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Fortress Reports Third Quarter 2009 Financial Results
NEW YORK, Nov. 6 /PRNewswire-FirstCall/ --
Third Quarter Highlights
- Assets under management of $32.0 billion
- Segment management fees of $108 million and GAAP management fees of $107 million
- Fund management distributable earnings of $51 million
- Pre-tax distributable earnings (DE) of $57 million
- GAAP net income, excluding principals agreement compensation, of $50 million. GAAP net loss of $190 million. GAAP net loss attributable to Class A Shareholders of $59 million
Subsequent Events in the Fourth Quarter
- Successfully completed RailAmerica, Inc.'s IPO on October 12, 2009
Fortress Investment Group LLC (NYSE: FIG) today reported its results for the quarter ended September 30, 2009.
Third Quarter 2009
For the quarter ended September 30, 2009, our GAAP net loss was $190 million and our GAAP net loss attributable to Class A Shareholders was $59 million, or $0.43 per diluted share, as compared to a loss of $0.66 per diluted share for the quarter ended September 30, 2008. Excluding principals agreement compensation, third quarter GAAP net income was $50 million.
For the third quarter, fund management distributable earnings was $51 million compared to $63 million in the third quarter of 2008.
Pre-tax DE for the third quarter was $57 million, or $0.11 per dividend paying share/unit, versus a loss of $20 million for the third quarter of 2008.
For reconciliations of non-GAAP measures, please see "Reconciliation of Fund Management DE to Pre-tax Distributable Earnings and GAAP Net Income (Loss)", "Reconciliation of Segment Revenues to GAAP Revenues", "Reconciliation of Segment Management Fees to GAAP Management Fees", "Reconciliation of GAAP Net Income (Loss) Excluding Principals Agreement Compensation to GAAP Net Income (Loss)" and "Reconciliation of Weighted Average Class A Shares Outstanding (Used for Basic EPS) to Weighted Average Dividend Paying Shares and Units Outstanding (Used for DEPS)" at the end of this release. Distributable earnings is a supplemental measure of our operating performance that we believe provides a meaningful basis for comparison between present and future periods.
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.
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.
Supplemental Data for Three Months :
Three Months Ended September 30, 2009
(in millions)
Hybrid Funds
Private Equity Liquid --------------- Principal
---------------- Hedge Hedge PE Invest-
Total Funds Castles Funds Funds Funds ments
----- ----- ------- ----- ----- ----- -----
AUM
AUM -
July 1,
2009 $31,041 $10,602 $3,193 $4,571 $9,918 $2,757 $-
Capital
raised 630 - - 187 170 273 -
Increase
in
invested
capital 82 - - 1 - 81 -
Redemptions
(1)(2) (766) - - (637) (129) - -
Return of
capital
distri-
butions (148) (24) - - (8) (116) -
Equity
buyback - - - - - - -
Reset Date - - - - - - -
Crystallized
Incentive
Income - - - - - - -
Income
(loss) and
foreign
exchange 1,161 479 86 361 (121) 356 -
----- --- --- --- ---- --- ---
AUM -
Ending
Balance $32,000 $11,057 $3,279 $4,483 $9,830 $3,351 $-
Third-Party
Capital
Raised $630 $- $- $187 $170 $273 $-
Segment Revenues
Management
fee $108 $32 $13 $18 $32 $13 $-
Incentive
income 10 - - 9 - 1 -
--- --- --- --- --- --- ---
Total 118 32 13 27 32 14 -
--- --- --- --- --- --- ---
Segment Expenses
Operating
expenses (58) (7) (8) (14) (24) (5) -
Profit
sharing
compensation
expenses (9) - - (7) (2) - -
--- --- --- --- --- --- ---
Total (67) (7) (8) (21) (26) (5) -
--- --- --- --- --- --- ---
Fund Management
DE 51 25 5 6 6 9 -
--- --- --- --- --- --- ---
Investment
Income 10 10
Interest
Expense (4) (4)
--- --- --- --- --- --- ---
Pre-tax
Distributable
Earnings $57 $25 $5 $6 $6 $9 $6
--- --- --- --- --- --- ---
Weighted
Average
Dividend
Paying
Shares
and Units
Outstanding 511
--- --- --- --- --- --- ---
Three Months Ended September 30, 2008
(in millions)
Hybrid Funds
Private Equity Liquid --------------- Principal
---------------- Hedge Hedge PE Invest-
Total Funds Castles Funds Funds Funds ments
----- ----- ------- ----- ----- ----- -----
AUM
AUM -
July 1,
2008 $34,966 $12,639 $3,498 $9,705 $8,266 $858 $-
Capital
raised 1,170 - - 600 536 34 -
Increase
in
invested
capital 1,548 258 - - - 1,290 -
Redemptions (185) - - (185) - - -
Return of
capital
distri-
butions (146) (123) - - (4) (19) -
Equity
buyback (31) - (31) - - - -
Reset Date - - - - - - -
Crystallized
Incentive
Income (15) - - (15) - - -
Income
(loss) and
foreign
exchange (3,018) (1,079) (240) (1,001) (577) (121) -
------ ------ ---- ------ ---- ---- ---
AUM -
Ending
Balance $34,289 $11,695 $3,227 $9,104 $8,221 $2,042 $-
Segment Revenues
Management
fee $156 $40 $13 $60 $39 $4 $-
Incentive
income (3) (16) - - 13 - -
--- --- --- --- --- --- ---
Total 153 24 13 60 52 4 -
--- --- --- --- --- --- ---
Segment Expenses
Operating
expenses (81) (12) (7) (29) (30) (3) -
Profit
sharing
compensation
expenses (9) 5 (2) (5) (7) - -
--- --- --- --- --- --- ---
Total (90) (7) (9) (34) (37) (3) -
Fund Management
DE 63 17 4 26 15 1 -
--- --- --- --- --- --- ---
Investment
Income (73) (73)
--- --- --- --- --- --- ---
Interest
Expense (10) (10)
--- --- --- --- --- --- ---
Pre-tax
Distributable
Earnings $(20) $17 $4 $26 $15 $1 $(83)
--- --- --- --- --- --- ---
Weighted
Average
Dividend
Paying
Shares and
Units
Outstanding 462
--- --- --- --- --- --- ---
Supplemental Data for Nine Months:
Nine Months Ended September 30, 2009
(in millions)
Hybrid Funds
Private Equity Liquid --------------- Principal
---------------- Hedge Hedge PE Invest-
Total Funds Castles Funds Funds Funds ments
----- ----- ------- ----- ----- ----- -----
AUM
AUM -
Jan. 1,
2009 $29,454 $10,307 $3,182 $7,169 $6,494 $2,302 $-
Capital
raised
(3) 4,012 - - 295 3,310 407 -
Increase
in
invested
capital 845 70 - 1 2 772 -
Redemp-
tions
(1)(2) (4,148) - - (3,716) (432) - -
Return
of
capital
distri-
butions (893) (117) - - (16) (760) -
Equity
buyback - - - - - - -
Reset
Date - - - - - - -
Crystal-
lized
Incentive
Income - - - - - - -
Income
(loss)
and
foreign
exchange 2,730 797 97 734 472 630 -
----- --- --- --- --- --- ---
AUM -
Ending
Balance $32,000 $11,057 $3,279 $4,483 $9,830 $3,351 $-
Third-Party
Capital
Raised $4,012 $- $- $295 $3,310 $407 $-
Segment
Revenues
Management
fee $324 $109 $37 $61 $90 $27 $-
Incentive
income 18 - - 9 1 8 -
--- --- --- --- --- --- ---
Total 342 109 37 70 91 35 -
Segment
Expenses
Operating
expenses (173) (27) (21) (39) (70) (16) -
Profit
sharing
compen-
sation
expenses (21) - - (12) (5) (4) -
--- --- --- --- --- --- ---
Total (194) (27) (21) (51) (75) (20) -
--- --- --- --- --- --- ---
Fund
Management
DE 148 82 16 19 16 15 -
--- --- --- --- --- --- ---
Investment
Income (3) (3)
Interest
Expense (20) (20)
--- --- --- --- --- --- ---
Pre-tax
Distribut-
able
Earnings $125 $82 $16 $19 $16 $15 $(23)
--- --- --- --- --- --- ---
Weighted
Average
Dividend
Paying
Shares and
Units
Outstanding 485
--- --- --- --- --- --- ---
Nine Months Ended September 30, 2008
(in millions)
Hybrid Funds
Private Equity Liquid --------------- Principal
---------------- Hedge Hedge PE Invest-
Total Funds Castles Funds Funds Funds ments
----- ----- ------- ----- ----- ----- -----
AUM
AUM -
January 1,
2008 $32,930 $12,642 $3,328 $8,128 $8,196 $636 $-
Capital
raised 5,096 745 - 2,811 1,373 167 -
Increase
in
invested
capital 2,529 1,018 - - 26 1,485 -
Redemptions(1,079) - - (606) (473) - -
Return of
capital
distri-
butions (382) (297) - - (8) (77) -
Equity
buyback (31) - (31) - - - -
Reset Date - - - - - - -
Crystallized
Incentive
Income (110) - - (15) (95) - -
Income
(loss) and
foreign
exchange (4,664) (2,413) (70) (1,214) (798) (169) -
------ ------ --- ------ ---- ---- ---
AUM -
Ending
Balance $34,289 $11,695 $3,227 $9,104 $8,221 $2,042 $-
Segment Revenues
Management
fee $451 $120 $41 $170 $112 $8 $-
Incentive
income 44 13 - 17 14 - -
--- --- --- --- --- --- ---
Total 495 133 41 187 126 8 -
Segment Expenses
Operating
expenses (225) (26) (25) (78) (89) (7) -
Profit
sharing
compensation
expenses (61) (8) (4) (38) (11) - -
--- --- --- --- --- --- ---
Total (286) (34) (29) (116) (100) (7) -
Fund Management
DE 209 99 12 71 26 1 -
--- --- --- --- --- --- ---
Investment
Income (83) (83)
Interest
Expense (30) (30)
--- --- --- --- --- --- ---
Pre-tax
Distributable
Earnings $96 $99 $12 $71 $26 $1 $(113)
--- --- --- --- --- --- -----
Weighted
Average
Dividend
Paying
Shares and
Units
Outstanding 450
--- --- --- --- --- --- ---
(1) Subsequent to quarter end, the liquid hedge funds had redemption payouts of approximately $0.7 billion in October 2009. Approximately $0.4 billion of this amount consisted of distributions from Macro Funds' SPVs.
(2)The hybrid hedge funds, which have an annual notice date for redemptions, have received redemption notices effective December 31, 2009 of approximately $1.5 billion, using September 30, 2009 values. This amount is subject to change based on performance and rescissions of redemption notices. For primarily all of these funds, redemptions will be paid out over time as the underlying investments are liquidated, in accordance with the governing documents of the applicable funds.
(3)Includes $3.3 billion of capital under management due to Fortress's takeover of management of the D.B. Zwirn funds and related investment vehicles.
Overview
We managed $32.0 billion of assets in private equity funds, liquid hedge funds and hybrid funds as of September 30, 2009. 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 (loss), which is based on our principal investments.
In the third quarter of 2009, we generated fund management DE of $51 million. Including principal investments, Fortress generated pre-tax distributable earnings of $57 million.
For the quarter ended September 30, 2009, the private equity segments accounted for approximately 38% of total segment revenues, the liquid hedge funds segment accounted for approximately 23% of total segment revenues and the hybrid funds segments accounted for approximately 39% of total segment revenues.
For the quarter ended September 30, 2009, the private equity, liquid hedge funds and hybrid funds businesses accounted for approximately 59%, 12% and 29%, respectively, of total fund management DE.
Private Equity - Funds
For the quarter ended September 30, 2009, the Company's private equity funds had pre-tax DE of $25 million compared to pre-tax DE of $17 million for the quarter ended September 30, 2008.
Assets under management for private equity funds was $11.1 billion at September 30, 2009 compared to $11.7 billion as of September 30, 2008.
As of September 30, 2009, our funds' private equity capital invested in non-public transactions totaled approximately $12.1 billion, and our private equity funds' unfunded commitments to investments were approximately $641 million.
Private Equity - Castles
For the quarter ended September 30, 2009, the Company's Castles generated pre-tax DE of $5 million compared to $4 million for the quarter ended September 30, 2008.
Assets under management for the Castles was $3.3 billion at September 30, 2009 compared to $3.2 billion as of September 30, 2008.
Liquid Hedge Funds
For the quarter ended September 30, 2009, the Company's liquid hedge fund business generated pre-tax DE of $6 million compared to $26 million for the quarter ended September 30, 2008.
Assets under management for the liquid hedge funds was $4.5 billion at September 30, 2009 compared to $9.1 billion as of September 30, 2008. Subsequent to quarter end, the liquid hedge funds had redemption payouts of approximately $0.7 billion in October 2009. Approximately $0.4 billion of this amount consisted of distributions from Macro Funds' SPVs.
The following table shows our Assets Under Management by fund:
September 30, December, 31 September 30,
(dollars in billions) 2009 2008 2008
---- ---- ----
Macro Funds (4) $3.6 $6.1 $8.0
Fortress Commodities Fund $0.9 $1.1 $1.1
The following table shows our gross and net returns by fund: (5)
Estimated
Three Months Nine Months Ten Months
Ended Ended Ended
Sept. 30, Sept. 30, Oct. 31,
Gross Returns 2009 2009 2009
---- ---- ----
Fortress Macro Offshore Fund
L.P. (6) 4.9% 9.4% 11.8%
Drawbridge Global Macro Fund Ltd 7.9% 21.1% 24.0%
Fortress Commodities Fund L.P. 5.2% 7.6% 10.0%
Net Returns
Fortress Macro Offshore Fund
L.P. (6) 3.6% 6.9% 8.6%
Drawbridge Global Macro Fund Ltd 7.4% 19.5% 22.2%
Fortress Commodities Fund L.P. 3.9% 5.2% 7.0%
(4) Combined AUM for Fortress Macro Master Fund L.P., Drawbridge Global Macro Fund L.P., Drawbridge Global Macro Intermediate Fund L.P., Drawbridge Global Macro Alpha Intermediate Fund L.P., DBGM Offshore Ltd, DBGM Onshore LP, DBGM Alpha V Ltd and Drawbridge Global Macro managed accounts.
(5) The performance data contained herein reflects returns for a "new issue eligible," single investor class as of the close of business on the last day of the relevant period. Gross returns reflect performance data prior to management fees borne by the Fund and incentive allocations while net returns reflect performance data after taking into account management fees borne by the Fund and incentive allocations.
(6) Fortress Macro Offshore Fund L.P. returns reflect a "new issue eligible" class "A" investor that made a new investment on May 1, 2009, the date of inception of the Fund.
Hybrid - Hedge Funds
For the quarter ended September 30, 2009, the Company's hybrid hedge fund business generated pre-tax DE of $6 million compared to $15 million for the quarter ended September 30, 2008.
Assets under management for the hybrid hedge funds was $9.8 billion at September 30, 2009 compared to $8.2 billion as of September 30, 2008. The hybrid hedge funds, which have an annual notice date for redemptions, have received redemption notices effective December 31, 2009 of approximately $1.5 billion, using September 30, 2009 values. This amount is subject to change based on performance and rescissions of redemption notices. For primarily all of these funds, redemptions will be paid out over time as the underlying investments are liquidated, in accordance with the governing documents of the applicable funds. During this period, such amounts continue to be subject to management fees and, as applicable, incentive income.
The following table shows our Assets Under Management by fund:
September 30, December 31, September 30,
(dollars in billions) 2009 2008 2008
---- ---- ----
Drawbridge Special Opportunities
Funds (7) $5.2 $5.0 $6.4
Fortress Partners Funds (8) $1.8 $1.5 $1.8
Fortress Value Recovery
Funds (9) $2.8 N.A. N.A.
(7) Combined AUM for Drawbridge Special Opportunities Fund Ltd, Drawbridge Special Opportunities Fund LP and Drawbridge Special Opportunities Fund managed accounts.
(8) Combined AUM for Fortress Partners Offshore Fund LP and Fortress Partners Fund LP.
(9) Fortress will receive management fees from these funds equal to 1% of cash receipts and up to 1% per annum on certain managed assets, subject to collectability, and may receive limited incentive income if aggregate realizations exceed an agreed threshold.
The following table shows our gross and net returns by fund: (10)
Three Months Nine Months
Ended Ended
September 30, September 30,
Gross Returns 2009 2009
Drawbridge Special Opportunities ---- ----
LP (11) 7.4% 20.0%
Drawbridge Special Opportunities
Ltd (11) 10.8% 22.8%
Fortress Partners Fund LP 4.9% 12.3%
Fortress Partners Offshore Fund LP 4.6% 13.3%
Net Returns
Drawbridge Special Opportunities
LP (11) 6.8% 18.2%
Drawbridge Special Opportunities
Ltd (11) 10.3% 21.0%
Fortress Partners Fund LP 4.7% 11.4%
Fortress Partners Offshore Fund LP 4.4% 12.5%
(10) The performance data contained herein reflects returns for a "new issue eligible," single investor class as of the close of business on the last day of the relevant period. Gross returns reflect performance data prior to management fees borne by the Fund and incentive allocations while net returns reflect performance data after taking into account management fees borne by the Fund and incentive allocations. Specific performance may vary based on, among other things, whether fund investors are invested in one or more special investments.
(11) The returns for the Drawbridge Special Opportunities Funds reflect the performance of each fund excluding the performance of the redeeming capital accounts which relate to December 31, 2008 redemptions.
Hybrid - Private Equity Funds
For the quarter ended September 30, 2009, the Company's hybrid private equity fund business generated pre-tax DE of $9 million as compared to $1 million for the quarter ended September 30, 2008.
Assets under management for the hybrid private equity funds was $3.4 billion at September 30, 2009 compared to $2.0 billion as of September 30, 2008.
Principal Investments
At September 30, 2009, we had $0.8 billion of assets (excluding cash and cash equivalents) in our principal investments segment, compared to $1.0 billion (excluding cash and cash equivalents) at September 30, 2008. During the three months ended September 30, 2009, we increased commitments to our principal investments by $2 million and funded $5 million of our commitments. We had $130 million of unfunded commitments to our principal investments as of September 30, 2009.
Our principal investments segment generated a gain of $6 million for the three months ended September 30, 2009, due primarily to $10 million of earnings on our equity investments in our hedge funds and $4 million of net interest expense.
Segment Expenses
Segment expenses were $67 million in the third quarter of 2009, down from $90 million for the third quarter of 2008. Segment expenses for the third quarters of 2009 and 2008 both included $9 million profit sharing compensation, which is a function of revenues received from our various funds.
The Company had $301 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, and the issuance of restricted partnership units) for the quarter ended September 30, 2009, 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.
Corporate Credit Agreement
During the third quarter, we paid down the credit facility by $28 million. As of September 30, 2009, we have $412 million of debt outstanding and have capacity available of approximately $59 million under our revolving credit facility.
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) and pre-tax distributable earnings per dividend paying share
- Fund management DE
- Segment revenues
- Segment management fees
- GAAP net income excluding principals agreement compensation
- Weighted Average Dividend Paying Shares and Units Outstanding (Used for DEPS)
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, Friday, November 6, 2009 at 8:30 A.M. Eastern Time. A copy of the earnings release is 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 1-877-252-8576 (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 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 Friday, November 13, 2009 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 "36221424."
About Fortress
Fortress is a leading global alternative asset manager with approximately $32.0 billion in assets under management as of September 30, 2009. Fortress manages private equity funds, liquid hedge funds and hybrid 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 sources of management fees, incentive income and investment income (loss), estimated fund performance, the amount and source of expected capital commitments, amount of redemptions 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 sources and amounts of management fees, incentive income and investment income, the amount and source of expected capital commitments for any new fund, redemption amounts 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, 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
Consolidated Statements of Operations (Unaudited)
(dollars in thousands, except share data)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
2009 2008 2009 2008
Revenues -------- -------- -------- --------
Management fees from
affiliates $106,926 $154,266 $321,003 $447,928
Incentive income from
affiliates 7,638 718 14,596 56,162
Expense reimbursements
from affiliates 24,952 12,501 58,660 42,722
Other revenues 4,167 17,651 10,807 27,300
-------- -------- -------- --------
143,683 185,136 405,066 574,112
Expenses -------- -------- -------- --------
Interest expense 4,451 9,481 20,242 29,705
Compensation and
benefits 132,033 134,774 354,725 399,253
Principals agreement
compensation 239,975 239,976 712,101 714,710
General, administrative
and other 18,461 23,536 56,680 59,852
Depreciation and
amortization 2,719 2,437 8,121 7,309
-------- -------- -------- ---------
397,639 410,204 1,151,869 1,210,829
Other Income (Loss) -------- -------- -------- ---------
Gains (losses) from
investments
Net realized gains
(losses) (408) (2,477) (1,180) (803)
Net realized gains
(losses) from
affiliate
investments 315 (671) 301 (516)
Net unrealized
gains (losses) - - - -
Net unrealized
gains (losses)
from affiliate
investments 20,282 (6,951) 38,036 (43,352)
Tax receivable
agreement liability
reduction - - (55) -
Earnings (losses)
from equity method
investees 40,345 (37,921) 56,553 (113,550)
-------- -------- -------- --------
60,534 (48,020) 93,655 (158,221)
Income (Loss) Before -------- -------- -------- --------
Income Taxes (193,422) (273,088) (653,148) (794,938)
Income tax benefit
(expense) 3,116 5,636 4,831 333
-------- -------- -------- --------
Net Income (Loss) $(190,306) $(267,452) $(648,317) $(794,605)
Principals' and ======== ======== ======== ========
Others' Interests in
Income (Loss) of
Consolidated
Subsidiaries $(131,704) $(210,012) $(477,964) $(612,692)
Net Income (Loss) ======== ======== ======== ========
Attributable to Class
A Shareholders $(58,602) $(57,440) $(170,353) $(181,913)
Dividends declared per ======== ======== ======== ========
Class A share $- $- $- $0.450
======== ======== ======== ========
Earnings Per Class A
share - Fortress
Investment Group
Net income (loss) per
Class A share, basic $(0.41) $(0.61) $(1.50) $(1.96)
Net income (loss) per ======== ======== ======== ========
Class A share,
diluted $(0.43) $(0.66) $(1.53) $(1.97)
Weighted average ======== ======== ======== ========
number of Class A
shares outstanding,
basic 143,627,823 94,938,434 118,638,707 94,915,666
Weighted average =========== ========== =========== ==========
number of Class A
shares outstanding,
diluted 454,064,379 407,009,984 430,159,270 406,987,216
=========== =========== ======== ===========
Fortress Investment Group LLC
Consolidated Balance Sheets
(dollars in thousands, except share data)
September 30, December 31,
2009 2008
(Unaudited)
Assets ---------- ----------
Cash and cash equivalents $106,986 $263,337
Due from affiliates 105,518 38,504
Investments
Equity method investees 881,768 774,382
Options in affiliates 1,417 39
Deferred tax asset 444,316 408,066
Other assets 91,763 93,407
---------- ----------
$1,631,768 $1,577,735
========== ==========
Liabilities and Shareholders' Equity
Liabilities
Accrued compensation and benefits $92,950 $158,033
Due to affiliates 333,320 346,265
Deferred incentive income 163,635 163,635
Debt obligations payable 411,800 729,041
Other liabilities 53,194 26,741
---------- ----------
1,054,899 1,423,715
---------- ----------
Commitments and Contingencies
Equity
Class A shares, no par value,
1,000,000,000 shares authorized,
145,511,736 and 94,609,525 shares
issued and outstanding at September
30, 2009 and December 31, 2008,
respectively - -
Class B shares, no par value,
750,000,000 shares authorized,
307,773,852 and 312,071,550 shares
issued and outstanding at September 30,
2009 and December 31, 2008,
respectively - -
Paid-in capital 932,709 596,803
Retained earnings (accumulated
deficit) (683,732) (513,379)
Accumulated other comprehensive
income (loss) (597) (866)
Total Fortress shareholders' ---------- ----------
equity 248,380 82,558
Principals' and others' interests
in equity of consolidated
subsidiaries 328,489 71,462
---------- ----------
Total equity 576,869 154,020
---------- ----------
$1,631,768 $1,577,735
========== ==========
Fortress Investment Group LLC
Reconciliation of Fund Management DE to Pre-tax Distributable
Earnings and GAAP Net Income (Loss)
(dollars in millions)
Three Months Ended
-------------------------------
September 30, September 30,
2009 2008
------------ ------------
Fund Management DE $51 $63
------------ ------------
Investment Income (Loss) 10 (73)
Interest Expense (4) (10)
------------ ------------
Pre-tax Distributable Earnings 57 (20)
------------ ------------
Private Equity incentive income - 1
Hedge Fund incentive income (2) -
Reserve for clawback - 16
Earnings (losses) from equity
method investees 29 (13)
Gains (losses) on options 1 (1)
Gains (losses) on other
Investments 19 (6)
Impairment of investments 2 50
Employee equity-based compensation (61) (57)
Principal compensation (240) (240)
Principals' Interests in Income
(Losses) of Consolidated
Subsidiaries 133 208
Taxes 3 5
------------ ------------
GAAP Net Income (Loss) Attributable
to Class A Shareholders $(59) $(57)
Principals' and Others' Interests ------------ ------------
in Income (Losses) of
Consolidated Subsidiaries (131) (210)
------------ ------------
GAAP Net Income (Loss) $(190) $(267)
------------ ------------
Nine Months Ended
-------------------------------
September 30, September 30,
2009 2008
------------ ------------
Fund Management DE $148 $209
------------ ------------
Investment Income (Loss) (3) (83)
Interest Expense (20) (30)
------------ ------------
Pre-tax Distributable Earnings 125 96
------------ ------------
Private Equity incentive income - 10
Hedge Fund incentive income (2) -
Reserve for clawback - 16
Earnings (losses) from equity
method investees 27 (81)
Gains (losses) on options 1 (16)
Gains (losses) on other
Investments 37 (27)
Impairment of investments 34 59
Employee equity-based compensation (167) (146)
Principal compensation (712) (715)
Employee portion of incentive
income - 10
Principals' Interests in Income
(Losses) of Consolidated
Subsidiaries 482 612
Taxes 5 -
------------ ------------
GAAP Net Income (Loss) Attributable
to Class A Shareholders $(170) $(182)
Principals' and Others' Interests ------------ ------------
in Income (Losses) of
Consolidated Subsidiaries (478) (613)
------------ ------------
GAAP Net Income (Loss) $(648) $(795)
------------ ------------
Fortress Investment Group LLC
Reconciliation of Segment Revenues to GAAP Revenues
(dollars in millions)
Three Months Ended
-------------------------------
September 30, September 30,
2009 2008
------------ ------------
Segment Revenues $118 $153
Adjust management fees (1) (2)
Adjust incentive income (2) 4
Other revenues 29 30
------------ ------------
GAAP Revenues $144 $185
------------ ------------
Nine Months Ended
--------------------------------
September 30, September 30,
2009 2008
------------ ------------
Segment Revenues $342 $495
Adjust management fees (3) (3)
Adjust incentive income (3) 12
Other revenues 69 70
------------ ------------
GAAP Revenues $405 $574
------------ ------------
Fortress Investment Group LLC
Reconciliation of Segment Management Fees to GAAP Management Fees
(dollars in thousands)
Three Months Ended
--------------------------------
September 30, September 30,
2009 2008
------------ ------------
Segment Management Fees $108 $156
Adjust expense reimbursements - -
Adjust management fees from non-
affiliates (1) (2)
------------ ------------
GAAP Management Fees $107 $154
------------ ------------
Nine Months Ended
-------------------------------
September 30, September 30,
2009 2008
------------ ------------
Segment Management Fees $324 $451
Adjust expense reimbursements 1 1
Adjust management fees from non-
affiliates (4) (4)
------------ ------------
GAAP Management Fees $321 $448
------------ ------------
''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 Group 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, as well as an explanation of the calculation of distributable earnings impairment, see note 10 to our financial statements included in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.
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
Reconciliation of GAAP Net Income (Loss) Excluding Principals Agreement
Compensation to GAAP Net Income (Loss)
(dollars in thousands)
Three Months Nine Months
Ended Ended
September 30, September 30,
2009 2009
------------ ------------
GAAP net loss $(190,306) $(648,317)
Principals agreement compensation 239,975 712,101
GAAP net income excluding principals ------------ ------------
agreement compensation $49,669 $63,784
------------ ------------
Fortress Investment Group LLC
Reconciliation of Weighted Average Class A Shares Outstanding (Used for Basic EPS) to Weighted Average Dividend Paying Shares and Units Outstanding (Used for DEPS)
Three Months Ended
September 30,
------------------------------
2009 2008
Weighted Average Class A Shares ----------- -----------
Outstanding (Used for Basic EPS) 143,627,823 94,938,434
----------- -----------
Weighted average fully vested
restricted Class A share units
with dividend equivalent rights (1,158,673) (394,286)
Weighted average fully vested
restricted Class A shares (99,520) (43,797)
----------- -----------
Weighted Average Class A Shares
Outstanding 142,369,630 94,500,351
----------- -----------
Weighted average restricted
Class A shares (12) 183,173 108,661
Weighted average fully vested
restricted Class A share units
which are entitled to dividend
equivalent payments 1,158,673 394,286
Weighted average nonvested
restricted Class A share units
which are entitled to dividend
equivalent payments 25,480,488 24,101,891
Weighted average Fortress
Operating Group units 310,436,556 312,071,550
Weighted average Fortress Operating
Group RPUs 31,000,000 31,000,000
----------- -----------
Weighted Average Dividend Paying
Shares and Units Outstanding
(Used for DEPS) 510,628,520 462,176,739
----------- -----------
Nine Months Ended
September 30,
------------------------------
2009 2008
----------- -----------
Weighted Average Class A Shares
Outstanding (Used for Basic EPS) 118,638,707 94,915,666
Weighted average fully vested ----------- -----------
restricted Class A share units
with dividend equivalent rights (1,137,275) (394,286)
Weighted average fully vested
restricted Class A shares (92,890) (21,029)
----------- -----------
Weighted Average Class A Shares
Outstanding 117,408,542 94,500,351
Weighted average restricted Class A
shares (12) 138,999 103,411
Weighted average fully vested
restricted Class A share units which
are entitled
to dividend equivalent payments 1,137,275 394,286
Weighted average nonvested restricted
Class A share units which are
entitled
to dividend equivalent payments 23,794,771 23,840,819
Weighted average Fortress Operating
Group units 311,520,563 312,071,550
Weighted average Fortress Operating
Group RPUs 31,000,000 18,781,022
----------- -----------
Weighted Average Dividend Paying
Shares and Units Outstanding
(Used for DEPS) 485,000,150 449,691,439
----------- -----------
(12) Includes both fully vested and nonvested weighted average restricted Class A shares.
CONTACT:
Lilly H. Donohue
212-798-6118
SOURCE Fortress Investment Group LLC
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