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8-K - FORM 8-K - Fortress Investment Group LLCd921464d8k.htm

Exhibit 99.1

 

LOGO

Fortress Reports First Quarter 2015 Results and Announces Dividend of $0.08 per Share

 

New York, NY. May 7, 2015 – Fortress Investment Group LLC (NYSE: FIG) (“Fortress” or the “Company”) today reported its first quarter 2015 financial results.

FINANCIAL SUMMARY

 

  Fortress declares a cash dividend of $0.08 per dividend paying share for the first quarter of 2015

 

  Management Fee Paying Assets Under Management (“AUM”) of $69.9 billion as of March 31, 2015, an increase of 3% from the previous quarter and an increase of 12% from March 31, 2014

 

  GAAP net income of $87 million, or $0.15 per diluted Class A share, for the first quarter of 2015, compared to GAAP net income of $9 million, or $0.01 per diluted Class A share, for the first quarter of 2014

 

  Pre-tax distributable earnings (“DE”) of $55 million, or $0.12 per dividend paying share, for the first quarter of 2015, compared to pre-tax DE of $97 million, or $0.21 per dividend paying share, for the first quarter of 2014

 

  Net cash and investments of $2.80 per dividend paying share as of March 31, 2015

 

  $1.2 billion of gross embedded incentive income across funds and permanent capital vehicles as of March 31, 2015, that has not been recognized in DE

 

  Total uncalled capital, or “dry powder,” of $10.7 billion as of March 31, 2015, including $7.6 billion available for general investment purposes

BUSINESS HIGHLIGHTS

 

  Raised a record $5.4 billion of capital across alternative investment businesses during the quarter, including $4.7 billion for Fortress Credit Opportunities Fund (“FCO”) IV

 

  Subsequent to quarter end, raised $1.2 billion of capital for the Permanent Capital Vehicles

 

  Private Equity (“PE”) Fund V appreciated 22.5% during the quarter and was valued above its preferred return threshold based on investment valuations at quarter end

 

  Investment performance summary as of March 31, 2015:

 

    Private Equity fund valuations increased 4.8% during the quarter

 

    Annualized inception-to-date net IRRs for FCO, FCO II and FCO III of 25.2%, 17.8% and 12.7%, respectively

 

    First quarter 2015 net returns of 2.2% for Drawbridge Special Opportunities Fund (“DBSO”) LP and (4.7)% for Fortress Macro Fund Ltd

 

    11 out of 16 Logan Circle fixed income strategies outperformed respective benchmarks for the quarter ended March 31, 2015 and 15 of 16 strategies have outperformed respective benchmarks since inception

 

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“We had a very active start to the year, highlighted by the launch of our largest Credit PE fund in our history, our largest PE fund crossing its preferred return threshold, and a number of important strategic transactions across our permanent capital vehicles,” said Fortress Chief Executive Officer Randy Nardone. “With $1.2 billion of gross embedded incentive income not yet recognized in earnings and nearly $11 billion of dry powder for us to put to work, we see great prospects for growth and value creation in the quarters and years ahead.”

SUMMARY FINANCIAL RESULTS

Fortress’s business model is highly diversified, and management believes that this positions the Company to capitalize on opportunities for investing, capital formation and harvesting profits that can occur at different points in any cycle for our individual businesses. Fortress’s business model generates stable and predictable management fees, which is a function of the majority of Fortress’s alternative AUM residing in long-term investment structures. Fortress’s alternative investment businesses also generate variable incentive income based on performance, and this incentive income can contribute meaningfully to financial results. Balance sheet investments represent a third component of Fortress’s business model, and the Company has built substantial value in these investments, which are made in Fortress funds alongside the funds’ limited partners.

The table below summarizes Fortress’s operating results for the quarter ended March 31, 2015. The consolidated GAAP statement of operations and balance sheet are presented on pages 12-13 of this press release.

 

     1Q      4Q     1Q      % Change  
     2015      2014     2014      QoQ     YoY  
(in millions, except per share amount)                                 

GAAP

            

Revenues

   $ 227       $ 455      $ 237         (50 )%      (4 )% 

Expenses

     329         310        231         6     42

Other Income

     208         (14     9         N/A        N/A   

Net income (loss)

     87         141        9         (38 )%      N/A   

Net income (loss) attributable to Class A Shareholders

     35         61        3         (43 )%      N/A   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Per diluted share

$ 0.15    $ 0.23    $ 0.01      (35 )%    N/A   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Weighted average Class A shares outstanding, diluted

  222      450      229   

Distributable Earnings

Fund management DE

$ 51    $ 110    $ 87      (54 )%    (41 )% 

Pre-tax DE

  55      123      97      (55 )%    (43 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Per dividend paying share/unit

$ 0.12    $ 0.28    $ 0.21      (57 )%    (43 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Weighted average dividend paying shares and units outstanding

  450      442      469   

Assets Under Management

Private Equity

$ 14,801    $ 13,933    $ 15,243      6   (3 )% 

Credit

  13,834      13,128      12,947      5   7

Liquid Markets1

  7,838      8,128      7,738      (4 )%    1

Logan Circle

  33,416      32,342      26,592      3   26
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Assets Under Management

$ 69,889    $ 67,531    $ 62,520      3   12
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

1  The Assets Under Management presented for Liquid Markets includes $4,001 million related to Affiliated Managers as of 1Q 2015.

 

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CONSOLIDATED GAAP RESULTS

Fortress recorded GAAP net income of $87 million, or $0.15 per diluted Class A share, for the first quarter of 2015, compared to GAAP net income of $9 million, or $0.01 per diluted Class A share, for the first quarter of 2014. Our diluted earnings per share for all periods presented includes the income tax effects to net income (loss) attributable to Class A shareholders from the assumed conversion of Fortress Operating Group units and fully vested restricted partnership units to Class A shares.

The year-over-year increase in Fortress’s first quarter 2015 GAAP net income was primarily driven by a $198 million increase in other income, partially offset by a $98 million increase in expenses. The increase in other income and expenses was primarily related to the transfer of our interest in Graticule Asset Management (“Graticule”). In January 2015, the Fortress Asia Macro Funds and related managed accounts transitioned to Graticule, an autonomous asset management business on Fortress’s affiliated manager platform (“Affiliated Managers”). Fortress recorded the results of this transaction at fair value, which for the first quarter of 2015, resulted in a non-cash gain of $134 million recorded in other income, a non-cash expense of $101 million recorded in expenses related to the portion of Fortress’s interest that was transferred to a former senior employee, and $33 million from our resulting retained interest recorded as an equity method investment.

Excluding the effects of the transfer described above, GAAP net income increased year-over-year primarily due to increases in the fair value of options and common stock held in our publicly traded permanent capital vehicles and increases in earnings from our equity method investees, primarily with respect to our investments in Fund V and Affiliated Managers, partially offset by lower incentive income generated by our funds.

In February 2015, the Financial Accounting Standards Board issued amendments to its accounting standards for consolidation of certain entities, and Fortress elected to early adopt such guidance for all periods presented in its consolidated financial statements. As a result of such adoption, certain entities that were previously consolidated by Fortress are no longer consolidated subsidiaries, including New Media Investment Group Inc. (NYSE: NEWM) and New Senior Investment Group Inc. (NYSE: SNR), which were both initially consolidated in 2014.

 

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CONSOLIDATED SEGMENT RESULTS (NON-GAAP)

This section provides information about each of Fortress’s businesses: (i) Credit Hedge Funds and Credit PE Funds, (ii) Private Equity Funds and Permanent Capital Vehicles, (iii) Liquid Hedge Funds, and (iv) Logan Circle.

Fortress uses DE as the primary metric to manage its businesses and gauge the Company’s performance, and it uses DE exclusively to report segment results. All DE figures are presented on a pre-tax basis. Consolidated segment results are non-GAAP information and are not presented as a substitute for Fortress’s GAAP results. Fortress urges you to read “Non-GAAP Information” below.

 

    As of March 31, 2015  
          Private Equity           Credit Funds        
(in millions)   Total     Funds     Permanent
Capital

Vehicles
    Liquid
Hedge
Funds
    Hedge
Funds
    PE
Funds
    Logan
Circle
Partners
 

Assets Under Management2

  $ 69,889      $ 10,179      $ 4,622      $ 7,838      $ 6,271      $ 7,563      $ 33,416   

Dry Powder

  $ 10,730      $ 1,752      $ 353        N/A      $ 362      $ 8,263        N/A   

Average Management Fee Rate3

      1.2     1.5     1.7     2.0     1.4     0.2

Incentive Eligible NAV Above Incentive Income Threshold4

  $ 25,221      $ 6,083      $ 2,087      $ 574      $ 5,646      $ 10,705      $ 126   

Undistributed Incentive Income: Unrecognized

  $ 1,249      $ 202      $ 108      $ 7      $ 84      $ 848      $ —     

Undistributed Incentive Income: Recognized

    23        —          —          1        22        —        $ —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Undistributed Incentive Income5

$ 1,272    $ 202    $ 108    $ 8    $ 106    $ 848    $ —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Three Months Ended March 31, 2015  
          Private Equity           Credit Funds        
(in millions)   Total     Funds     Permanent
Capital

Vehicles
    Liquid
Hedge
Funds
    Hedge
Funds
    PE
Funds
    Logan
Circle
Partners
 

Third-Party Capital Raised

  $ 5,360      $ —        $ 150      $ 86      $ 175      $ 4,949      $ —     

Segment Revenues

             

Management fees

  $ 139      $ 29      $ 19      $ 21      $ 30      $ 27      $ 13   

Incentive income

    51        —          3        1        23        24        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  190      29      22      22      53      51      13   

Segment Expenses

Operating expenses

  (115   (14   (18   (21   (18   (30   (14

Profit sharing compensation expenses

  (30   —        —        (4   (12   (14   —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  (145   (14   (18   (25   (30   (44   (14

Earnings From Affiliated Managers

  9      —        —        9      —        —        —     

Principal Performance Payments

  (3   —        —        —        (2   (1   —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE

$ 51    $ 15    $ 4    $ 6    $ 21    $ 6    $ (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Investment Income6

  4      —        —        3      1      1      —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax Distributable Earnings

$ 55    $ 15    $ 4    $ 9    $ 22    $ 7    $ (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

2  The Assets Under Management presented for the Liquid Hedge Funds includes $4,001 million related to Affiliated Managers. The Assets Under Management presented for the Credit Hedge Funds includes $189 million related to the third-party originated Value Recovery Funds. Fortress earns fees from the Value Recovery Funds based only on collections.
3  The Average Management Fee Rate presented for the Liquid Hedge Funds excludes Affiliated Managers. The Average Management Fee Rate presented for the Credit Hedge Funds excludes the third-party originated Value Recovery Funds. See footnote (2) above.
4  The Incentive Eligible NAV Above Incentive Income Threshold presented for Liquid and Credit Hedge Funds excludes sidepocket investments and for Liquid Hedge Funds, excludes Affiliated Managers. The Incentive Eligible NAV Above Incentive Income Threshold presented for Private Equity Funds and Credit PE Funds represents total fund NAV. The Incentive Eligible NAV Above Incentive Income Threshold presented for the publicly traded permanent capital vehicles represents the equity basis that is used to calculate incentive income and, for the private permanent capital vehicle, total NAV.
5  The Undistributed Incentive Income presented for the Liquid Hedge Funds excludes Affiliated Managers. Undistributed Incentive Income includes the impact of sidepocket investments on Liquid and Credit Hedge Funds. Undistributed Incentive Income for Private Equity Funds, Credit PE Funds and Liquid and Credit Hedge Fund sidepocket and redeeming capital account (RCA) investments has not been recognized in Distributable Earnings and will be recognized when realized; Undistributed Incentive Income for other Hedge Fund investments was recognized in Distributable Earnings when earned. Undistributed Incentive Income for Permanent Capital Vehicles includes incentive income that would have been recorded in Distributable Earnings if Fortress had exercised all of its in-the-money options it holds in the publicly traded permanent capital vehicles and sold all of the resulting shares at their March 31, 2015 closing price.
6  Net Investment Income includes Unallocated Expenses of $1 million.

 

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Pre-tax DE was $55 million in the first quarter of 2015, down from $97 million in the first quarter of 2014. This decrease was primarily due to lower incentive income and management fees, partially offset by lower profit sharing compensation expenses.

Management fees were $139 million in the first quarter of 2015, down from $147 million in the first quarter of 2014, primarily due to lower management fees from the Liquid Hedge Funds and Private Equity Funds, partially offset by higher management fees from the Permanent Capital Vehicles, Credit Hedge Funds, Credit PE Funds and Logan Circle.

Incentive income recorded in the first quarter of 2015 totaled $51 million, down from $104 million recorded in the first quarter of 2014, primarily due to lower incentive income from the Credit PE Funds and Credit Hedge Funds.

Earnings from Affiliated Managers totaled $9 million in the first quarter of 2015, related to our interests in Graticule.

Additionally, Fortress had $1.2 billion in gross undistributed, unrecognized incentive income based on investment valuations as of March 31, 2015. This includes $1.1 billion from our funds, $100 million from options in our publicly traded permanent capital vehicles and $8 million from our private permanent capital vehicle.

The Company’s segment revenues and distributable earnings will fluctuate materially depending upon the performance of its funds and the realization events within its Private Equity businesses, as well as other factors. Accordingly, the revenues and distributable earnings in any particular period should not be expected to be indicative of future results.

ASSETS UNDER MANAGEMENT

As of March 31, 2015, AUM totaled $69.9 billion, up from $67.5 billion as of December 31, 2014. During the quarter, Fortress had $1.4 billion of market-driven valuation gains, a $0.7 billion increase in invested capital, recorded $0.6 billion of net client inflows for Logan Circle, raised $0.6 billion of capital and equity that was directly added to AUM, and had a net $0.5 billion increase in AUM of Affiliated Managers. These increases to AUM were partially offset by (i) $0.7 billion of Liquid Hedge Fund redemptions, (ii) $0.5 billion of capital distributions to investors, (iii) $0.1 billion of crystallized incentive income, and (iv) $0.1 billion of Credit Hedge Fund redemptions and payments to Credit Hedge Fund investors from redeeming capital accounts.

As of March 31, 2015, the Credit Funds, Private Equity Funds and private permanent capital vehicle had $8.6 billion, $1.8 billion and $0.4 billion of uncalled capital, respectively, that will become AUM if deployed/called. Uncalled capital or dry powder – capital committed to the funds but not invested and generating management fees – includes $3.1 billion that is only available for follow-on investments, management fees and other fund expenses. Notably, approximately 78% of alternative AUM was in funds with long-term investment structures as of March 31, 2015, which provides for a stable, predictable base of management fees.

 

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BUSINESS SEGMENT RESULTS

Below is a discussion of first quarter 2015 segment results and business highlights.

Credit:

 

  DBSO LP net returns of 2.2% for the first quarter of 2015

 

  FCO, FCO II, FCO III, Japan Opportunity Fund (“FJOF”) and FJOF II (Yen) recorded annualized inception-to-date net IRRs of 25.2%, 17.8%, 12.7%, 31.4% and 21.2%, respectively, through March 31, 2015

 

  Raised a record $5.1 billion of capital across the Credit business during the quarter, including $4.7 billion for FCO IV and related accounts

 

  During the quarter, the Credit PE Funds invested $0.6 billion of capital and distributed $0.3 billion of capital back to limited partners

(See supplemental data on pages 18-19 for more detail on Credit results)

The Credit business, which includes our Credit PE Funds and Credit Hedge Funds, generated pre-tax DE of $29 million in the first quarter of 2015, compared to $56 million in the first quarter of 2014. The year-over-year decrease in DE was primarily driven by lower incentive income, partially offset by higher management fees and lower profit sharing expenses.

The Credit Hedge Funds generated pre-tax DE of $22 million in the quarter, essentially flat compared to the first quarter of 2014. DBSO LP, Fortress’s flagship credit hedge fund, had net returns of 2.2% in the first quarter following net returns of 10.0% in 2014. The Credit Hedge Funds raised $175 million of capital in the quarter, primarily for the DBSO funds.

The Credit PE Funds generated pre-tax DE of $7 million in the quarter, down from $33 million in the first quarter of 2014, primarily due to lower realization activity and incentive income in the quarter. Gross unrecognized Credit PE incentive income totaled $848 million at quarter end, up $126 million from March 31, 2014, despite $212 million of gross recognized Credit PE incentive income over the last twelve months.

The Credit PE Funds raised $4.9 billion of capital in the quarter, including $4.7 billion for FCO IV and $0.2 billion for Fortress Real Estate Opportunities Fund II. Fortress anticipates a total capital raise of approximately $5.0 billion, the targeted cap, for FCO IV and related accounts. FCO IV is the successor fund to FCO III and its related accounts, which closed in September 2011 with approximately $4.5 billion in commitments.

 

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Private Equity:

 

  Fund portfolio investment valuations increased 4.8% in the quarter

 

  Fund V appreciated 22.5% in the quarter, crossing its preferred return threshold

 

  Raised $1.4 billion of permanent capital year-to-date through April 30, 2015, including $0.9 billion by New Residential Investment Corp. (“New Residential”) (NYSE: NRZ) in connection with its acquisition of Home Loan Servicing Solutions, Ltd. (“HLSS”)

(See supplemental data on page 16-17 for more detail on Private Equity results)

The Private Equity business recorded pre-tax DE of $19 million in the first quarter of 2015, including $15 million for the Private Equity Funds and $4 million for the Permanent Capital Vehicles. Pre-tax DE declined from $34 million in the first quarter of 2014, primarily due to lower Private Equity Fund management fees and investment income, partially offset by higher Permanent Capital Vehicle management fees.

Private Equity Fund valuations increased 4.8% in the quarter, primarily due to appreciation of Springleaf Holdings, Inc. (NYSE: LEAF), partially offset by depreciation of Nationstar Mortgage Holdings Inc. (NYSE: NSM) and certain privately held portfolio company investments.

Fund V appreciated 22.5% during the first quarter of 2015, primarily due to a 43.1% increase in Springleaf’s share price. This NAV appreciation, combined with approximately $80 million in capital distributions to LPs in the quarter, resulted in Fund V crossing its preferred return threshold and beginning its 60/40 “catch-up” accrual phase of gross incentive income for Fortress as the GP. As of March 31, 2015, Fund V had $188 million of gross undistributed incentive income not yet recognized in DE.

The Permanent Capital Vehicles had $108 million of gross undistributed, unrecognized incentive income at quarter end, including $100 million related to in-the-money options we hold in our publicly traded permanent capital vehicles.

The Permanent Capital Vehicles have raised $1.4 billion of capital year-to-date through April 2015, including $150 million raised by New Media in January and approximately $340 million and $860 million raised in April by Eurocastle Investment Limited and New Residential, respectively. A portion of the capital raised by New Residential was used to help fund the acquisition of HLSS in April 2015.

 

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Liquid Hedge Funds:

 

  Raised $0.2 billion of capital year-to-date through April 30, 2015

 

  Completed transition of the Fortress Asia Macro Funds to Graticule Asset Management

(See supplemental data on page 20 for more detail on Liquid Hedge Funds results)

The Liquid Hedge Funds recorded pre-tax DE of $9 million in the first quarter of 2015, flat compared to the first quarter of 2014, as lower management fees were offset by earnings from Affiliated Managers and higher investment income. Earnings from Affiliated Managers totaled $9 million in the first quarter of 2015, related to our interests in Graticule.

First quarter 2015 net returns for the Fortress Macro Funds, Fortress Convex Asia Funds, Fortress Centaurus Global Funds and Fortress Partners Funds were (4.7)%, (0.6)%, 3.9% and 1.2%, respectively. Net returns year-to-date through April 30, 2015 for the Fortress Macro Funds, Fortress Convex Asia Funds and Fortress Centaurus Global Funds were (8.0)%, (1.1)% and 4.2%, respectively.*

In January 2015, we completed the previously announced transition of management of the Fortress Asia Macro Funds and related managed accounts to Graticule, a new autonomous asset management business on Fortress’s affiliated manager platform. Fortress has retained a perpetual minority interest in Graticule amounting to 30% of earnings during 2015 and receives additional fees for providing various infrastructure services.

Liquid Hedge Funds ended the quarter with $7.8 billion of AUM, including $4.0 billion related to Affiliated Managers. Liquid Hedge Fund AUM declined slightly during the quarter primarily due to $0.7 billion of redemptions, partially offset by a net $0.5 billion increase in the AUM of Affiliated Managers and $0.1 billion of capital raised. Subsequent to quarter end, the Liquid Hedge Funds raised approximately $0.1 billion of additional capital, which will be added to AUM in the second quarter of 2015.

At quarter end, there were $396 million of Liquid Hedge Fund redemption notices outstanding, including $385 million to be paid primarily in the second quarter of 2015.

 

* The net returns for the Fortress Convex Asia Funds reflect returns for the Fortress Convex Asia Funds and Fortress Convex Asia PF Funds collectively. The calculation of net returns for the Fortress Convex Asia PF Funds reflect all expenses, including management fees, accrued incentive allocation (if any), and other expenses over the fund’s Trading Level. “Trading Level” is defined as the product of the fund’s NAV multiplied by the Funding Factor. The “Funding Factor” is 2x for Fortress Convex Asia Fund PF Ltd and Fortress Convex Asia Fund PF LP. The net returns for the Fortress Partners Funds represent the performance of Fortress Partners Fund LP. Please see supplemental data on page 20 for more detail on the returns of each Fortress Partners Fund.

 

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Logan Circle:

 

  11 out of 16 Logan Circle fixed income investment strategies outperformed their respective benchmarks in the quarter, and 15 of 16 strategies have outperformed respective benchmarks since inception

 

  Traditional asset management AUM totaled $33.4 billion at March 31, 2015, an increase of 26% compared to March 31, 2014

 

  Net client inflows totaled $0.6 billion in the quarter

(See supplemental data on page 21 for more detail on Logan Circle results)

Logan Circle, our traditional asset management business, recorded a pre-tax DE loss of $1 million in the quarter, compared to a pre-tax DE loss of $2 million in the first quarter of 2014, primarily due to higher management fees, partially offset by higher operating expenses.

Logan Circle ended the quarter with $33.4 billion in AUM, a 3% increase compared to the prior quarter and a 26% increase compared to the previous year. The year-over-year increase in AUM was primarily due to net client inflows of $5.5 billion and market-driven valuation gains of $1.3 billion.

Over a five-year period through March 31, 2015, 14 of Logan Circle’s 16 fixed income strategies outperformed their respective benchmarks. Since inception, 15 of 16 Logan Circle fixed income strategies have outperformed their respective benchmarks and six were ranked in the top quartile of performance for their competitor universe.

LIQUIDITY & CAPITAL

As of March 31, 2015, Fortress had cash and cash equivalents of $145 million and debt obligations of $75 million.

As of March 31, 2015, Fortress had $1.3 billion of investments in Fortress funds and options in publicly traded permanent capital vehicles. As of March 31 2015, Fortress had a total of $173 million of outstanding commitments to its funds.

In addition, the NAV of Fortress’s investments in its own funds exceeded its segment cost basis by $576 million at quarter end, representing net unrealized gains that have not yet been recognized for segment reporting purposes.

DIVIDEND

Fortress’s Board of Directors declared a first quarter 2015 cash dividend of $0.08 per dividend paying share. The dividend is payable on May 21, 2015 to Class A shareholders of record as of the close of business on May 18, 2015.

The declaration and payment of any dividends are at the sole discretion of the Board of Directors, which may decide to change its dividend policy at any time. Please see below for information on the U.S. federal income tax implications of the dividend.

 

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NON-GAAP INFORMATION

DE is a primary metric used by management to measure Fortress’s operating performance. Consistent with GAAP, DE is the sole measure that management uses to manage, and thus report on, Fortress’s segments, namely: Private Equity, Permanent Capital Vehicles, Credit Hedge Funds, Credit PE Funds, Liquid Hedge Funds and Logan Circle. DE differs from GAAP net income in a number of material ways. For a detailed description of the calculation of pre-tax DE and fund management DE, see Exhibit 3 to this release and note 10 to the financial statements included in the Company’s most recent quarterly report on Form 10-Q.

Fortress aggregates its segment results to report consolidated segment results, as shown in the table under “Summary Financial Results” and in the “Total” column of the table under “Consolidated Segment Results (Non-GAAP).” The consolidated segment results are non-GAAP financial information. Management believes that consolidated segment results provide a meaningful basis for comparison among present and future periods. However, consolidated segment results should not be considered a substitute for Fortress’s consolidated GAAP results. The exhibits to this release contain reconciliations of the components of Fortress’s consolidated segment results to the comparable GAAP measures, and Fortress urges you to review these exhibits. Fortress also uses weighted average dividend paying shares and units outstanding (used to calculate pre-tax DE per dividend paying share) and net cash and investments. The exhibits to this release contain reconciliations of these measures to the comparable GAAP measures, and Fortress urges you to review these exhibits.

CONFERENCE CALL

Management will host a conference call today, Thursday, May 7th at 9:00 A.M. Eastern Time. A copy of the earnings release is posted to the Investor Relations section of Fortress’s website, www.fortress.com. The conference call may be accessed by dialing 1-877-694-6694 (from within the U.S.) or 1-970-315-0985 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference “Fortress First 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 by dialing 1-855-859-2056 (from within the U.S.) or 1-404-537-3406 (from outside of the U.S.); please reference access code “27940522.”

INVESTOR & MEDIA RELATIONS CONTACT

Gordon E. Runté

Fortress Investment Group

+1-212-798-6082

grunte@fortress.com

ABOUT FORTRESS

Fortress Investment Group LLC (NYSE: FIG) is a leading, highly diversified global investment management firm with $69.9 billion in assets under management as of March 31, 2015. Fortress applies its deep experience and specialized expertise across a range of investment strategies - private equity, credit, liquid hedge funds and traditional asset management - on behalf of approximately 1,700 institutional clients and private investors worldwide. For more information regarding Fortress Investment Group LLC or to be added to its e-mail distribution list, please visit www.fortress.com.

 

10


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 Fortress’s sources of management fees, incentive income and investment income (loss), estimated fund performance and the amount and source of expected capital commitments. 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 or redemption amounts may differ, possibly materially, from these forward-looking statements, and any such differences could cause the Company’s 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 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.

U.S. FEDERAL INCOME TAX IMPLICATIONS OF DIVIDEND

This announcement is intended to be a qualified notice as provided in the Internal Revenue Code (the “Code”) and the Regulations thereunder. For U.S. federal income tax purposes, the dividend declared in May 2015 will be treated as a partnership distribution. The per share distribution components are as follows:

 

U.S. Long Term Capital Gain (1)

$ 0.0000   

Non-U.S. Long Term Capital Gain

$ 0.0000   

U.S. Portfolio Interest Income (2)

$ 0.0450   

U.S. Dividend Income (3)

$ 0.0200   

Other Income (4)

$ 0.0150   

Return of Capital

$ 0.0000   
  

 

 

 

Distribution Per Share

$ 0.0800   
  

 

 

 

 

(1) U.S. Long Term Capital Gain realized on the sale of a United States Real Property Holding Corporation. As a result, the gain from the sale will be treated as income that is effectively connected with a U.S. trade or business.
(2) Eligible for the U.S. portfolio interest exemption for any holder not considered a 10-Percent shareholder under §871(h)(3)(B) of the Code.
(3) This income is subject to withholding under §1441 of the Code.
(4) This income is not subject to withholding under §1441 or §1446 of the Code.

 

11


Fortress Investment Group LLC

Consolidated Statements of Operations (Unaudited)

(dollars in thousands, except share data)

 

     Three Months Ended March 31,  
     2015     2014  

Revenues

    

Management fees: affiliates

   $ 127,707      $ 129,710   

Management fees: non-affiliates

     15,291        17,622   

Incentive income: affiliates

     24,223        34,251   

Incentive income: non-affiliates

     —          643   

Expense reimbursements: affiliates

     54,565        51,186   

Expense reimbursements: non-affiliates

     3,248        2,448   

Other revenues

     1,655        1,250   
  

 

 

   

 

 

 

Total Revenues

  226,689      237,110   
  

 

 

   

 

 

 

Expenses

Compensation and benefits

  178,888      188,519   

General, administrative and other

  42,981      37,823   

Depreciation and amortization

  5,331      4,301   

Interest expense

  839      691   

Transfer of interest in Graticule

  101,000      —     
  

 

 

   

 

 

 

Total Expenses

  329,039      231,334   
  

 

 

   

 

 

 

Other Income (Loss)

Gains (losses)

  31,561      (11,055

Tax receivable agreement liability adjustment

  —        —     

Earnings (losses) from equity method investees

  41,708      20,374   

Gain on transfer of Graticule

  134,400      —     
  

 

 

   

 

 

 

Total Other Income (Loss)

  207,669      9,319   
  

 

 

   

 

 

 

Income (Loss) Before Income Taxes

  105,319      15,095   

Income tax benefit (expense)

  (18,399   (5,994
  

 

 

   

 

 

 

Net Income (Loss)

$ 86,920    $ 9,101   
  

 

 

   

 

 

 

Allocation of Net Income (Loss)

Principals’ and Others’ Interests in Income (Loss) of Consolidated Subsidiaries

  52,223      6,077   

Redeemable Non-Controlling Interests in Income (Loss)

  (16   —     

Net Income (Loss) Attributable to Class A Shareholders

  34,713      3,024   
  

 

 

   

 

 

 
$ 86,920    $ 9,101   
  

 

 

   

 

 

 

Earnings (Loss) Per Class A Share

Net income (loss) per Class A share, basic

$ 0.15    $ 0.01   
  

 

 

   

 

 

 

Net income (loss) per Class A share, diluted

$ 0.15    $ 0.01   
  

 

 

   

 

 

 

Weighted average number of Class A shares outstanding, basic

  215,785,776      216,934,917   
  

 

 

   

 

 

 

Weighted average number of Class A shares outstanding, diluted

  221,535,189      229,033,778   
  

 

 

   

 

 

 

 

12


Fortress Investment Group LLC

Consolidated Balance Sheets

(dollars in thousands)

 

     March 31, 2015
(Unaudited)
    December 31, 2014  

Assets

    

Cash and cash equivalents

   $ 145,233      $ 391,089   

Due from affiliates

     168,176        326,575   

Investments

     1,200,151        1,121,545   

Investments in options

     108,120        71,844   

Deferred tax asset, net

     397,778        417,623   

Other assets

     167,903        173,708   
  

 

 

   

 

 

 

Total Assets

$ 2,187,361    $ 2,502,384   
  

 

 

   

 

 

 

Liabilities and Equity

Liabilities

Accrued compensation and benefits

$ 139,171    $ 374,709   

Due to affiliates

  354,122      375,424   

Deferred incentive income

  307,737      304,526   

Debt obligations payable

  75,000      75,000   

Other liabilities

  123,396      88,053   
  

 

 

   

 

 

 

Total Liabilities

$ 999,426    $ 1,217,712   
  

 

 

   

 

 

 

Commitments and Contingencies

Redeemable Non-controlling Interests

  109      1,717   

Equity

Class A shares, no par value, 1,000,000,000 shares authorized, 208,554,885 and 208,535,157 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively

  —        —     

Class B shares, no par value, 750,000,000 shares authorized, 226,331,513 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively

  —        —     

Paid-in capital

  1,922,312      1,996,137   

Retained earnings (accumulated deficit)

  (1,315,409   (1,350,122

Accumulated other comprehensive income (loss)

  (2,710   (2,416
  

 

 

   

 

 

 

Total Fortress shareholders’ equity

  604,193      643,599   

Principals’ and others’ interests in equity of consolidated subsidiaries

  583,633      639,356   
  

 

 

   

 

 

 

Total Equity

  1,187,826      1,282,955   
  

 

 

   

 

 

 
$ 2,187,361    $ 2,502,384   
  

 

 

   

 

 

 

 

13


Fortress Investment Group LLC

Exhibit 1

Supplemental Data for the Three Months Ended March 31, 2015 and 2014

 

    Three Months Ended March 31, 2015  
          Private Equity           Credit Funds        
(in millions)   Total     Funds     Permanent
Capital
Vehicles
    Liquid
Hedge
Funds
    Hedge
Funds
    PE
Funds
    Logan
Circle
 

Assets Under Management

             

AUM - January 1, 2015

  $ 67,531      $ 9,366      $ 4,567      $ 8,128      $ 6,173      $ 6,955      $ 32,342   

Capital raised

    495        —          —          86        175        234        —     

Equity raised (Permanent Capital Vehicles)

    150        —          150        —          —          —          —     

Increase in invested capital

    718        61        60        —          15        582        —     

Redemptions

    (785     —          —          (733     (52     —          —     

RCA distributions7

    (66     —          —          —          (66     —          —     

Return of capital distributions

    (524     (95     (99     (42     —          (288     —     

Crystallized Incentive Income

    (95     —          —          —          (95     —          —     

Change in AUM of Affiliated Managers

    494        —          —          494        —          —          —     

Net Client Flows

    589        —          —          —          —          —          589   

Income (loss) and foreign exchange

    1,382        847        (56     (95     121        80        485   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

AUM - Ending Balance

$ 69,889    $ 10,179    $ 4,622    $ 7,838    $ 6,271    $ 7,563    $ 33,416   

Third-Party Capital Raised

$ 5,360    $ —      $ 150    $ 86    $ 175    $ 4,949    $ —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment Revenues

Management fees

$ 139    $ 29    $ 19    $ 21    $ 30    $ 27    $ 13   

Incentive income

  51      —        3      1      23      24      —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  190      29      22      22      53      51      13   

Segment Expenses

Operating expenses

  (115   (14   (18   (21   (18   (30   (14

Profit sharing compensation expenses

  (30   —        —        (4   (12   (14   —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  (145   (14   (18   (25   (30   (44   (14

Earnings From Affiliated Managers

  9      —        —        9      —        —        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE (before Principal Performance Payments)

  54      15      4      6      23      7      (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Principal Performance Payments

  (3   —        —        —        (2   (1   —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE

  51      15      4      6      21      6      (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment Income

  5      —        —        3      1      1      —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unallocated Investment Income

  —     

Unallocated Expenses

  (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax Distributable Earnings

$ 55    $ 15    $ 4    $ 9    $ 22    $ 7    $ (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax Distributable Earnings per Dividend Paying Share

$ 0.12   
 

 

 

             

 

    Three Months Ended March 31, 2014  
          Private Equity           Credit Funds        
(in millions)   Total     Funds     Permanent
Capital
Vehicles
    Liquid
Hedge
Funds
    Hedge
Funds
    PE
Funds
    Logan
Circle
 

Assets Under Management

             

AUM - January 1, 2014

  $ 61,750      $ 11,862      $ 3,721      $ 7,398      $ 5,856      $ 7,527      $ 25,386   

Capital raised

    1,516        —          —          1,302        214        —          —     

Equity raised (Permanent Capital Vehicles)

    —          —          —          —          —          —          —     

Increase in invested capital

    363        7        92        —          15        249        —     

Redemptions

    (593     —          —          (557     (36     —          —     

RCA distributions7

    (149     —          —          —          (149     —          —     

Return of capital distributions

    (1,201     (257     (84     (24     —          (836     —     

Crystallized Incentive Income

    (273     —          —          (129     (144     —          —     

Net Client Flows

    477        —          —          —          —          —          477   

Income (loss) and foreign exchange

    630        (99     1        (252     212        39        729   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

AUM - Ending Balance

$ 62,520    $ 11,512    $ 3,731    $ 7,738    $ 5,968    $ 6,979    $ 26,592   

Third-Party Capital Raised

$ 1,609    $ 79    $ —      $ 1,302    $ 228    $ —      $ —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment Revenues

Management fees

$ 147    $ 35    $ 16    $ 33    $ 27    $ 25    $ 11   

Incentive income

  104      2      4      —        32      66      —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  251      37      20      33      59      91      11   

Segment Expenses

Operating expenses

  (104   (11   (14   (23   (17   (25   (13

Profit sharing compensation expenses

  (53   (1   —        (2   (15   (35   —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  (157   (12   (14   (25   (32   (61   (13
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE (before Principal Performance Payments)

  94      25      6      8      27      30      (2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Principal Performance Payments

  (7   —        (1   —        (5   (1   —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE

  87      25      5      8      22      29      (2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment Income

  10      4      —        1      1      4      —     

Unallocated Investment Income

  —     

Unallocated Expenses

  —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax Distributable Earnings

$ 97    $ 29    $ 5    $ 9    $ 23    $ 33    $ (2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax Distributable Earnings per Dividend Paying Share

$ 0.21   
 

 

 

             

 

7  Represents distributions from (i) assets held by redeeming capital accounts in the Drawbridge Special Opportunities Funds, and (ii) the Value Recovery Funds.

 

14


Fortress Investment Group LLC

Exhibit 2-a

Assets Under Management and Fund Management DE

(dollars in millions)

 

    Three Months Ended           Three Months  
    March 31,
2014
    June 30,
2014
    September 30,
2014
    December 31,
2014
    Full Year
2014
    Ended March 31,
2015
 

Fortress

           

Assets Under Management

           

Private Equity Funds

  $ 11,513      $ 9,810      $ 9,787      $ 9,366      $ 9,366      $ 10,179   

Permanent Capital Vehicles

    3,731        4,021        4,411        4,567        4,567        4,622   

Liquid Hedge Funds8

    7,738        7,867        7,529        8,128        8,128        7,838   

Credit Hedge Funds

    5,968        6,084        6,140        6,173        6,173        6,271   

Credit Private Equity Funds

    6,979        6,898        7,083        6,955        6,955        7,563   

Logan Circle

    26,592        29,133        31,096        32,342        32,342        33,416   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

AUM - Ending Balance

$ 62,520    $ 63,813    $ 66,046    $ 67,531    $ 67,531    $ 69,889   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Third-Party Capital Raised

$ 1,609    $ 1,762    $ 1,216    $ 1,692    $ 6,279    $ 5,360   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment Revenues

Management fees

$ 147    $ 152    $ 149    $ 153    $ 601    $ 139   

Incentive income

  104      78      88      191      461      51   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  251      230      237      344      1,062      190   

Segment Expenses

Operating expenses

  (104   (109   (112   (126   (451   (115

Profit sharing compensation expenses

  (53   (39   (54   (96   (242   (30
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  (157   (148   (166   (222   (693   (145

Earnings From Affiliated Managers

  —        —        —        —        —        9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE (before Principal Performance Payments)

  94      82      71      122      369      54   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Principal Performance Payments

  (7   (6   (4   (12   (29   (3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE

$ 87    $ 76    $ 67    $ 110    $ 340    $ 51   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Investment Income

  10      96      (12   13      106      4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax Distributable Earnings

$ 97    $ 172    $ 55    $ 123    $ 446    $ 55   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

8  The Assets Under Management presented for the Liquid Hedge Funds includes $4,001 million related to Affiliated Managers as of March 31, 2015.

 

15


Fortress Investment Group LLC

Exhibit 2-b

Assets Under Management and Fund Management DE

(dollars in millions)

 

     Three Months Ended           Three Months  
     March 31,
2014
    June 30,
2014
    September 30,
2014
    December 31,
2014
    Full Year
2014
    Ended March 31,
2015
 

Private Equity Funds

            

Assets Under Management

            

Main Funds9

   $ 7,787      $ 7,053      $ 7,347      $ 6,934      $ 6,934      $ 7,726   

Coinvestment Funds10

     3,393        2,401        2,088        2,006        2,006        1,994   

MSR Opportunities Funds11

     332        344        341        326        326        336   

Italian NPL Opportunities Fund

     —          12        11        25        25        19   

Fortress Equity Partners

     —          —          —          75        75        104   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

AUM - Ending Balance

$ 11,512    $ 9,810    $ 9,787    $ 9,366    $ 9,366    $ 10,179   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Third-Party Capital Raised

$ 79    $ 26    $ 101    $ —      $ 206    $ —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment Revenues

Management fees

$ 35    $ 36    $ 33    $ 32    $ 136    $ 29   

Incentive income

  2      1      —        —        3      —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  37      37      33      32      139      29   

Segment Expenses

Operating expenses

  (11   (12   (15   (13   (51   (14

Profit sharing compensation expenses

  (1   1      —        —        —        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  (12   (11   (15   (13   (51   (14
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE (before Principal Performance Payments)

  25      26      18      19      88      15   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Principal Performance Payments

  —        —        —        —        —        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE

$ 25    $ 26    $ 18    $ 19    $ 88    $ 15   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Investment Income

  4      91      —        —        95      —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax Distributable Earnings

$ 29    $ 117    $ 18    $ 19    $ 183    $ 15   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

9  Combined AUM for Fund III, Fund IV and Fund V.
10 Combined AUM for Fund III Coinvestment, Fund IV Coinvestment, Fund V Coinvestment, FRID, FRIC, FICO, FHIF, FECI and MAPS. FRID and FRIC were closed in the fourth quarter of 2014.
11  Combined AUM for MSR Opportunities Fund I A, MSR Opportunities Fund I B, MSR Opportunities Fund II A, MSR Opportunities Fund II B and MSR Opportunities Fund MA I.

 

16


Fortress Investment Group LLC

Exhibit 2-c

Assets Under Management and Fund Management DE

(dollars in millions)

 

     Three Months Ended           Three Months  
     March 31,
2014
    June 30,
2014
    September 30,
2014
    December 31,
2014
    Full Year
2014
    Ended March 31,
2015
 

Permanent Capital Vehicles

            

Assets Under Management

            

Newcastle Investment Corp.

   $ 1,321      $ 1,381      $ 1,579      $ 768      $ 768      $ 680   

New Residential Investment Corp.

     1,196        1,367        1,366        1,367        1,367        1,367   

Eurocastle Investment Limited

     556        553        510        488        488        432   

New Media Investment Group Inc.

     391        390        505        487        487        637   

New Senior Investment Group Inc.

     —          —          —          812        812        813   

WWTAI12

     267        330        451        645        645        693   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

AUM - Ending Balance

$ 3,731    $ 4,021    $ 4,411    $ 4,567    $ 4,567    $ 4,622   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Third-Party Capital Raised

$ —      $ 405    $ 673    $ —      $ 1,078    $ 150   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment Revenues

Management fees

$ 16    $ 17    $ 17    $ 19    $ 69    $ 19   

Incentive income

  4      21      16      25      66      3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  20      38      33      44      135      22   

Segment Expenses

Operating expenses

  (14   (17   (18   (20   (69   (18

Profit sharing compensation expenses

  —        (6   (9   (6   (21   —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  (14   (23   (27   (26   (90   (18
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE (before Principal Performance Payments)

  6      15      6      18      45      4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Principal Performance Payments

  (1   (2   —        (3   (6   —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE

$ 5    $ 13    $ 6    $ 15    $ 39    $ 4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Investment Income

  —        1      1      —        2      —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax Distributable Earnings

$ 5    $ 14    $ 7    $ 15    $ 41    $ 4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

12  WWTAI is currently a private permanent capital vehicle that has filed a registration statement for a public offering of shares under the name Fortress Transportation and Infrastructure Investors LLC (“FTAI”). A registration statement relating to the shares has been filed with the Securities and Exchange Commission but has not yet become effective. The shares may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This document shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the shares in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

17


Fortress Investment Group LLC

Exhibit 2-d

Assets Under Management and Fund Management DE

(dollars in millions)

 

     Three Months Ended           Three Months  
     March 31,     June 30,     September 30,     December 31,     Full Year     Ended March 31,  
     2014     2014     2014     2014     2014     2015  

Credit Hedge Funds

            

Assets Under Management

            

Drawbridge Special Opportunities Funds13

   $ 5,616      $ 5,745      $ 5,817      $ 5,929      $ 5,929      $ 6,023   

Value Recovery Funds14

     338        324        309        200        200        189   

Japan Income Fund

     14        15        14        44        44        59   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

AUM - Ending Balance

$ 5,968    $ 6,084    $ 6,140    $ 6,173    $ 6,173    $ 6,271   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Third-Party Capital Raised

$ 228    $ 554    $ 165    $ 48    $ 995    $ 175   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment Revenues

Management fees

$ 27    $ 28    $ 29    $ 30    $ 114    $ 30   

Incentive income

  32      42      29      19      122      23   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  59      70      58      49      236      53   

Segment Expenses

Operating expenses

  (17   (17   (17   (19   (70   (18

Profit sharing compensation expenses

  (15   (20   (14   (10   (59   (12
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  (32   (37   (31   (29   (129   (30
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE (before Principal Performance Payments)

  27      33      27      20      107      23   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Principal Performance Payments

  (5   (3   (4   (8   (20   (2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE

$ 22    $ 30    $ 23    $ 12    $ 87    $ 21   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Investment Income

  1      2      (5   1      (1   1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax Distributable Earnings

$ 23    $ 32    $ 18    $ 13    $ 86    $ 22   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Returns15

Drawbridge Special Opportunities Fund LP

  3.2   2.6   1.9   2.1   10.0   2.2

Drawbridge Special Opportunities Fund Ltd

  2.2   1.7   1.7   0.2   6.0   1.1

 

13  Combined AUM for Drawbridge Special Opportunities Fund LP, Drawbridge Special Opportunities Fund Ltd, Drawbridge Special Opportunities Fund managed accounts, Worden Fund LP and Worden Fund II LP.
14  Fortress will receive management fees from these funds equal to 1% of cash receipts and may receive limited incentive income if aggregate realizations exceed an agreed threshold.
15  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. Net returns reflect performance data after taking into account management fees borne by the Fund and incentive allocations. The returns for the Drawbridge Special Opportunities Funds reflect the performance of each fund excluding special investments and the performance of the redeeming capital accounts which relate to December 31, 2009, December 31, 2010, December 31, 2011, December 31, 2012, December 31, 2013 and December 31, 2014 redemptions.

 

18


Fortress Investment Group LLC

Exhibit 2-e

Assets Under Management and Fund Management DE

(dollars in millions)

 

    Three Months Ended           Three Months  
    March 31,     June 30,     September 30,     December 31,     Full Year     Ended March 31,  
    2014     2014     2014     2014     2014     2015  

Credit Private Equity Funds

           

Assets Under Management

           

Long Dated Value Funds16

  $ 395      $ 375      $ 361      $ 361      $ 361      $ 352   

Real Assets Funds

    78        70        64        66        66        52   

Fortress Credit Opportunities Funds17

    4,712        4,649        4,960        5,465        5,465        6,029   

Japan Opportunity Funds18

    1,794        1,804        1,698        1,063        1,063        1,130   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

AUM - Ending Balance

$ 6,979    $ 6,898    $ 7,083    $ 6,955    $ 6,955    $ 7,563   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Third-Party Capital Raised

$ —      $ 254    $ 30    $ 899    $ 1,183    $ 4,949   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment Revenues

Management fees

$ 25    $ 23    $ 24    $ 25    $ 97    $ 27   

Incentive income

  66      13      41      134      254      24   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  91      36      65      159      351      51   

Segment Expenses

Operating expenses

  (26   (26   (27   (29   (108   (30

Profit sharing compensation expenses

  (35   (7   (22   (68   (132   (14
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  (61   (33   (49   (97   (240   (44
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE (before Principal Performance Payments)

  30      3      16      62      111      7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Principal Performance Payments

  (1   —        —        (1   (2   (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE

$ 29    $ 3    $ 16    $ 61    $ 109    $ 6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Investment Income

  4      —        2      7      13      1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax Distributable Earnings

$ 33    $ 3    $ 18    $ 68    $ 122    $ 7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

16  Combined AUM for Long Dated Value Fund I, Long Dated Value Fund II, Long Dated Value Fund III and LDVF Patent Fund.
17  Combined AUM for Credit Opportunities Fund, Credit Opportunities Fund II, Credit Opportunities Fund III, Credit Opportunities Fund IV, FCO Managed Accounts, Net Lease Fund I, Global Opportunities Fund, Life Settlements Fund, Life Settlements Fund MA, SIP managed account, Real Estate Opportunities Fund, Real Estate Opportunities Fund II and Real Estate Opportunities REOC Fund.
18  Combined AUM for Japan Opportunity Fund, Japan Opportunity Fund II (Dollar), Japan Opportunity Fund II (Yen) and Japan Opportunity Fund III (Yen).

 

19


Fortress Investment Group LLC

Exhibit 2-f

Assets Under Management and Fund Management DE

(dollars in millions)

 

     Three Months Ended           Three Months  
     March 31,     June 30,     September 30,     December 31,     Full Year     Ended March 31,  
     2014     2014     2014     2014     2014     2015  

Liquid Hedge Funds

            

Assets Under Management

            

Fortress Macro Funds19

   $ 3,503      $ 3,391      $ 3,083      $ 3,249      $ 3,249      $ 2,779   

Drawbridge Global Macro Funds20

     286        261        223        229        229        227   

Fortress Convex Asia Funds21

     130        136        189        197        197        226   

Fortress Centaurus Global Funds22

     —          —          —          33        33        64   

Fortress Partners Funds23

     952        965        935        913        913        541   

Fortress Asia Macro Funds24

     2,867        3,114        3,099        3,507        3,507        N/A   

Affiliated Managers24

     —          —          —          —          —          4,001   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

AUM - Ending Balance

$ 7,738    $ 7,867    $ 7,529    $ 8,128    $ 8,128    $ 7,838   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Third-Party Capital Raised

$ 1,302    $ 523    $ 247    $ 745    $ 2,817    $ 86   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment Revenues

Management fees

$ 33    $ 37    $ 33    $ 35    $ 138    $ 21   

Incentive income

  —        1      2      13      16      1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  33      38      35      48      154      22   

Segment Expenses

Operating expenses

  (23   (24   (21   (31   (99   (21

Profit sharing compensation expenses

  (2   (7   (9   (12   (30   (4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  (25   (31   (30   (43   (129   (25

Earnings From Affiliated Managers

  —        —        —        —        —        9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE (before Principal Performance Payments)

  8      7      5      5      25      6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Principal Performance Payments

  —        (1   —        —        (1   —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE

$ 8    $ 6    $ 5    $ 5    $ 24    $ 6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Investment Income

  1      1      (9   5      (2   3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax Distributable Earnings

$ 9    $ 7    $ (4 $ 10    $ 22    $ 9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Returns25

Fortress Macro Fund Ltd

  (5.5 %)    (0.4 %)    1.1   3.4   (1.6 %)    (4.7 %) 

Drawbridge Global Macro Fund Ltd

  (5.5 %)    (0.6 %)    0.7   3.3   (2.2 %)    (4.9 %) 

Fortress Convex Asia Fund Ltd

  (1.1 %)    (2.6 %)    (0.6 %)    (0.6 %)    (4.9 %)    (0.6 %) 

Fortress Centaurus Global Fund Ltd

  n/a      n/a      n/a      n/a      n/a      3.9

Fortress Partners Fund LP26

  1.1   2.1   (1.4 %)    (1.8 %)    (0.1 %)    1.2

Fortress Partners Offshore Fund LP26

  0.9   2.2   (1.4 %)    (1.3 %)    0.4   0.3

Fortress Asia Macro Fund Ltd24

  (3.6 %)    (1.9 %)    1.4   3.1   (1.2 %)    n/a   

 

19  Combined AUM for Fortress Macro Onshore Fund LP, Fortress Macro Fund Ltd, Fortress Macro MA1, Fortress Redwood Fund Ltd and Fortress Macro managed accounts.
20  Combined AUM for Drawbridge Global Macro Fund LP and Drawbridge Global Macro Intermediate Fund LP.
21  Combined AUM for Fortress Convex Asia Fund LP, Fortress Convex Asia Fund Ltd, Fortress Convex Asia Fund PF LP and Fortress Convex Asia Fund PF Ltd.
22  Combined AUM for Fortress Centaurus Global Fund LP and Fortress Centaurus Global Fund Ltd.
23  Combined AUM for Fortress Partners Fund LP and Fortress Partners Offshore Fund LP.
24  Combined AUM for Fortress Asia Macro Fund Ltd, Fortress Asia Macro Fund LP and Fortress Asia Macro managed accounts. In January 2015, the Fortress Asia Macro Funds and related managed accounts transitioned to Graticule Asset Management on Fortress’s affiliated manager platform.
25  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. Net returns reflect performance data after taking into account management fees borne by the Fund and incentive allocations.
26  The returns for the Fortress Partners Funds include gains and losses from Special Investments. Investors’ specific performance may vary dependent upon their ownership in one or more Special Investments.

 

20


Fortress Investment Group LLC

Exhibit 2-g

Assets Under Management and Fund Management DE

(dollars in millions)

 

    Three Months Ended           Three Months  
    March 31,     June 30,     September 30,     December 31,     Full Year     Ended March 31,  
    2014     2014     2014     2014     2014     2015  

Logan Circle

           

Assets Under Management

           

AUM - Ending Balance

  $ 26,592      $ 29,133      $ 31,096      $ 32,342      $ 32,342      $ 33,416   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Client Flows

$ 477    $ 1,730    $ 2,178    $ 1,035    $ 5,420    $ 589   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment Revenues

Management fees

$ 11    $ 11    $ 13    $ 12    $ 47    $ 13   

Incentive income

  —        —        —        —        —        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  11      11      13      12      47      13   

Segment Expenses

Operating expenses

  (13   (13   (14   (14   (54   (14

Profit sharing compensation expenses

  —        —        —        —        —        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  (13   (13   (14   (14   (54   (14
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE

$ (2 $ (2 $ (1 $ (2 $ (7 $ (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Investment Income

  —        1      (1   2      2      —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax Distributable Earnings

$ (2 $ (1 $ (2 $ —      $ (5 $ (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Fortress Investment Group LLC

Exhibit 3

Reconciliation of GAAP Net Income (Loss) to Pre-tax Distributable Earnings and Fund Management DE,

Reconciliation of GAAP Revenues to Segment Revenues and Reconciliation of GAAP Expenses to Segment Expenses

(dollars in millions)

 

    Three Months Ended              
    March 31,     June 30,     September 30,     December 31,     Full Year     Three Months Ended  
    2014     2014     2014     2014     2014     March 31, 2015  

GAAP Net Income (Loss)

  $ 9      $ 73      $ 17      $ 141      $ 240      $ 87   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Principals’ and Others’ Interests in (Income) Loss of Consolidated Subsidiaries

  (6   (42   (13   (79   (140   (52

Redeemable non-controlling interests in Income (Loss)

  —        —        2      (1   1      —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GAAP Net Income (Loss) Attributable to Class A Shareholders

$ 3    $ 31    $ 6    $ 61    $ 101    $ 35   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Private Equity incentive income

  37      (8   36      29      94      3   

Hedge Fund and Logan Circle incentive income

  30      26      21      (77   —        23   

Reserve for clawback

  2      —        —        —        2      —     

Distributions of earnings from equity method investees

  9      47      6      10      72      4   

Losses (earnings) from equity method investees

  (17   (20   (38   7      (68   (27

Losses (gains) on options

  5      1      23      1      30      (32

Losses (gains) on other Investments

  5      42      (16   (17   14      (1

Impairment of investments

  —        —        (3   —        (3   (3

Adjust income from the receipt of options

  —        (1   (5   —        (6   (4

Gain on transfer of Graticule

  —        —        —        —        —        (134

Amortization of intangible assets and impairment of goodwill

  —        —        —        —        —        —     

Employee, Principal and director compensation

  12      6      6      12      36      20   

Adjust non-controlling interests related to Fortress Operating Group units

  5      40      11      78      134      52   

Tax receivable agreement liability reduction

  —        —        4      29      33      —     

Adjust income taxes

  6      8      3      (10   7      18   

Adjust transfer of interest in Graticule

  —        —        —        —        —        101   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pre-tax Distributable Earnings

$ 97    $ 172    $ 55    $ 123    $ 446    $ 55   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment Loss (income)

  (10   (97   11      (14   (109   (5

Interest Expense

  —        1      1      1      3      1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fund Management DE

$ 87    $ 76    $ 67    $ 110    $ 340    $ 51   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

    

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GAAP Revenues

$ 237    $ 270    $ 243    $ 455    $ 1,205    $ 227   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjust management fees

  —        —        —        (1   (1   (1

Adjust incentive income

  69      17      57      (47   96      27   

Adjust income from the receipt of options

  —        (1   (5   —        (6   (4

Other revenues

  (55   (56   (57   (65   (233   (59
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment Revenues

$ 251    $ 230    $ 238    $ 343    $ 1,062    $ 190   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

    

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GAAP Expenses

$ 231    $ 216    $ 235    $ 310    $ 992    $ 329   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjust interest expense

  —        (1   (1   (1   (3   (1

Adjust employee, Principal and director compensation

  (12   (6   (3   (3   (24   (18

Adjust amortization of intangible assets and impairment of goodwill

  —        —        —        —        —        —     

Adjust expense reimbursements from affiliates and non-affiliates

  (54   (52   (55   (70   (231   (59

Adjust Principal Performance Payments

  (9   (9   (9   (15   (42   (5

Adjust transfer of interest in Graticule

  —        —        —        —        —        (101

Other

  —        —        (1   1      —        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment Expenses

$ 157    $ 148    $ 166    $ 221    $ 692    $ 145   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


‘‘Distributable earnings’’ is Fortress’s supplemental measure of operating performance used by management in analyzing segment and overall results. 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 in accordance with GAAP and it is not necessarily indicative of liquidity or cash available to fund the Company’s 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 the financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015.

Fortress’s management uses distributable earnings:

 

    in its determination of periodic distributions to equity holders;

 

    in making operating decisions and assessing the performance of each of the Company’s core businesses;

 

    for planning purposes, including the preparation of annual operating budgets; and

 

    as a valuation measure in strategic analyses in connection with the performance of its funds and the performance of its employees.

Growing distributable earnings is a key component to the Company’s business strategy and distributable earnings is the supplemental measure used by management to evaluate the economic profitability of each of the Company’s businesses and total operations. Therefore, Fortress believes that it provides useful information to investors in evaluating its operating performance. Fortress’s definition of distributable earnings is not based on any definition contained in its amended and restated operating agreement.

“Fund management DE” is equal to pre-tax distributable earnings excluding our direct investment-related results. It is comprised of “Pre-tax Distributable Earnings” net of “Investment Loss (Income)” and “Interest Expense.” Fund management DE and its components are used by management to analyze and measure the performance of our investment management business on a stand-alone basis. Fortress defines segment operating margin to be equal to fund management DE divided by segment revenues. The Company believes that it is useful to provide investors with the opportunity to review our investment management business using the same metrics. Fund management DE and its components are subject to the same limitations as pre-tax distributable earnings, as described above.

 

23


Fortress Investment Group LLC

Exhibit 4

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 March 31,  
    2015     2014  

Weighted Average Class A Shares Outstanding (Used for Basic EPS)

    215,785,776        216,934,917   
 

 

 

   

 

 

 

Weighted average fully vested restricted Class A share units with dividend equivalent rights

  (7,231,768   (3,899,986

Weighted average fully vested restricted Class A shares

  (840,658   (973,275
 

 

 

   

 

 

 

Weighted Average Class A Shares Outstanding

  207,713,350      212,061,656   
 

 

 

   

 

 

 

Weighted average restricted Class A shares27

  840,658      973,275   

Weighted average fully vested restricted Class A share units which are entitled to dividend equivalent payments

  7,231,768      3,899,986   

Weighted average unvested restricted Class A share units which are entitled to dividend equivalent payments

  8,347,402      5,997,586   

Weighted average Fortress Operating Group units

  226,331,513      245,925,038   
 

 

 

   

 

 

 

Weighted Average Class A Shares Outstanding (Used for DEPS)

  450,464,691      468,857,541   
 

 

 

   

 

 

 

Weighted average vested and unvested restricted Class A share units which are not entitled to dividend equivalent payments

  11,703,251      12,436,247   
 

 

 

   

 

 

 

Weighted Average Fully Diluted Shares and Units Outstanding (Used for Diluted DEPS)

  462,167,942      481,293,788   
 

 

 

   

 

 

 

“Dividend paying shares and units” represents the number of shares and units outstanding at the end of the period which were entitled to receive dividends or related distributions. The Company believes it is useful for investors in computing the aggregate amount of cash required to make a current per share distribution of a given amount per share. It excludes certain potentially dilutive equity instruments, primarily non-dividend paying restricted Class A share units, and, therefore, is limited in its usefulness in computing per share amounts. Accordingly, dividend paying shares and units should be considered only as a supplement and not an alternative to GAAP basic and diluted shares outstanding. The Company’s calculation of dividend paying shares and units may be different from the calculation used by other companies and, therefore, comparability may be limited.

 

27  Includes both fully vested and unvested restricted Class A shares.

 

24


Fortress Investment Group LLC

Exhibit 5

Reconciliation of GAAP Book Value Per Share to Net Cash and Investments Per Share

(dollars and shares in thousands)

 

    As of March 31, 2015     As of December 31, 2014  
    GAAP     Net Cash and     GAAP     Net Cash and  
    Book Value     Investments     Book Value     Investments  

Cash and Cash equivalents

  $ 145,233      $ 145,233      $ 391,089      $ 391,089   

Investments

    1,200,151        1,200,151        1,121,545        1,121,545   

Investments in options28

    108,120        —          71,844        —     

Due from Affiliates

    168,176        —          326,575        —     

Deferred Tax Asset, net

    397,778        —          417,623        —     

Other Assets

    167,903        —          173,708        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  2,187,361      1,345,384      2,502,384      1,512,634   
 

 

 

   

 

 

   

 

 

   

 

 

 

Debt Obligations Payable

  75,000      75,000    $ 75,000      75,000   

Accrued Compensation and Benefits

  139,171      —        374,709      —     

Due to Affiliates

  354,122      —        375,424      —     

Deferred Incentive Income

  307,737      —        304,526      —     

Other Liabilities

  123,396      —        88,053      —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

  999,426      75,000      1,217,712      75,000   
 

 

 

   

 

 

   

 

 

   

 

 

 

Less: Redeemable Non-controlling Interests

  109      —        1,717      —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net

$ 1,187,826    $ 1,270,384    $ 1,282,955    $ 1,437,634   
 

 

 

   

 

 

   

 

 

   

 

 

 
          Dividend Paying           Dividend Paying  
    Shares     Shares and Units     Shares     Shares and Units  
    Outstanding     Outstanding     Outstanding     Outstanding  

Class A Shares

    207,713        207,713        207,490        207,490   

Restricted Class A Shares

    841        841        1,045        1,045   

Fortress Operating Group Units

    226,332        226,332        226,332        226,332   

Fully Vested Class A Shares - Dividend Paying

    —          7,568        —          194   

Unvested Class A Shares - Dividend Paying

    —          11,159        —          7,002   
 

 

 

   

 

 

   

 

 

   

 

 

 

Shares Outstanding

  434,886      453,613      434,867      442,063   
 

 

 

   

 

 

   

 

 

   

 

 

 

    

 

 

 

   

 

 

   

 

 

   

 

 

 

Per Share

$ 2.73    $ 2.80    $ 2.95    $ 3.25   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net cash and investments represents cash and cash equivalents plus investments less debt outstanding. The Company believes that net cash and investments is a useful supplemental measure because it provides investors with information regarding the Company’s net investment assets. Net cash and investments excludes certain assets (investments in options, due from affiliates, deferred tax asset, other assets) and liabilities (due to affiliates, accrued compensation and benefits, deferred incentive income and other liabilities) and its utility as a measure of financial position is limited. Accordingly, net cash and investments should be considered only as a supplement and not an alternative to GAAP book value as a measure of the Company’s financial position. The Company’s calculation of net cash and investments may be different from the calculation used by other companies and, therefore, comparability may be limited.

 

28  The intrinsic value of options in equity method investees totaled $100 million at quarter end and is included in our undistributed, unrecognized incentive income. This value represents incentive income that would have been recorded in Distributable Earnings if Fortress had exercised all of its in-the-money options it holds in the publicly traded permanent capital vehicles and sold all of the resulting shares at their March 31, 2015 closing price and differs from the fair value derived from option pricing models included in the table above.

 

25