Second Quarter Highlights -- Assets under management(1) of $35.1 billion, up 23% from 2Q2007
NEW YORK, Aug. 7 /PRNewswire-FirstCall/ -- Fortress Investment Group LLC
(NYSE: FIG) today reported its results for the second quarter ended June 30,
2008.
Second Quarter 2008
For the quarter ended June 30, 2008, our GAAP net loss was $55 million, or
$0.67 per diluted share. Excluding principals agreement compensation, second
quarter GAAP net loss was $345,000.
Pre-tax distributable earnings for the quarter were $58 million, or $0.13
per dividend paying share, versus $143 million for the second quarter 2007.
For reconciliations from pre-tax distributable earnings and fund
management DE to GAAP net income (loss), and from GAAP net income (loss)
excluding principals agreement compensation to GAAP net income (loss) see
"Reconciliation of Fund Management DE to Pre-tax Distributable Earnings and
GAAP Net Income (Loss)" and "Reconciliation of GAAP Net Income (Loss)
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(2).
The Company's quarterly segment revenues and distributable earnings will
fluctuate materially depending upon the performance of our funds and 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.
The following discussion of our results is based on segment reporting as
presented in our Quarterly Report on Form 10-Q. 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) Assets under management in this press release refers to management fee
paying assets under management.
(2) Comparisons of after tax or per share amounts to periods prior to our
reorganization, including the first quarter of 2007 (prior to
January 17), may not be meaningful because of the impact of the
reorganization transactions on our financial statements.
Supplemental Data for Three Months:
Three Months Ended Private Equity Hedge Funds Principal
June 30, 2008Invest-
(in millions) TotalFunds Castles Liquid Hybrid ments
AUM
AUM - April 1, 2008 $34,187 $12,993 $3,503 $9,254 $8,437$-
New capital raised,
increase in invested
capital 2,1951,165 - 925 105 -
Return of Capital
(PE) / Redemptions
(Hedge Funds)(546) (54) -(311) (181)-
Reset Date -- - - - -
Crystallized Incentive
Income -- - - - -
+/- Net Asset Value &
Foreign Exchange rate
change (747)(608) (5) (163) 29 -
AUM - Ending Balance $35,089 $13,496 $3,498 $9,705 $8,390$-
Segment Revenues
Management fee $150 $42 $15 $57 $36$-
Incentive income 15- - 14 1 -
Total 165 42 15 71 37 -
Segment Expenses
Profit sharing
compensation expenses (20) (1) (1)(16) (2)-
Operating expenses (70) (9)(10)(25)(26)-
Unallocated Expenses -
Total (90) (10)(11)(41)(28)-
Fund Management DE 75 32 4 30 9 -
Investment Income (7)(7)
Interest Expense (10) (10)
Pre-tax Distributable
Earnings $58 $32 $4 $30 $9 $(17)
Weighted Average Dividend
Paying Shares and Units
Outstanding 456
Three Months Ended Private Equity Hedge Funds Principal
June 30, 2007Invest-
(in millions) TotalFunds Castles Liquid Hybrid ments
AUM
AUM - April 1, 2007 $23,426 $8,398 $2,967 $5,915 $6,146$-
New capital raised,
increase in invested
capital 5,8624,048 206 1,024 584 -
Return of Capital
(PE) / Redemptions
(Hedge Funds) (51) - - (42) (9)-
Reset Date (1,367) (1,367) - - - -
+/- Net Asset Value &
Foreign Exchange rate
change699 (86) - 519 266 -
AUM - Ending Balance $28,569 $10,993 $3,173 $7,416 $6,987$-
Segment Revenues
Management fee $118 $36 $12 $38 $32$-
Incentive income 165- 14 113 38 -
Total 283 36 26 151 70 -
Segment Expenses
Profit sharing
compensation expenses (82) (1) (5)(58)(18)-
Operating expenses (67) (7) (8)(18)(34)-
Unallocated Expenses (4)
Total (153) (8)(13)(76)(52)-
Fund Management DE 130 28 13 75 18 -
Investment Income 20 20
Interest Expense(7)(7)
Pre-tax Distributable
Earnings $143 $28 $13 $75 $18 $13
Weighted Average Dividend
Paying Shares and Units
Outstanding 431
Supplemental Data for Six Months:
Six Months EndedPrivate Equity Hedge Funds Principal
June 30, 2008Invest-
(in millions) TotalFunds Castles Liquid Hybrid ments
AUM
AUM - January 1, 2008 $33,234 $13,278 $3,328 $8,128 $8,500$-
New capital raised,
increase in invested
capital 4,8671,793 - 2,211 863 -
Return of Capital (PE)
/ Redemptions (Hedge
Funds) (1,294)(194) -(421) (679)-
Reset Date-- - - - -
Crystallized Incentive
Income (95) - - - (95)
+/- Net Asset Value &
Foreign Exchange rate
change (1,623) (1,381) 170(213) (199)-
AUM - Ending Balance $35,089 $13,496 $3,498 $9,705 $8,390$-
Segment Revenues
Management fee $295 $84$28$110 $73$-
Incentive income 47 29 - 17 1 -
Total 342 113 28 127 74 -
Segment Expenses
Profit sharing
compensation expenses(52) (13)(2)(33) (4)-
Operating expenses (144) (18) (18)(49)(59)-
Unallocated Expenses-
Total (196) (31) (20)(82)(63)-
Fund Management DE 146 82 8 45 11 -
Investment Income (10) (10)
Interest Expense(20) (20)
Pre-tax Distributable
Earnings $116 $82 $8 $45 $11 $(30)
Weighted Average
Dividend Paying Shares
and Units Outstanding 443
Six Months EndedPrivate Equity Hedge Funds Principal
June 30, 2007Invest-
(in millions) TotalFunds Castles Liquid Hybrid ments
AUM
AUM - January 1, 2007 $20,853 $7,539 $2,842 $5,022 $5,450$-
New capital raised,
increase in invested
capital 8,8295,618331 1,776 1,104 -
Return of Capital (PE)
/ Redemptions (Hedge
Funds)(822)(691) - (78)(53)-
Reset Date (1,367) (1,367) - - - -
+/- Net Asset Value &
Foreign Exchange rate
change 1,076 (106) - 696 486 -
AUM - Ending Balance $28,569 $10,993 $3,173 $7,416 $6,987$-
Segment Revenues
Management fee $216 $63$23 $69 $61$-
Incentive income 450 190 18 158 84 -
Total 666 253 41 227 145 -
Segment Expenses
Profit sharing
compensation expenses (205) (73)(7)(87)(38)-
Operating expenses (121) (13) (15)(35)(58)-
Unallocated Expenses (7)
Total (333) (86) (22) (122)(96)-
Fund Management DE 333 167 19 105 49 -
Investment Income4949
Interest Expense(19) (19)
Pre-tax Distributable
Earnings $363 $167$19$105 $49 $30
Weighted Average
Dividend Paying Shares
and Units Outstanding 417
Overview
We manage $35.1 billion of assets in private equity funds and hedge funds
as of June 30, 2008. 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 2008, we generated fund management revenues of
$165 million, which included management fees of $150 million and incentive
income of $15 million. After segment expenses and principal investments,
Fortress generated pre-tax distributable earnings of $58 million for the
quarter ended June 30, 2008.
For the quarter ended June 30, 2008, the private equity segments accounted
for approximately 35% of total segment revenues and the hedge fund segments
accounted for approximately 65% of total segment revenues.
For the quarter ended June 30, 2008, the private equity and hedge fund
businesses accounted for approximately 48% and 52%, respectively, of total
fund management DE.
Private Equity - Funds
For the quarter ended June 30, 2008, the Company's private equity funds
generated $32 million of pre-tax distributable earnings as compared to $28
million for the quarter ended June 30, 2007.
Assets under management as of June 30, 2008 increased 23% to $13.5 billion
from $11.0 billion as of June 30, 2007.
As of June 30, 2008, our funds' private equity capital invested in non-
public transactions totaled approximately $10.8 billion, and our private
equity funds' unfunded commitments were approximately $1.5 billion.
Private Equity - Castles
For the quarter ended June 30, 2008, the Company's Castles generated $4
million of pre-tax distributable earnings as compared to $13 million for the
quarter ended June 30, 2007.
Assets under management increased 10% to $3.5 billion as of June 30, 2008
from $3.2 billion as of June 30, 2007.
Liquid Hedge Funds
For the quarter ended June 30, 2008, the Company's liquid hedge fund
business generated $30 million of pre-tax distributable earnings as compared
to $75 million for the quarter ended June 30, 2007.
Assets under management increased 31% to $9.7 billion as of June 30, 2008
from $7.4 billion as of June 30, 2007.
The following table shows our Assets Under Management by fund:
(dollars in billions)June 30, 2008 December 31, 2007 June 30, 2007
Drawbridge Global Macro
Funds(3) $8.8$8.1$7.4
Fortress Commodities Fund(4)$0.9 N/A N/A
The following table shows our gross and net returns by fund:
Three months ended Six months ended
June 30, 2008 June 30, 2008
Gross Returns(5)
Drawbridge Global Macro Fund Ltd -2.07% -1.82%
Fortress Commodities Fund LP 10.63% 12.33%
Net Returns(6)
Drawbridge Global Macro Fund Ltd -2.55% -2.76%
Fortress Commodities Fund LP8.11% 9.01%
Hybrid Hedge Funds
For the quarter ended June 30, 2008, the Company's hybrid hedge fund
business generated $9 million of pre-tax distributable earnings as compared to
$18 million for the quarter ended June 30, 2007.
Assets under management increased 20% to $8.4 billion as of June 30, 2008
from $7.0 billion as of June 30, 2007.
The following table shows our Assets Under Management by fund:
(dollars in billions)June 30, 2008 December 31, 2007 June 30, 2007
Drawbridge Special
Opportunities Funds(7) $6.6$6.8$6.1
Fortress Partners Funds(8) $1.8$1.7$0.9
The following table shows our gross and net returns by fund:
Three months ended Six months ended
June 30, 2008 June 30, 2008
Gross Returns(5)
Drawbridge Special Opportunities LP 1.44% 0.35%
Drawbridge Special Opportunities Ltd 0.18%-0.96%
Fortress Partners Fund LP0.85%-3.50%
Fortress Partners Fund Ltd 1.92%-1.82%
Net Returns(6)
Drawbridge Special Opportunities LP 0.94%-0.65%
Drawbridge Special Opportunities Ltd-0.32%-2.18%
Fortress Partners Fund LP0.50%-4.15%
Fortress Partners Fund Ltd 1.58%-2.52%
(3) Consolidated AUM for Drawbridge Global Macro Fund Ltd, Drawbridge
Global Macro Fund LP and Drawbridge Global Macro Managed Accounts.
(4) Fund commenced operations in January 2008.
(5) The performance data contained herein reflects returns for a "new
issue eligible," single investor class, net of expenses borne by the
Fund (prior to any fees), as of the close of business on the last day
of the relevant period. Specific performance may vary based on, among
other things, whether fund investors are invested in one or more
Special Investments.
(6) The performance data contained herein reflects returns for a "new
issue eligible," single investor class, net of all fees and expenses
borne by the Fund, as of the close of business on the last day of the
relevant period. Specific performance may vary based on, among other
things, whether fund investors are invested in one or more Special
Investments.
(7) Consolidated AUM for Drawbridge Special Opportunities Fund Ltd,
Drawbridge Special Opportunities Fund LP and Drawbridge Special
Opportunities Managed Accounts.
(8) Consolidated AUM for Fortress Partners Fund Ltd and Fortress Partners
Fund LP.
Principal Investments
At June 30, 2008, we had $1.1 billion of assets (excluding $0.3 billion of
cash and cash equivalents) in our principal investments segment, up from $0.7
billion (excluding $0.3 billion of cash and cash equivalents) at June 30,
2007. During the three months ended June 30, 2008, we increased our
commitments to our principal investments by $17 million and funded $11 million
of our commitments. We had $183 million of unfunded commitments to our
principal investments as of June 30, 2008.
Our principal investments segment generated a loss of $17 million for the
three months ended June 30, 2008 primarily due to an impairment of $10 million
on our investment in Newcastle Investment Corp. and $8 million of net interest
expense.
Segment Expenses
Segment expenses were $90 million in the second quarter of 2008, down from
$153 million from the second quarter of 2007. Segment expenses for the second
quarters of 2008 and 2007 included $20 million and $82 million of profit
sharing compensation, respectively, which is a function of the performance of
various funds.
Fortress's headcount increased by approximately 24% since the second
quarter of 2007. As of June 30, 2008, the firm and its affiliates employed
880 people around the world.
The Company had $291 million of share-based compensation expense
(primarily relating to expense recorded in connection with the principals
agreement, the issuance of restricted stock units to Fortress employees in the
IPO, and the issuance of restricted partnership units during this quarter) for
the quarter ended June 30, 2008, 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 paid a second quarter cash dividend of $0.225 per share on its
common stock, for the quarter ending June 30, 2008, on July 11, 2008 to
stockholders of record on June 30, 2008.
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:
-- Pre-tax distributable earnings (DE)
-- Fund management DE
-- 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, Thursday, August 7, 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 Second 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, August 15, 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 "57630061."
Fortress is a leading global alternative asset manager with approximately
$35.1 billion in assets under management as of June 30, 2008. 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 our public company surplus, dividends sources of
management fees, incentive income and investment income, estimated fund
performance, 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,
our public company surplus, sources of management fees, incentive income and
investment income, the amount and source of expected capital commitments for
any 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 Operations" in the Company's Annual Report
on Form 10-K and Quarterly Report on Form 10-Q, each of which is, or will be,
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)
Three months endedSix months ended
June 30, June 30,
2008 2007 20082007
Revenues
Management fees
from affiliates $149,605 $118,678 $293,662$161,965
Incentive income from
affiliates18,300 132,961 55,444 177,189
Other revenues 20,191 16,480 39,870 36,265
Interest and dividend
income - investment
company holdings
Interest income --- 243,713
Interest income from
controlled affiliate
investments --- 4,707
Dividend income --- 7,436
Dividend income from
controlled affiliate
investments --- 53,174
188,096 268,119 388,976 684,449
Expenses
Interest expense
Investment company
holdings --- 132,620
Other 9,8886,711 20,224 18,731
Compensation and
benefits 137,460 187,783 264,479 405,300
Principals agreement
compensation 237,367 242,659 474,734 380,933
General, administrative
and other 19,746 23,603 36,316 62,908
Depreciation and
amortization 2,4362,1844,872 4,193
406,897 462,940 800,625 1,004,685
Other Income (Loss)
Gains (losses) from
investments
Investment company
holdings
Net realized gains
(losses) --- 86,264
Net realized gains
(losses) from
controlled affiliate
investments--- 715,024
Net unrealized gains
(losses) --- (19,928)
Net unrealized gains
(losses) from
controlled affiliate
investments--- (1,428,837)
Other investments
Net realized gains
(losses) 61 (1,735) 1,674 54
Net realized gains
(losses) from
affiliate investments(92) 9,452 155 145,493
Net unrealized gains
(losses) - (396) -(677)
Net unrealized gains
(losses) from
affiliate investments (6,584) (36,338) (36,401) (167,166)
Earnings (losses) from
equity method investees (26,500) 7,231 (75,629) 7,427
(33,115) (21,786)(110,201) (662,346)
Income (Loss) Before
Deferred Incentive Income,
Principals' and Others'
Interests in Income of
Consolidated Subsidiaries
and Income Taxes (251,916)(216,607)(521,850) (982,582)
Deferred incentive
income --- 307,034
Principals' and others'
interests in (income)
loss of consolidated
subsidiaries 194,411 166,485 402,680 702,016
Income (Loss) Before
Income Taxes (57,505) (50,122)(119,170) 26,468
Income tax benefit
(expense) 1,949 (5,009) (5,303)(19,456)
Net Income (Loss) $(55,556)$(55,131) $(124,473) $7,012
Dividends declared per
Class A share $0.2250 $0.2250 $0.4500 $0.3924
Earnings Per Unit - January 1
Fortress Operating Groupthrough
January 16
Net income per
Fortress Operating
Group unit $0.36
Weighted average
number of Fortress
Operating Group
units outstanding367,143,000
Earnings Per Class A
share - Fortress January 17
Investment Group through
January 30
Net income (loss) per
Class A share, basic$(0.62) $(0.59) $(1.36) $(1.43)
Net income (loss) per
Class A share,
diluted $(0.67) $(0.66) $(1.37) $(1.43)
Weighted average
number of Class A
shares outstanding,
basic 94,913,677 94,894,636 94,904,157 89,226,434
Weighted average
number of Class A
shares outstanding,
diluted406,985,227 406,966,186 406,975,707 89,226,434
Fortress Investment Group LLC
(Prior to January 17, 2007, Fortress Operating Group)
Consolidated Balance Sheets
(dollars in thousands, except share data)
June 30,December 31,
2008 2007
(Unaudited)
Assets
Cash and cash equivalents $255,155 $100,409
Due from affiliates 141,765 198,669
Investments
Equity method investees961,123 1,091,918
Options in affiliates 87116,001
Deferred tax asset 512,237 511,204
Other assets 72,68471,580
$1,943,835$1,989,781
Liabilities and Shareholders' Equity
Liabilities
Accrued compensation and benefits $126,040 $269,324
Due to affiliates464,709 455,734
Dividends payable 21,28621,285
Deferred incentive income164,144 173,561
Debt obligations payable 800,000 535,000
Other liabilities 40,23936,729
1,616,418 1,491,633
Commitments and Contingencies
Principals' and Others' Interests in
Equity of Consolidated Subsidiaries 173,104 308,023
Shareholders' Equity
Class A shares, no par value,
1,000,000,000 shares authorized,
94,604,806 and 94,597,646 shares
issued and outstanding at June 30,
2008 and December 31, 2007,
respectively.- -
Class B shares, no par value,
750,000,000 shares authorized,
312,071,550 shares issued and
outstanding - -
Paid-in capital 469,319 384,700
Retained earnings (accumulated
deficit) (315,564) (193,200)
Accumulated other comprehensive
income (loss) 558(1,375)
154,313 190,125
$1,943,835$1,989,781
Fortress Investment Group LLC
(Prior to January 17, 2007, Fortress Operating Group)
Reconciliation of Fund Management DE to Pre-tax Distributable
Earnings and GAAP Net Income (Loss)
(dollars in millions)
Three Months Ended
June 30, 2008 June 30, 2007
Fund Management DE $75 $130
Investment Income (Loss) (7) 20
Interest Expense (10) (7)
Pre-tax Distributable Earnings 58 143
Private equity incentive income3 6
Hybrid hedge fund incentive income - (37)
Castle options incentive income- -
Castle options management fee - 1
Distributions of earnings from equity method
investees -(2)
Earnings from equity method investees(27) (8)
Gains/losses on options (2) (30)
Gains/losses on other investments (3)-
Impairment of investments 10 -
Employee equity-based compensation (53) (29)
Principal compensation (238) (243)
Employee portion of incentive income - (20)
Principals' interest in income of
consolidated subsidiaries 195 169
Taxes 2(5)
GAAP Net Income (Loss)(9) $(55) $(55)
Six Months Ended
June 30, 2008 June 30, 2007
Fund Management DE $146 $333
Investment Income (Loss) (10) 49
Interest Expense (20) (19)
Pre-tax Distributable Earnings 116 363
Private equity incentive income 921
Hybrid hedge fund incentive income - (83)
Castle options incentive income - -
Castle options management fee - 2
Distributions of earnings from equity method
investees - (12)
Earnings from equity method investees (68) (19)
Gains/losses on options (15) (25)
Gains/losses on other investments (21)-
Impairment of investments 10 -
Employee equity-based compensation(89) (67)
Principal compensation (475) (381)
Employee portion of incentive income 10 (20)
Principals' interest in income of consolidated
subsidiaries 404 247
Taxes (5) (19)
GAAP Net Income (Loss)(9) $(124) $7
(9) 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, 2008 June 30, 2007
Segment Revenues $165 $283
Adjust incentive income 3 (33)
Adjust income from the receipt of options - 1
Other revenues 2016
Consolidation and elimination - 1
GAAP Revenues $188 $268
Six Months Ended
June 30, 2008 June 30, 2007
Segment Revenues $342 $666
Adjust incentive income9 (62)
Adjust income from the receipt of options - 2
Other revenues3830
Consolidation and elimination -48
GAAP Revenues $389 $684
"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 quarter ended June 30, 2008.
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 (Loss) Excluding Principals Agreement
Compensation to GAAP Net Income (Loss)
(dollars in thousands)
Three months ended Six months ended
June 30, 2008 June 30, 2008
GAAP net loss $(55,556)$(124,473)
Principals agreement compensation237,367 474,734
Portion not allocable to public shareholders (182,156)(364,311)
GAAP net loss excluding principals agreement
compensation $(345)$(14,050)
SOURCE Fortress Investment Group LLC
