
agreement compensation $26,560 $138,595
SOURCE
Fortress Investment Group LLC
CONTACT:
Lilly H. Donohue, +1-212-798-6118, for Fortress Investment
Group LLC
