Fortress Principals Enter Into New Five-Year
Employment Agreements
Fortress Investment Group LLC (NYSE:FIG) (“Fortress” or the
“Company”) today reported its third quarter 2016 financial
results.
FINANCIAL SUMMARY
- Fortress declared a cash dividend of
$0.09 per dividend paying share for the third quarter 2016
- Management Fee Paying Assets Under
Management (“AUM”) of $70.1 billion as of September 30, 2016, down
slightly compared to the previous quarter and down 6% compared to
September 30, 2015
- GAAP net income of $58 million, or
$0.07 per diluted Class A share, for the third quarter of 2016,
compared to a GAAP net loss of $26 million, or $(0.07) per diluted
Class A share, for the third quarter of 2015
- GAAP net income of $16 million, or
$0.02 per diluted Class A share, for the first nine months of 2016,
compared to GAAP net income of $66 million, or $0.09 per diluted
Class A share, for the first nine months of 2015
- Pre-tax distributable earnings (“DE”)
of $90 million, or $0.23 per dividend paying share, for the third
quarter of 2016, compared to pre-tax DE of $69 million, or $0.15
per dividend paying share, for the third quarter of 2015
- Pre-tax DE of $255 million, or $0.64
per dividend paying share, for the first nine months of 2016,
compared to pre-tax DE of $261 million, or $0.58 per dividend
paying share, for the first nine months of 2015
- Net cash and investments of $1.1
billion, or $2.75 per dividend paying share, as of September 30,
2016
- $1.2 billion of gross embedded
incentive income across funds and permanent capital vehicles as of
September 30, 2016, that has not yet been recognized in DE
- Total uncalled capital, or “dry
powder,” of $7.0 billion as of September 30, 2016, including $4.2
billion available for general investment purposes
- Fortress’s principals, Peter Briger,
Wesley Edens and Randal Nardone, entered into new five-year
employment agreements, effective as of January 1, 2017
BUSINESS HIGHLIGHTS
- Raised $833 million of capital across
alternative investment businesses during the first nine months of
2016
- Investment performance summary as of
September 30, 2016:
- Private Equity fund valuations
increased 7.5% in the quarter
- Annualized inception-to-date net IRRs
for Credit Opportunities Fund (“FCO”), FCO II and FCO III of 23.5%,
16.1% and 9.8%, respectively
- Third quarter and year-to-date 2016 net
returns of 2.7% and 6.2%, respectively, for the Drawbridge Special
Opportunities Fund (“DBSO”) LP
- All 16 Logan Circle strategies
outperformed respective benchmarks in the third quarter
Note: This release contains certain Non-GAAP financial measures.
Fortress urges you to read the “Non-GAAP Information” section below
and to review the exhibits in this release for reconciliations of
these measures to the comparable GAAP measures.
“Fortress had a very solid third quarter, marked by substantial
incentive income from our Credit funds, significant valuation gains
in our Private Equity funds, and double-digit growth in the value
of our balance sheet,” said Fortress CEO Randal Nardone. “With high
levels of activity across our businesses, continued growth in
embedded value yet to be reflected in earnings, and ample dry
powder to invest, we are very optimistic in our outlook for the
full year and 2017.”
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 three months ended September
30, 2016. The condensed consolidated GAAP statement of operations
and balance sheet are presented on pages 12-13 of this press
release.
3Q 2Q 3Q % Change YTD
YTD % Change 2016 2016 2015 QoQ YoY 2016 2015
YoY (in millions, except per share amount)
GAAP Revenues $
261 $ 232 $ 264 13 % (1 )% $ 725 $ 799 (9 )% Expenses 225 238 224
(5 )% 0 % 670 811 (17 )% Other Income (loss) 30 (17 ) (62 ) N/A N/A
(27 ) 95 N/A Net income (loss)
58
(27 ) (26 ) N/A N/A 16 66 (76 )% Net income (loss) attributable to
Class A Shareholders 31 (14 ) (14 ) N/A
N/A 8 24 (66 )% Per diluted share $
0.07 $ (0.07 ) $ (0.07 ) N/A N/A $ 0.02 $ 0.09
(78 )% Weighted average Class A shares outstanding, diluted 390 217
216 390 222
Distributable Earnings Fund management DE
$ 88 $ 98 $ 67 (10 )% 31 % $ 249 $ 251 (1 )% Pre-tax DE 90
101 69 (11 )% 30 % 255
261 (2 )% Per dividend paying share/unit $ 0.23 $ 0.26
$ 0.15 (12 )% 53 % $ 0.64 $ 0.58 10 % Weighted
average dividend paying shares and units outstanding 394 394 454
396 453
Assets Under Management Private Equity and
Permanent Capital $ 13,917 $ 13,284 $ 16,091 5 % (14 )% $ 13,917 $
16,091 (14 )% Credit1 18,287 18,209 17,426 0 % 5 % 18,287 17,426 5
% Liquid Markets2 4,541 4,622 7,367 (2 )% (38 )% 4,541 7,367 (38 )%
Logan Circle 33,386 34,080 33,446
(2 )% 0 % 33,386 33,446 0 % Total
Assets Under Management $ 70,131 $ 70,195 $ 74,330 0
% (6 )% $ 70,131 $ 74,330 (6 )% 1 The Assets Under
Management presented for Credit includes $1,838 million of AUM
related to co-managed funds as of 3Q 2016. 2 The Assets Under
Management presented for Liquid Markets includes $4,240 million of
AUM related to the Affiliated Manager as of 3Q 2016.
GAAP RESULTS
Fortress recorded GAAP net income of $58 million, or $0.07 per
diluted Class A share, for the third quarter of 2016, compared to a
GAAP net loss of $26 million, or $(0.07) per diluted Class A share,
for the third quarter of 2015. Our diluted earnings per share
includes the income tax effects to net income (loss) attributable
to Class A shareholders from the assumed conversion of Fortress
Operating Group units to Class A shares in periods when the effect
is dilutive.
The year-over-year increase in Fortress’s third quarter 2016
GAAP net income was primarily driven by a $92 million increase
other income, partially offset by a $3 million decrease in revenues
and a $1 million increase in expenses.
Other income in the third quarter of 2016 totaled $30 million,
up from a loss of $62 million in the third quarter of 2015. The
year-over-year increase was principally related to a net increase
in earnings from equity method investees, primarily with respect to
our investments in the Private Equity Funds, Credit PE Funds and
Credit Hedge Funds, and net increases in the fair value of options
and common stock held in our Permanent Capital Vehicles.
The $3 million decrease in revenues was primarily attributable
to lower management fees and expense reimbursement, partially
offset by an increase in other revenues. The decrease in management
fees was primarily related to the closing of the Fortress Macro
Funds and related managed accounts during the fourth quarter of
2015 and lower management fees from certain of our Private Equity
Funds as a result of decreases in their average AUM. These
decreases were partially offset by an increase from the Credit PE
Funds as a result of an increase in average AUM, an increase
related to permanent capital vehicle options granted to Fortress
during the quarter and an increase related to the management of the
JP Funds which began in the first quarter of 2016. The decrease in
expense reimbursements was primarily related to a decrease in
operating expenses eligible for reimbursement from our funds,
primarily related to the closing of the Fortress Macro Funds and
related managed accounts.
The $1 million increase in expenses was primarily related to
higher compensation and benefits and interest expense, partially
offset by lower general, administrative and other expenses
(including depreciation and amortization).
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 September 30, 2016
Private Equity Credit Funds
Liquid Hedge Funds
Logan Circle Partners
(in millions)
Total Funds
Permanent Capital
Vehicles
Hedge Funds PE Funds Assets Under
Management3 $ 70,131 $ 7,071 $ 6,846 $ 8,804 $ 9,483 $
4,541 $ 33,386
Dry Powder $ 7,000 $ 597 $ - $ 333 $ 6,070
N/A N/A
Average Management Fee Rate4 1.2 % 1.5 % 2.0
% 1.3 % 1.2 % 0.2 %
Incentive Eligible NAV Above
Incentive Income Threshold5 $ 22,349 $ 1,870 $ 3,978 $
5,923 $ 10,484 $ - $ 94 Undistributed Incentive Income:
Unrecognized $ 1,193 $ 210 $ 26 $ 61 $ 894 $ 2 $ - Undistributed
Incentive Income: Recognized 65 -
- 65 - -
-
Undistributed Incentive Income6 $
1,258 $ 210 $ 26 $ 126 $ 894 $ 2
$ -
Three Months Ended September 30,
2016 Private Equity Credit Funds Liquid Hedge
Funds Logan Circle Partners (in millions)
Total
Funds Permanent Capital Vehicles Hedge Funds
PE Funds Third-Party Capital Raised $ 399 $ -
$ 279 $ - $ 120 $ - $ -
Segment Revenues Management
fees $ 136 $ 21 $ 28 $ 39 $ 32 $ 1 $ 15 Incentive income 113
- 10 44 59
- - Total 249 21 38 83 91 1 15
Segment Expenses Operating expenses (104 ) (8 ) (17 ) (25 )
(34 ) (7 ) (13 ) Profit sharing compensation expenses (50 )
- (5 ) (16 ) (29 ) -
- Total (154 ) (8 ) (22 ) (41 ) (63 ) (7 ) (13
)
Earnings From Affiliated Manager 3 - - - - 3 -
Principal Performance Payments (10 ) - (2 ) (8 ) - -
-
Fund
Management DE $ 88 $ 13 $ 14 $ 34 $
28 $ (3 ) $ 2 Net Investment Income7 2 - - 2 4
(2 ) -
Pre-tax
Distributable Earnings $ 90 $ 13 $ 14 $ 36
$ 32 $ (5 ) $ 2 3 The Assets
Under Management presented for the Credit Hedge Funds includes
$1,838 million related to co-managed funds and $821 million related
to the third party originated JP Funds and Value Recovery Funds.
The Assets Under Management presented for the Liquid Hedge Funds
includes $4,240 million related to the Affiliated Manager. 4 The
Average Management Fee Rate presented for the Credit Hedge Funds
excludes the co-managed funds and third-party originated JP Funds
and Value Recovery Funds (see footnote 3 above). The Average
Management Fee Rate presented for the Liquid Hedge Funds excludes
the Affiliated Manager. 5 The Incentive Eligible NAV Above
Incentive Income Threshold presented for Credit Hedge Funds
excludes co-managed funds, certain third party originated funds and
sidepocket investments and for Liquid Hedge Funds, excludes the
Affiliated Manager and sidepocket investments. The Incentive
Eligible NAV Above Incentive Income Threshold presented for Private
Equity Funds and Credit PE Funds (except for a certain FCO Managed
Account in its investment period and a portion of MSR Opportunities
Fund II A and Long Dated Value Fund I, whose capital was above the
incentive income threshold as of September 30, 2016), represents
total fund NAV. The Incentive Eligible NAV Above Incentive Income
Threshold presented for the Permanent Capital Vehicles represents
the equity basis that is used to calculate incentive income. 6
Undistributed Incentive Income - Recognized represents the results
of the main fund investments for the Credit Hedge Funds including
the impact of realized gains and losses and unrealized losses on
sidepocket investments. Undistributed Incentive Income -
Unrecognized represents the results of the Private Equity Funds,
Credit PE Funds and Liquid and Credit Hedge Fund sidepocket and
redeeming capital account (RCA) investments which have not been
recognized in Distributable Earnings and will be recognized when
realized. The Undistributed Incentive Income presented for the
Credit Hedge Funds excludes co-managed funds and certain third
party originated funds and for Liquid Hedge Funds, excludes the
Affiliated Manager. Undistributed Incentive Income for Credit PE
Funds includes $16 million of unrealized losses that would have
reduced Distributable Earnings if Fortress had settled Japanese Yen
foreign exchange derivative contracts used to economically hedge
estimated future incentive income it had outstanding as of
September 30, 2016. Undistributed Incentive Income for Permanent
Capital Vehicles includes incentive income that would have been
recorded in Distributable Earnings if Fortress had (i) exercised
all of its in-the-money options it holds in the Permanent Capital
Vehicles and sold all of the resulting shares and (ii) sold all of
its Permanent Capital Vehicle common shares which it received as
incentive income, based on their September 30, 2016 closing price.
7 Net Investment Income includes
Unallocated Expenses of $2 million.
Pre-tax DE was $90 million in the third quarter of 2016, up 30%
from $69 million in the third quarter of 2015, primarily due to
higher incentive income and lower operating expenses, partially
offset by lower management fees and higher profit sharing
compensation expenses.
Management fees were $136 million in the third quarter of 2016,
down from $151 million in the third quarter of 2015. The decrease
was primarily due to lower management fees from the Liquid Hedge
Funds and Private Equity Funds, partially offset by higher
management fees from the Credit PE Funds, Credit Hedge Funds,
Permanent Capital Vehicles and Logan Circle.
Incentive income in the third quarter of 2016 totaled $113
million, up from $70 million in the third quarter of 2015. The
year-over-year increase was primarily due to higher incentive
income from the Credit Hedge Funds and Permanent Capital Vehicles,
partially offset by lower incentive income from the Credit PE
Funds.
Earnings from Affiliated Manager totaled $3 million in the third
quarter of 2016, up from $2 million in the third quarter of
2015.
Additionally, Fortress had $1.2 billion in gross undistributed,
unrecognized incentive income based on investment valuations as of
September 30, 2016. This includes nearly $1.2 billion from our
funds and $26 million from options and common shares in our
permanent capital vehicles.
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 September 30, 2016, AUM totaled $70.1 billion, down
slightly compared to the previous quarter. As of September 30,
2016, approximately 87% of alternative AUM was in funds with
long-term investment structures.
During the quarter, Fortress’s AUM decreased primarily due to
(i) $1.5 billion net client outflows for Logan Circle, (ii) $0.4
billion of capital distributions to investors, (iii) $0.2 billion
of Liquid Hedge Fund redemptions, (iv) $0.1 billion in
distributions to investors in redeeming capital accounts, and (v) a
$0.1 billion net decrease in AUM of the Affiliated Manager and
co-managed funds. These decreases to AUM were partially offset by
(i) $1.5 billion of net market-driven valuation gains, (ii) $0.4
billion of equity and capital raised that was directly added to
AUM, and (iii) a $0.3 billion increase in invested capital.
As of September 30, 2016, the Credit Funds and Private Equity
Funds had $6.4 billion and $0.6 billion of uncalled capital,
respectively, that will become AUM if called. Uncalled capital or
dry powder – capital committed to the funds but not invested and
generating management fees – includes $2.8 billion that is only
available for follow-on investments, management fees and other fund
expenses.
BUSINESS SEGMENT RESULTS
Below is a discussion of third quarter 2016 segment results and
business highlights.
Credit:
- DBSO LP net returns for the third
quarter and YTD 2016 of 2.7% and 6.2%, respectively
- FCO, FCO II, FCO III, FJOF and FJOF
II (Yen) recorded annualized inception-to-date net IRRs of 23.5%,
16.1%, 9.8%, 32.6% and 28.2%, respectively, through September 30,
2016
- Recorded $103 million of gross
incentive income in the quarter and a record $281 million of gross
incentive income year-to-date through September 30, 2016
- $955 million of gross embedded
incentive income that has not yet been recognized in DE
(See supplemental data on pages 19-20 for more detail on Credit
results)
The Credit business, which includes our Credit PE Funds and
Credit Hedge Funds, generated pre-tax DE of $68 million in the
third quarter of 2016, up from $51 million in the third quarter of
2015. The year-over-year increase in DE was primarily driven by
higher incentive income and management fees, partially offset by
higher operating and profit sharing expenses.
The Credit Hedge Funds generated pre-tax DE of $36 million for
the quarter, up from $13 million in the third quarter of 2015,
primarily due to higher incentive income. Fortress’s flagship
credit hedge fund, DBSO LP, had net returns of 2.7% for the quarter
and annualized inception to date net returns of 10.7% as of
September 30, 2016.
The Credit PE Funds generated pre-tax DE of $32 million in the
quarter, down from $38 million in the third quarter of 2015, as
higher management fees were offset by lower incentive income. Over
the last twelve months, the Credit PE Funds have recognized $287
million of gross incentive income, while gross unrecognized Credit
PE incentive income has increased $76 million year-over-year to
$894 million as of September 30, 2016.
As of quarter end, the Credit business had $16.4 billion of
incentive eligible NAV above incentive income thresholds, including
$10.5 billion in the Credit PE Funds and $5.9 billion in the Credit
Hedge Funds.
Private Equity and Permanent Capital Vehicles:
- Total PE and PCV AUM up 5%
quarter-over-quarter to $13.9 billion
- PE Fund valuations increased 7.5%
for the quarter
- Raised $279 million of equity for
New Residential that was directly added to AUM in the
quarter
- Gross unrecognized incentive income
of $236 million at quarter end, including $210 million in the PE
Funds
(See supplemental data on pages 17-18 for more detail on Private
Equity results)
The Private Equity business recorded pre-tax DE of $27 million
in the third quarter of 2016, including $14 million for the
Permanent Capital Vehicles and $13 million for the Private Equity
Funds, up from $24 million in the third quarter of 2015. The
year-over-year increase was primarily driven by higher incentive
income for the Permanent Capital Vehicles, partially offset by
lower management fees for the Private Equity Funds.
During the quarter, the Permanent Capital Vehicles generated $10
million of incentive income, including contributions from New
Residential Investment Corp. (NYSE: NRZ), Eurocastle Investment
Limited (Euronext Amsterdam: ECT) and New Media Investment Group
Inc. (NYSE: NEWM).
Private Equity Fund valuations increased 7.5% in the third
quarter, primarily due to share price appreciation of our two
largest public company holdings, OneMain Holdings, Inc. (NYSE: OMF)
and Nationstar Mortgage Holdings Inc. (NYSE: NSM). Gross
unrecognized PE fund incentive income totaled $210 million at
quarter end, up from $26 million in the third quarter of 2015.
Incentive eligible NAV above incentive income thresholds totaled
$5.9 billion at quarter end, including $4.0 billion for the
Permanent Capital Vehicles and $1.9 billion for the PE Funds.
Liquid Hedge Funds:
- Closed the Fortress Centaurus Global
Funds during the quarter
- Earnings from Affiliated Manager
totaled $3 million in the quarter
(See supplemental data on page 21 for more detail on Liquid
Hedge Funds results)
The Liquid Hedge Funds recorded a pre-tax DE loss of $5 million
in the third quarter of 2016, down slightly compared to the third
quarter of 2015. The year-over-year decrease was primarily due to
lower management fees, partially offset by lower operating expenses
and higher earnings from the Affiliated Manager.
During the quarter, Fortress closed the Centaurus Global Funds,
which had $182 million in AUM as of June 30, 2016. The Centaurus
Global Funds generated a pre-tax DE loss of $6 million in the
quarter and a pre-tax DE loss of $14 million year-to-date through
September 30, 2016.
The Liquid Hedge Funds had $4.5 billion of AUM at quarter end,
including $4.2 billion related to the Affiliated Manager.
Logan Circle:
- In the third quarter and first nine
months of 2016, all 16 Logan Circle strategies generated positive
net returns and outperformed their respective benchmarks
- Strong investment performance
contributed to $0.8 billion of market-driven valuation gains in the
quarter
(See supplemental data on page 22 for more detail on Logan
Circle results)
Logan Circle, our traditional asset management business,
recorded pre-tax DE of $2 million for the third quarter of 2016, up
from breakeven pre-tax DE for the third quarter of 2015, primarily
due to higher management fee revenue.
Logan Circle ended the quarter with $33.4 billion in AUM, down
slightly compared to the previous quarter, primarily due to $1.5
billion of net outflows, partially offset by $0.8 billion of
market-driven valuation gains.
For the quarter ended September 30, 2016, all 16 Logan Circle
fixed income strategies outperformed their respective benchmarks.
Since inception, 15 of 16 Logan Circle fixed income strategies have
outperformed their respective benchmarks and eight were ranked in
the top quartile of performance for their competitor universe.
LIQUIDITY & CAPITAL
As of September 30, 2016, Fortress had cash and cash equivalents
of $351 million and debt obligations of $183 million.
During the quarter, Fortress prepaid $77.8 million of principal
that was originally due in November 2016, which represented
approximately one half of the outstanding debt balance from a
promissory note issued to a former principal in November 2015.
As of September 30, 2016, Fortress had approximately $1.0
billion of investments in Fortress funds and options in publicly
traded permanent capital vehicles and a total of $148 million in
outstanding commitments to its funds. In addition, the NAV of
Fortress’s investments in its own funds exceeded its segment cost
basis by $475 million at quarter end, representing net unrealized
gains that have not yet been recognized for segment reporting
purposes.
PRINCIPALS’ EMPLOYMENT AGREEMENT AND PRINCIPAL COMPENSATION
PLAN
Subsequent to quarter end, each of the Fortress Principals
executed new employment agreements with the Company. These
agreements create new five-year employment terms running from
January 1, 2017 through December 31, 2021, and are on the same
economic and other terms as the current employment agreements. The
term of the Principals’ current employment agreements expires on
December 31, 2016. The Fortress Board of Directors also approved
certain amendments to the Principal Compensation Plan that (i)
removes the vesting requirement for future issuances of equity
under the plan, which means that any future equity payments to
Principals will be made in the form of Class A shares rather than
RSUs, and (ii) provides that all awards relating to 2017 and after
will be based on 20% of fund management distributable earnings
regardless of whether a Principal sponsors a fund or is the named
Chief Investment Officer of the fund.
DIVIDEND
Fortress’s Board of Directors declared a cash dividend of $0.09
per dividend paying share. The dividend is payable on November 18,
2016 to Class A shareholders of record as of the close of business
on November 14, 2016.
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.
NON-GAAP INFORMATION
DE is a supplemental metric used by management to measure
Fortress’s operating performance. DE is a 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, November
3rd at 10:00 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 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 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
“90501237.”
ABOUT FORTRESS
Fortress Investment Group LLC (NYSE: FIG) is a leading, highly
diversified global investment management firm with $70.1 billion in
assets under management as of September 30, 2016. 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 over 1,750
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.
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. Such differences or other changes to
forward-looking statements 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 November 2016 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) $0.0015 Income Not from
U.S. Sources (4) $0.0000 Return of Capital $0.0435 Distribution Per
Share $0.0900 (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.
Fortress Investment Group
LLCCondensed Consolidated Statements of Operations
(Unaudited)(dollars in thousands, except per share data)
Three Months Ended September 30,
Nine Months Ended September 30, 2016
2015 2016 2015 Revenues
Management fees: affiliates $ 123,491 $ 134,414 $ 377,269 $ 413,057
Management fees: non-affiliates 14,455 15,400 42,066 45,657
Incentive income: affiliates 17,396 48,773 71,334 155,154 Incentive
income: non-affiliates 31,000 439 40,862 735 Expense
reimbursements: affiliates 54,602 59,988 166,041 168,544 Expense
reimbursements: non-affiliates 1,258 2,757 4,064 9,573 Other
revenues 18,943 2,248 23,832
6,476
Total Revenues 261,145
264,019 725,468 799,196
Expenses Compensation and benefits 184,159
169,027 539,643 547,023 General, administrative and other 33,046
37,887 104,942 126,053 Depreciation and amortization 5,275 16,102
17,362 34,201 Interest expense 2,643 918 8,662 2,796 Transfer of
interest in Graticule - - -
101,000
Total Expenses 225,123
223,934 670,609 811,073
Other Income (Loss) Gains (losses) 1,862
(39,888 ) (22,077 ) (15,114 ) Tax receivable agreement liability
adjustment - (390 ) (2,699 ) (7,890 ) Earnings (losses) from equity
method investees 27,467 (22,195 ) (2,420 ) (16,808 ) Gain on
transfer of Graticule - - -
134,400
Total Other Income (Loss)
29,329 (62,473 ) (27,196 )
94,588
Income (Loss) Before Income Taxes
65,351 (22,388 ) 27,663 82,711 Income tax benefit (expense)
(7,008 ) (3,584 ) (11,863 ) (16,784 )
Net
Income (Loss) $ 58,343 $ (25,972 ) $ 15,800 $
65,927
Allocation of Net Income (Loss) Principals'
and Others' Interests in Income (Loss) of Consolidated Subsidiaries
27,181 (11,727 ) 7,609 42,149 Redeemable Non-Controlling Interests
in Income (Loss) of Consolidated Subsidiaries - - - (6 ) Net Income
(Loss) Attributable to Class A Shareholders 31,162
(14,245 ) 8,191 23,784 $ 58,343
$ (25,972 ) $ 15,800 $ 65,927
Earnings (Loss) Per
Class A Share
Net income (loss) per Class A share, basic $ 0.14 $ (0.07 )
$ 0.03 $ 0.10 Net income (loss) per Class A share,
diluted $ 0.07 $ (0.07 ) $ 0.02 $ 0.09
Weighted average number of Class A shares outstanding, basic
216,913,032 216,439,077 218,160,131
216,138,405 Weighted average number of Class A
shares outstanding, diluted 390,293,844
216,439,077 390,240,731 222,213,743
Fortress Investment Group
LLCCondensed Consolidated Balance Sheets(dollars in
thousands)
September 30, 2016
(Unaudited)
December 31, 2015 Assets Cash and cash
equivalents $ 350,712 $ 339,842 Due from affiliates 189,461 273,811
Investments 918,526 1,055,789 Investments in options 42,554 30,427
Deferred tax asset, net 422,237 427,102 Other assets 134,425
148,310
Total Assets $ 2,057,915
$ 2,275,281
Liabilities and Equity
Liabilities Accrued compensation and benefits $ 260,212 $
318,750 Due to affiliates 360,301 365,218 Deferred incentive income
388,874 332,329 Debt obligations payable 182,838 230,677 Other
liabilities 107,603 86,503
Total
Liabilities 1,299,828 1,333,477
Commitments and Contingencies Redeemable
Non-controlling Interests - -
Equity Class A
shares, no par value, 1,000,000,000 shares authorized, 216,839,627
and 216,790,409 shares issued and outstanding at September 30, 2016
and December 31, 2015, respectively - - Class B shares, no par
value, 750,000,000 shares authorized, 169,207,335 and 169,514,478
shares issued and outstanding at September 30, 2016 - - and
December 31, 2015, respectively Paid-in capital 1,915,578 1,988,707
Retained earnings (accumulated deficit) (1,420,079 ) (1,415,113 )
Accumulated other comprehensive income (loss) (4,652 )
(2,909 ) Total Fortress shareholders' equity 490,847
570,685 Principals' and others' interests in equity of consolidated
subsidiaries 267,240 371,119
Total
Equity 758,087 941,804 $ 2,057,915
$ 2,275,281
Fortress Investment Group
LLCExhibit 1-aSupplemental Data for the Three Months
Ended September 30, 2016 and 2015
Three Months Ended September 30,
2016 Private Equity Credit Funds
Liquid Hedge Funds
Logan Circle
(in millions)
Total Funds
Permanent Capital
Vehicles
Hedge Funds PE Funds Assets Under
Management AUM - July 1, 2016 $ 70,195 $ 6,640 $ 6,644 $
8,966 $ 9,243 $ 4,622 $ 34,080 Capital raised 120 - - - 120 - -
Equity raised (Permanent Capital Vehicles) 279 - 279 - - - -
Increase in invested capital 335 1 - - 334 - - Redemptions (209 ) -
- (1 ) - (208 ) - RCA distributions8 (141 ) - - (141 ) - - - Return
of capital distributions (408 ) (115 ) (45 ) - (248 ) - -
Crystallized Incentive Income (6 ) - - (6 ) - - - Change in AUM of
Affiliated Manager and co-managed funds (113 ) - - (240 ) - 127 -
Net Client Flows (1,453 ) - - - - - (1,453 ) Income (loss) and
foreign exchange 1,532 545 (32 )
226 34 - 759
AUM - Ending Balance $ 70,131 $ 7,071 $ 6,846 $ 8,804
$ 9,483 $ 4,541 $ 33,386
Third-Party Capital Raised $
399 $ - $ 279 $ - $ 120 $ -
$ -
Segment Revenues Management fees $
136 $ 21 $ 28 $ 39 $ 32 $ 1 $ 15 Incentive income 113
- 10 44 59
- - Total 249 21 38 83 91 1 15
Segment Expenses Operating expenses (104 ) (8 ) (17 ) (25 )
(34 ) (7 ) (13 ) Profit sharing compensation expenses (50 )
- (5 ) (16 ) (29 ) -
- Total (154 ) (8 ) (22 ) (41 ) (63 ) (7 ) (13
)
Earnings From Affiliated Manager 3 - - - - 3 -
Fund Management
DE (before Principal Performance Payments) 98
13 16 42 28
(3 ) 2 Principal Performance Payments
(10 ) - (2 ) (8 ) - - -
Fund Management DE 88 13
14 34 28 (3 )
2 Investment Income 4 - - 2 4 (2 ) -
Unallocated Expenses (2 )
Pre-tax Distributable Earnings $ 90 $ 13
$ 14 $ 36 $ 32 $ (5 ) $ 2
Pre-tax Distributable Earnings per Dividend Paying Share $
0.23
Three Months Ended
September 30, 2015 Private Equity
Credit Funds
Liquid Hedge Funds
Logan Circle (in millions)
Total Funds
Permanent Capital
Vehicles
Hedge Funds PE Funds Assets Under
Management AUM - July 1, 2015 $ 71,967 $ 9,587 $ 6,948 $
6,244 $ 8,247 $ 7,377 $ 33,564 Capital raised 201 - - - 153 48 -
Equity raised (Permanent Capital Vehicles) - - - - - - - Increase
in invested capital 641 11 - 25 605 - - Redemptions (669 ) - - (212
) - (457 ) - RCA distributions8 (22 ) - - (22 ) - - - Return of
capital distributions (862 ) (134 ) (11 ) - (617 ) (100 ) -
Crystallized Incentive Income (2 ) - - (2 ) - - - Change in AUM of
Affiliated Manager and co-managed funds 3,579 - - 3,018 - 561 - Net
Client Flows 101 - - - - - 101 Income (loss) and foreign exchange
(604 ) (269 ) (41 ) 19
(32 ) (62 ) (219 )
AUM - Ending Balance $
74,330 $ 9,195 $ 6,896 $ 9,070 $ 8,356 $ 7,367 $ 33,446
Third-Party Capital Raised $ 204 $ - $ -
$ - $ 156 $ 48 $ -
Segment Revenues Management fees $ 151 $ 29 $ 27 $ 37 $ 29 $
16 $ 13 Incentive income 70 - (1
) 1 70 - -
Total 221 29 26 38 99 16 13
Segment Expenses
Operating expenses (112 ) (13 ) (16 ) (21 ) (29 ) (20 ) (13 )
Profit sharing compensation expenses (37 ) -
1 (1 ) (36 ) (1 ) -
Total (149 ) (13 ) (15 ) (22 ) (65 ) (21 ) (13 )
Earnings From Affiliated Manager 2 - - - - 2 -
Fund Management DE (before
Principal Performance Payments) 74 16
11 16 34 (3
) - Principal Performance Payments (7 ) - (3 )
(3 ) (1 ) - -
Fund Management DE 67 16
8 13 33 (3 ) -
Investment Income 4 - - - 5 (1 ) - Unallocated
Expenses (2 )
Pre-tax Distributable Earnings $ 69 $ 16 $ 8
$ 13 $ 38 $ (4 ) $ -
Pre-tax
Distributable Earnings per Dividend Paying Share $ 0.15
8 Represents distributions from (i) assets held by redeeming
capital accounts in the Drawbridge Special Opportunities Funds, and
(ii) the Value Recovery Funds.
Fortress Investment Group
LLCExhibit 1-aSupplemental Data for the Nine Months
Ended September 30, 2016 and 2015
Nine Months Ended September 30,
2016 Private Equity Credit Funds
Liquid Hedge Funds
Logan Circle (in millions)
Total Funds
Permanent Capital
Vehicles
Hedge Funds PE Funds Assets Under
Management AUM - January 1, 2016 $ 70,501 $ 8,991 $
6,816 $ 8,799 $ 9,308 $ 5,409 $ 31,178 Capital raised 523 - - 268
176 79 - Equity raised (Permanent Capital Vehicles) 279 - 279 - - -
- Increase in invested capital 765 19 - 66 680 - - Capital
acquisitions 682 - - 682 - - - Redemptions (532 ) - - (65 ) - (467
) - RCA distributions9 (314 ) - - (314 ) - - - Return of capital
distributions (1,834 ) (717 ) (105 ) (4 ) (979 ) (29 ) - Adjustment
for capital reset (650 ) (650 ) - - - - - Crystallized Incentive
Income (63 ) - - (63 ) - - - Equity buyback (125 ) - (125 ) - - - -
Change in AUM of Affiliated Manager and co-managed funds (1,271 ) -
- (1,015 ) - (256 ) - Divested Businesses (177 ) - - - - (177 ) -
Net Client Flows (1,174 ) - - - - - (1,174 ) Income (loss) and
foreign exchange 3,521 (572 ) (19 )
450 298 (18 ) 3,382
AUM - Ending Balance $ 70,131 $ 7,071 $ 6,846 $ 8,804
$ 9,483 $ 4,541 $ 33,386
Third-Party Capital Raised $
833 $ - $ 279 $ 299 $ 176 $ 79
$ -
Segment Revenues Management fees $ 418 $
73 $ 82 $ 113 $ 94 $ 13 $ 43 Incentive income 308
- 26 84 197
1 - Total 726 73 108 197 291 14 43
Segment Expenses Operating expenses (319 ) (28 ) (54
) (80 ) (95 ) (23 ) (39 ) Profit sharing compensation expenses
(139 ) - (9 ) (30 ) (99 )
(1 ) - Total (458 ) (28 ) (63 ) (110 ) (194 )
(24 ) (39 )
Earnings From Affiliated Manager 5 - - -
- 5 -
Fund
Management DE (before Principal Performance Payments)
273 45 45 87
97 (5 ) 4 Principal
Performance Payments (24 ) - (6 ) (14 ) (4 ) - -
Fund Management DE
249 45 39 73
93 (5 ) 4 Investment
Income 15 (1 ) 2 3 14 (4 ) 1 Unallocated Expenses (9 )
Pre-tax Distributable
Earnings $ 255 $ 44 $ 41 $ 76 $ 107
$ (9 ) $ 5
Pre-tax Distributable Earnings per
Dividend Paying Share $ 0.64
Nine Months Ended September 30, 2015
Private Equity Credit Funds
Liquid Hedge Funds
Logan Circle (in millions)
Total Funds
Permanent Capital
Vehicles
Hedge Funds PE Funds Assets Under Management
AUM - January 1, 2015 $ 67,531 $ 9,366 $ 4,567 $ 6,173 $
6,955 $ 8,128 $ 32,342 Capital raised 1,371 - - 254 812 305 -
Equity raised (Permanent Capital Vehicles) 2,441 - 2,441 - - - -
Increase in invested capital 2,155 192 287 46 1,630 - - Redemptions
(1,829 ) - - (264 ) - (1,565 ) - RCA distributions9 (288 ) - - (288
) - - - Return of capital distributions (1,732 ) (412 ) (110 ) (31
) (1,017 ) (162 ) - Adjustment for capital reset (168 ) - (168 ) -
- - - Crystallized Incentive Income (118 ) - - (118 ) - - - Change
in AUM of Affiliated Manager and co-managed funds 3,967 - - 3,018 -
949 - Net Client Flows 1,746 - - - - - 1,746 Income (loss) and
foreign exchange (746 ) 49 (121 )
280 (24 ) (288 ) (642 )
AUM -
Ending Balance $ 74,330 $ 9,195 $ 6,896 $ 9,070 $ 8,356 $ 7,367
$ 33,446
Third-Party Capital Raised $ 8,777 $
- $ 2,441 $ 254 $ 5,777 $ 305 $
-
Segment Revenues Management fees $ 434 $ 87
$ 69 $ 96 $ 86 $ 56 $ 40 Incentive income 304
- 76 74 154
- - Total 738 87 145 170 240 56 40
Segment Expenses Operating expenses (348 ) (42 ) (50 ) (58 )
(89 ) (68 ) (41 ) Profit sharing compensation expenses (121
) - (8 ) (31 ) (80 ) (2 )
- Total (469 ) (42 ) (58 ) (89 ) (169 ) (70 ) (41 )
Earnings From Affiliated Manager 10 - - - - 10 -
Fund Management
DE (before Principal Performance Payments) 279
45 87 81 71
(4 ) (1 ) Principal Performance Payments (28 )
- (14 ) (11 ) (3 ) - -
Fund Management DE 251 45
73 70 68 (4 )
(1 ) Investment Income 14 - 1 1 9 3 - Unallocated
Expenses (4 )
Pre-tax Distributable Earnings $ 261 $ 45 $ 74
$ 71 $ 77 $ (1 ) $ (1 )
Pre-tax
Distributable Earnings per Dividend Paying Share $ 0.58
9 Represents distributions from (i) assets held by redeeming
capital accounts in the Drawbridge Special Opportunities Funds, and
(ii) the Value Recovery Funds.
Fortress Investment Group
LLCExhibit 2-aAssets Under Management and Fund
Management DE (dollars in millions)
Three Months Ended
Full Year
2015
Three Months Ended
Nine Months Ended September
30, 2016
Fortress March 31,
2015
June 30,
2015
September 30,
2015
December 31,
2015
March 31,
2016
June 30,
2016
September 30,
2016
Assets Under Management Private Equity Funds $ 10,179 $
9,587 $ 9,195 $ 8,991 $ 8,991 $ 7,179 $ 6,640 $ 7,071 $ 7,071
Permanent Capital Vehicles 4,622 6,948 6,896 6,816 6,816 6,773
6,644 6,846 6,846 Credit Hedge Funds10 6,271 6,244 9,070 8,799
8,799 9,336 8,966 8,804 8,804 Credit Private Equity Funds 7,563
8,247 8,356 9,308 9,308 9,353 9,243 9,483 9,483 Liquid Hedge
Funds11 7,838 7,377 7,367 5,409 5,409 5,195 4,622 4,541 4,541 Logan
Circle 33,416 33,564 33,446
31,178 31,178 32,801
34,080 33,386 33,386
AUM - Ending Balance $ 69,889 $ 71,967
$ 74,330 $ 70,501 $ 70,501 $ 70,637 $
70,195 $ 70,131 $ 70,131
Third-Party
Capital Raised $ 5,360 $ 3,213 $ 204 $ 215
$ 8,992 $ 348 $ 86 $ 399 $ 833
Segment Revenues Management fees $ 139 $ 144 $
151 $ 148 $ 582 $ 141 $ 141 $ 136 $ 418 Incentive income 51
183 70 132
436 64 131 113
308
Total
190 327 221 280 1,018 205 272 249 726
Segment
Expenses Operating expenses (115 ) (121 ) (112 ) (105 ) (453 )
(109 ) (106 ) (104 ) (319 ) Profit sharing compensation expenses
(30 ) (54 ) (37 ) (47 ) (168 )
(31 ) (58 ) (50 ) (139 ) Total (145 )
(175 ) (149 ) (152 ) (621 ) (140 ) (164 ) (154 ) (458 )
Earnings From Affiliated Manager 9 (1 ) 2 (1 ) 9 1 1 3 5
Fund Management DE (before Principal Performance Payments)
54 151 74 127
406 66 109
98 273 Principal Performance Payments
(3 ) (18 ) (7 ) (14 ) (42 ) (3 ) (11 ) (10 ) (24 )
Fund Management
DE $ 51 $ 133 $ 67 $ 113 $ 364
$ 63 $ 98 $ 88 $ 249 Net
Investment Income 4 4 2 17 27 1 3 2 6
Pre-tax Distributable
Earnings $ 55 $ 137 $ 69 $ 130 $
391 $ 64 $ 101 $ 90 $ 255
10 The Assets Under Management presented for the Credit Hedge Funds
includes $1,838 million related to co-managed funds as of 3Q 2016.
11 The Assets Under Management presented for the Liquid Hedge Funds
includes $4,240 million related to the Affiliated Manager as of 3Q
2016.
Fortress Investment Group LLCExhibit
2-bAssets Under Management and Fund Management DE (dollars
in millions)
Three Months Ended
Full Year
2015
Three Months Ended
Nine Months Ended September
30, 2016
Private Equity Funds March 31,
2015
June 30,
2015
September 30,
2015
December 31,
2015
March 31,
2016
June 30,
2016
September 30,
2016
Assets Under Management Main Funds12 $ 7,726 $ 7,128
$ 6,874 $ 6,530 $ 6,530 $ 4,907 $ 4,479 $ 4,980 $ 4,980
Coinvestment Funds13 1,994 1,902 1,785 1,729 1,729 1,552 1,463
1,412 1,412 MSR Opportunities Funds14 336 417 388 360 360 333 309
285 285 Italian NPL Opportunities Fund 19 20 20 225 225 231 225 228
228 Fortress Equity Partners 104 120
128 147 147 156
164 166 166
AUM
- Ending Balance $ 10,179 $ 9,587 $ 9,195
$ 8,991 $ 8,991 $ 7,179 $ 6,640 $ 7,071
$ 7,071
Third-Party Capital Raised $ -
$ - $ - $ - $ - $ - $ -
$ - $ -
Segment Revenues
Management fees $ 29 $ 29 $ 29 $ 29 $ 116 $ 26 $ 26 $ 21 $ 73
Incentive income - - -
- - - -
- - Total 29 29 29 29 116 26 26 21 73
Segment Expenses Operating expenses (14 ) (15 ) (13 )
(3 ) (45 ) (10 ) (10 ) (8 ) (28 ) Profit sharing compensation
expenses - - - 1
1 - - -
- Total (14 ) (15 ) (13 ) (2 ) (44 ) (10 ) (10
) (8 ) (28 )
Fund Management DE (before Principal Performance
Payments) 15 14 16
27 72 16 16
13 45 Principal Performance
Payments - - - - - - - - -
Fund Management DE $ 15 $
14 $ 16 $ 27 $ 72 $ 16 $ 16
$ 13 $ 45 Net Investment Income - - - -
- (2 ) 1 - (1 )
Pre-tax Distributable Earnings $ 15 $
14 $ 16 $ 27 $ 72 $ 14 $ 17
$ 13 $ 44 12 Combined AUM for Fund III,
Fund IV and Fund V. Effective January 1, 2016, Fortress no longer
earns management fees from Fund III. Fund III has passed its
contractual maturity date and is in the process of an orderly wind
down. 13 Combined AUM for Fund III Coinvestment, Fund IV
Coinvestment, Fund V Coinvestment, FHIF and FECI. Effective January
1, 2016, Fortress no longer earns management fees from Fund III
Coinvestment. Fund III Coinvestment has passed its contractual
maturity date and is in the process of an orderly wind down. 14
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.
Fortress Investment Group
LLCExhibit 2-cAssets Under Management and Fund
Management DE (dollars in millions)
Three Months Ended
Full Year
2015
Three Months Ended
Nine Months Ended September
30, 2016
Permanent Capital Vehicles March 31,
2015
June 30,
2015
September 30,
2015
December 31,
2015
March 31,
2016
June 30,
2016
September 30,
2016
Assets Under Management Newcastle Investment Corp. $
680 $ 680 $ 680 $ 680 $ 680 $ 680 $ 680 $ 680 $ 680 New Residential
Investment Corp. 1,367 2,725 2,689 2,689 2,689 2,689 2,689 2,948
2,948 Eurocastle Investment Limited 432 626 605 567 567 608 510 486
486 New Media Investment Group Inc. 637 637 637 637 637 637 637 637
637 New Senior Investment Group Inc. 813 1,089 1,089 1,076 1,076
1,024 1,024 1,024 1,024 Fortress Transportation and Infrastructure
Investors LLC15 693 1,191 1,196
1,167 1,167 1,135
1,104 1,071 1,071
AUM
- Ending Balance $ 4,622 $ 6,948 $ 6,896 $
6,816 $ 6,816 $ 6,773 $ 6,644 $ 6,846
$ 6,846
Third-Party Capital Raised $
150 $ 2,291 $ - $ - $ 2,441 $ -
$ - $ 279 $ 279
Segment
Revenues Management fees $ 19 $ 23 $ 27 $ 27 $ 96 $ 27 $ 27 $
28 $ 82 Incentive income 3 74 (1
) 30 106 2 14
10 26 Total 22 97 26 57 202 29
41 38 108
Segment Expenses Operating expenses (18 )
(16 ) (16 ) (19 ) (69 ) (19 ) (18 ) (17 ) (54 ) Profit sharing
compensation expenses - (9 ) 1
(3 ) (11 ) (1 ) (3 ) (5 )
(9 ) Total (18 ) (25 ) (15 ) (22 ) (80 ) (20 ) (21 ) (22 ) (63 )
Fund Management DE (before Principal Performance Payments)
4 72 11 35
122 9 20 16
45 Principal Performance Payments - (11 ) (3 )
(5 ) (19 ) (1 ) (3 ) (2 ) (6 )
Fund Management DE $ 4 $
61 $ 8 $ 30 $ 103 $ 8 $ 17
$ 14 $ 39 Net Investment Income - 1 - 1
2 1 1 - 2
Pre-tax Distributable Earnings $ 4 $ 62
$ 8 $ 31 $ 105 $ 9 $ 18 $ 14
$ 41 15 All of the capital of Worldwide
Transportation and Infrastructure Investors ("WWTAI"), a private
fund formerly managed by Fortress, was contributed to FTAI which
completed its initial public offering in 2Q 2015.
Fortress Investment Group
LLCExhibit 2-dAssets Under Management and Fund
Management DE(dollars in millions)
Three Months Ended
Full Year
2015
Three Months Ended
Nine Months Ended September
30, 2016
Credit Hedge Funds March 31,
2015
June 30,
2015
September 30,
2015
December 31,
2015
March 31,
2016
June 30,
2016
September 30,
2016
Assets Under Management Drawbridge Special
Opportunities Funds16 $ 6,023 $ 6,021 $ 5,808 $ 5,756 $ 5,756 $
5,816 $ 5,928 $ 6,019 $ 6,019 Third Party Originated Funds17 189
156 150 102 102 815 837 821 821 Japan Income Fund 59 67 94 88 88
116 123 125 125 Co-Managed Funds18 - -
3,018 2,853 2,853
2,589 2,078 1,838 1,838
AUM - Ending Balance $ 6,271 $ 6,244 $
9,070 $ 8,799 $ 8,799 $ 9,336 $ 8,966
$ 8,804 $ 8,804
Third-Party Capital
Raised $ 175 $ 79 $ - $ 21 $ 275
$ 272 $ 27 $ - $ 299
Segment Revenues Management fees $ 30 $ 29 $ 37 $ 38 $ 134 $
37 $ 37 $ 39 $ 113 Incentive income 23 50
1 11 85 7
33 44 84 Total 53
79 38 49 219 44 70 83 197
Segment Expenses Operating
expenses (18 ) (19 ) (21 ) (27 ) (85 ) (26 ) (29 ) (25 ) (80 )
Profit sharing compensation expenses (12 ) (18 )
(1 ) (5 ) (36 ) (3 ) (11 )
(16 ) (30 ) Total (30 ) (37 ) (22 ) (32 ) (121 ) (29
) (40 ) (41 ) (110 )
Fund Management DE (before Principal
Performance Payments) 23 42
16 17 98 15
30 42 87 Principal
Performance Payments (2 ) (6 ) (3 ) (4 ) (15 ) (1 ) (5 ) (8 ) (14 )
Fund Management DE $ 21 $ 36 $ 13 $ 13
$ 83 $ 14 $ 25 $ 34 $ 73
Net Investment Income 1 - - 1 2 - 1 2 3
Pre-tax Distributable
Earnings $ 22 $ 36 $ 13 $ 14 $ 85
$ 14 $ 26 $ 36 $ 76
Net
Returns19
Drawbridge Special Opportunities Fund LP 2.2 % 2.3 % 0.3 % 0.9 %
5.8 % 0.6 % 2.8 % 2.7 % 6.2 % Drawbridge Special Opportunities Fund
Ltd 1.1 % 0.4 % (0.8 %) 0.0 % 0.6 % (1.3 %) 1.5 % 3.1 % 3.3 %
16 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. Worden Fund II LP was closed in 1Q 2016.
17 Combined AUM for the third party
originated JP Funds and third party originated Value Recovery
Funds. Fortress began managing the JP Funds in 1Q 2016.
18 Combined AUM for the Mount Kellett
investment funds and related accounts. In 3Q 2015, Fortress became
co-manager of the Mount Kellett Funds.
19 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, December 31, 2014 and December 31,
2015 redemptions.
Fortress Investment Group
LLCExhibit 2-eAssets Under Management and Fund
Management DE(dollars in millions)
Three Months Ended
Full Year
2015
Three Months Ended
Nine Months Ended September
30, 2016
Credit Private Equity Funds March 31,
2015
June 30,
2015
September 30,
2015
December 31,
2015
March 31,
2016
June 30,
2016
September 30,
2016
Assets Under Management Long Dated Value Funds20 $
352 $ 315 $ 315 $ 315 $ 315 $ 292 $ 203 $ 186 $ 186 Real Assets
Funds 52 40 41 24 24 50 33 33 33 Fortress Credit Opportunities
Funds21 6,029 6,802 6,796 6,848 6,848 6,894 6,765 7,031 7,031 Japan
Opportunity Funds22 1,130 1,090
1,204 2,120 2,120 2,117
2,242 2,234 2,234
AUM - Ending Balance $ 7,563 $ 8,247 $ 8,356
$ 9,308 $ 9,308 $ 9,353 $ 9,243
$ 9,483 $ 9,483
Third-Party Capital
Raised $ 4,949 $ 672 $ 156 $ 166 $
5,943 $ 13 $ 43 $ 120 $ 176
Segment Revenues Management fees $ 27 $ 30 $ 29 $ 32
$ 118 $ 31 $ 31 $ 32 $ 94 Incentive income 24
60 70 90 244
53 85 59 197
Total 51 90 99 122 362 84 116 91 291
Segment
Expenses Operating expenses (30 ) (30 ) (29 ) (26 ) (115 ) (32
) (29 ) (34 ) (95 ) Profit sharing compensation expenses (14
) (30 ) (36 ) (41 ) (121 ) (26 )
(44 ) (29 ) (99 ) Total (44 ) (60 ) (65 ) (67
) (236 ) (58 ) (73 ) (63 ) (194 )
Fund Management DE (before
Principal Performance Payments) 7 30
34 55 126
26 43 28 97
Principal Performance Payments (1 ) (1 ) (1 ) (5 ) (8 ) (1 ) (3 ) -
(4 )
Fund Management DE $ 6 $ 29 $ 33 $ 50
$ 118 $ 25 $ 40 $ 28 $ 93
Net Investment Income 1 3 5 12 21 3 7 4 14
Pre-tax
Distributable Earnings $ 7 $ 32 $ 38 $ 62
$ 139 $ 28 $ 47 $ 32 $ 107
20 Combined AUM for Long Dated Value Fund I, Long
Dated Value Fund II, Long Dated Value Fund III and LDVF Patent
Fund. 21 Combined AUM for Credit Opportunities Fund, Credit
Opportunities Fund II, Credit Opportunities Fund III, Credit
Opportunities Fund IV, FCO Managed Accounts, Global Opportunities
Funds, 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. During 2Q 2016,
Fortress stopped earning management fees from SIP managed account.
22 Combined AUM for Japan Opportunity Fund, Japan Opportunity Fund
II (Dollar), Japan Opportunity Fund II (Yen), Japan Opportunity
Fund III (Dollar) and Japan Opportunity Fund III (Yen).
Fortress Investment Group
LLCExhibit 2-fAssets Under Management and Fund
Management DE(dollars in millions)
Three Months Ended
Full Year
2015
Three Months Ended
Nine Months Ended September
30, 2016
Liquid Hedge Funds March 31,
2015
June 30,
2015
September 30,
2015
December 31,
2015
March 31,
2016
June 30,
2016
September 30,
2016
Assets Under Management Fortress Macro Funds23 $
2,779 $ 2,326 $ 1,791 N/A N/A N/A N/A N/A N/A Drawbridge Global
Macro Funds24 227 210 193 101 101 116 112 101 101 Fortress Convex
Asia Funds25 226 220 208 134 134 176 N/A N/A N/A Fortress Centaurus
Global Funds26 64 191 222 204 204 206 182 N/A N/A Fortress Partners
Funds27 541 534 497 474 474 228 215 199 199 Affiliated Manager28
4,001 3,896 4,456
4,496 4,496 4,469 4,113
4,240 4,240
AUM - Ending
Balance $ 7,838 $ 7,377 $ 7,367 $ 5,409
$ 5,409 $ 5,195 $ 4,622 $ 4,541
$ 4,541
Third-Party Capital Raised $ 86
$ 171 $ 48 $ 28 $ 333 $ 63 $ 16
$ - $ 79
Segment Revenues
Management fees $ 21 $ 19 $ 16 $ 8 $ 64 $ 6 $ 6 $ 1 $ 13 Incentive
income 1 (1 ) - 1
1 2 (1 ) -
1 Total 22 18 16 9 65 8 5 1 14
Segment
Expenses Operating expenses (21 ) (27 ) (20 ) (16 ) (84 ) (9 )
(7 ) (7 ) (23 ) Profit sharing compensation expenses (4 )
3 (1 ) 1 (1 ) (1 )
- - (1 ) Total (25 ) (24 ) (21 )
(15 ) (85 ) (10 ) (7 ) (7 ) (24 )
Earnings From
Affiliated Manager 9 (1 ) 2 (1 ) 9 1 1 3 5
Fund Management DE
(before Principal Performance Payments) 6
(7 ) (3 ) (7 ) (11 ) (1 ) (1 )
(3 ) (5 ) Principal Performance Payments - - -
- - - - - -
Fund Management DE $ 6 $ (7 ) $ (3 ) $ (7 ) $
(11 ) $ (1 ) $ (1 ) $ (3 ) $ (5 ) Net Investment Income 3 1
(1 ) 5 8 3 (5 ) (2 ) (4 )
Pre-tax Distributable Earnings $ 9
$ (6 ) $ (4 ) $ (2 ) $ (3 ) $ 2 $ (6 ) $ (5 ) $ (9 )
Net
Returns29
Fortress Macro Fund Ltd (4.7 %) (6.3 %) (7.8 %) (0.0 %) (17.6 %)
N/A N/A N/A N/A Drawbridge Global Macro Fund Ltd (4.9 %) (6.5 %)
(8.0 %) 0.0 % (18.2 %) N/A N/A N/A N/A Fortress Convex Asia Fund
Ltd (0.6 %) (0.7 %) 3.3 % (4.6 %) (2.8 %) 1.5 % (1.2 %) N/A 0.3 %
Fortress Centaurus Global Fund Ltd 3.9 % (4.1 %) (3.0 %) 5.0 % 1.4
% 1.9 % (6.1 %) (3.5 %) (7.7 %) Fortress Partners Fund LP30 1.2 %
(1.2 %) (4.9 %) (0.1 %) (5.0 %) N/A N/A N/A N/A Fortress Partners
Offshore Fund LP30 0.3 % (2.5 %) (3.4 %) 0.5 % (5.1 %) N/A N/A N/A
N/A 23 Combined AUM for Fortress Macro Onshore Fund LP,
Fortress Macro Fund Ltd, Fortress Macro MA1, Fortress Redwood Fund
Ltd and Fortress Macro managed accounts. In 4Q 2015, Fortress
closed the Fortress Macro Funds and related managed accounts. 24
Combined AUM for Drawbridge Global Macro Fund LP and Drawbridge
Global Macro Intermediate Fund LP. 25 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. In June 2016,
Fortress transferred its interests as general partner and
investment manager of the Fortress Convex Asia Funds to a third
party. 26 Combined AUM for Fortress Centaurus Global Fund LP and
Fortress Centaurus Global Fund Ltd. In 3Q 2016, Fortress closed the
Fortress Centaurus Global Funds. 27 Combined AUM for Fortress
Partners Fund LP and Fortress Partners Offshore Fund LP. 28 In 1Q
2015, the Fortress Asia Macro Funds and related managed accounts
transitioned to Graticule Asset Management and became an Affiliated
Manager. 29 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. 30 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.
Fortress Investment Group
LLCExhibit 2-gAssets Under Management and Fund
Management DE(dollars in millions)
Three Months Ended
Full Year
2015
Three Months Ended
Nine Months Ended September
30, 2016
Logan Circle March 31,
2015
June 30,
2015
September 30,
2015
December 31,
2015
March 31,
2016
June 30,
2016
September 30,
2016
Assets Under Management AUM - Ending Balance $
33,416 $ 33,564 $ 33,446 $ 31,178 $
31,178 $ 32,801 $ 34,080 $ 33,386 $
33,386
Net Client Flows $ 589 $ 1,056
$ 101 $ (1,867 ) $ (121 ) $ 261 $ 18 $
(1,453 ) $ (1,174 )
Segment Revenues Management fees
$ 13 $ 14 $ 13 $ 14 $ 54 $ 14 $ 14 $ 15 $ 43 Incentive income
- - - -
- - - -
- Total 13 14 13 14 54 14 14 15 43
Segment
Expenses Operating expenses (14 ) (14 ) (13 ) (14 ) (55 ) (13 )
(13 ) (13 ) (39 ) Profit sharing compensation expenses -
- - - -
- - - -
Total (14 ) (14 ) (13 ) (14 ) (55 ) (13 ) (13 ) (13 ) (39 )
Fund Management DE $ (1 ) $ - $ - $ - $
(1 ) $ 1 $ 1 $ 2 $ 4 Net
Investment Income - - - (1 ) (1 ) - 1 - 1
Pre-tax Distributable
Earnings $ (1 ) $ - $ - $ (1 ) $ (2 ) $ 1
$ 2 $ 2 $ 5
Fortress Investment Group
LLCExhibit 3Reconciliation 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
Full Year
2015
Three Months Ended Nine Months Ended
September 30, 2016
March 31,
2015
June 30,
2015
September 30,
2015
December 31,
2015
March 31,
2016
June 30,
2016
September 30,
2016
GAAP Net Income (Loss) $ 87
$ 5 $ (26 ) $
116 $ 182 $ (16
) $ (27 ) $
58
$ 16 Principals' and Others' Interests
in (Income) Loss of Consolidated Subsidiaries (52 ) (2 ) 12 (62 )
(104 ) 7 13 (28 ) (8 ) Redeemable non-controlling interests in
Income (Loss) - - -
- - - -
- -
GAAP Net Income (Loss)
Attributable to Class A Shareholders $ 35
$ 3 $ (14 ) $
54 $ 78 $ (9
) $ (14 ) $ 31
$ 8 Private Equity incentive income 3 19 21
(16 ) 27 23 73 8 104 Hedge Fund, PCV and Logan Circle incentive
income 23 23 1 (47 ) - 8 26 35 69 Incentive income received related
to exercise of options - 57 - 1 58 - - 4 4 Reserve for clawback - -
- - - - - - - Distributions of earnings from equity method
investees 4 9 5 17 35 3 8 4 15 Losses (earnings) from equity method
investees (27 ) 33 23 17 46 24 8 (24 ) 8 Losses (gains) on options
(32 ) 9 27 2 6 2 (12 ) (4 ) (14 ) Losses (gains) on other
Investments (1 ) (5 ) 14 (1 ) 7 15 19 1 35 Impairment of
investments (3 ) - (1 ) (2 ) (6 ) (2 ) (1 ) - (3 ) Adjust income
from the receipt of options (4 ) (21 ) - - (25 ) - - (2 ) (2 ) Gain
on transfer of Graticule (134 ) - - - (134 ) - - - - Amortization
of intangible assets and impairment of goodwill - - - 1 1 1 - 1 2
Employee, Principal and director compensation 20 6 2 5 33 3 2 2 7
Adjust non-controlling interests related to Fortress Operating
Group units 52 1 (12 ) 62 103 (8 ) (12 ) 27 7 Tax receivable
agreement liability reduction - 8 - (2 ) 6 3 - - 3 Adjust income
taxes and other tax related items 18 (5 ) 3 39 55 1 4 7 12 Adjust
transfer of interest in Graticule 101 -
- - 101 -
- - -
Pre-tax
Distributable Earnings $ 55 $
137 $ 69 $ 130
$ 391 $ 64
$ 101 $ 90 $
255 Investment Loss (income) (5 ) (4 ) (3 ) (19 ) (31
) (4 ) (6 ) (4 ) (14 ) Interest Expense 1 -
1 2 4 3
3 2 8
Fund
Management DE $ 51 $ 133
$ 67 $ 113
$ 364 $ 63 $
98 $ 88 $ 249
GAAP Revenues $ 227 $
308 $ 264 $ 415
$ 1,214 $ 232
$ 232 $ 261 $
725 Adjust management fees (1 ) 1 - - - 1 - - 1
Adjust incentive income 27 100 22 (59 ) 90 31 100 65 196 Adjust
income from the receipt of options (4 ) (21 ) - - (25 ) - - (2 ) (2
) Other revenues (59 ) (61 ) (65 ) (76
) (261 ) (59 ) (60 ) (75 ) (194
)
Segment Revenues $ 190 $
327 $ 221 $ 280
$ 1,018 $ 205
$ 272 $ 249 $
726
GAAP Expenses $ 329
$ 258 $ 224 $
242 $ 1,053 $ 207
$ 238 $ 226
$ 671 Adjust interest expense (1 ) - (1 ) (2 )
(4 ) (3 ) (3 ) (2 ) (8 ) Adjust employee, Principal and director
compensation (18 ) (2 ) (1 ) (5 ) (26 ) (2 ) (1 ) (1 ) (4 ) Adjust
amortization of intangible assets and impairment of goodwill - - -
(1 ) (1 ) (1 ) - (1 ) (2 ) Adjust expense reimbursements from
affiliates and non-affiliates (59 ) (61 ) (64 ) (68 ) (252 ) (57 )
(58 ) (58 ) (173 ) Adjust Principal Performance Payments (5 ) (20 )
(9 ) (14 ) (48 ) (4 ) (12 ) (10 ) (26 ) Adjust transfer of interest
in Graticule (101 ) - - -
(101 ) - - -
-
Segment Expenses $ 145
$ 175 $ 149
$ 152 $ 621 $
140 $ 164 $ 154
$ 458
‘‘Distributable earnings’’ is Fortress’s supplemental measure of
operating performance used by management in analyzing segment and
overall results. 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
September 30, 2016.
Fortress’s management uses distributable earnings:
- 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;
- as a valuation measure in strategic
analyses in connection with the performance of its funds and the
performance of its employees; and
- to assist in evaluating its periodic
distributions to equity holders.
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. Fund management DE
is comprised of “Pre-tax Distributable Earnings” excluding
“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.
Fortress Investment Group
LLCExhibit 4Reconciliation of Weighted Average Class
A Shares Outstanding (Used for Basic EPS) to Weighted Average
DividendPaying Shares and Units Outstanding (Used for
DEPS)
Three Months Ended September 30,
Nine Months Ended September 30, 2016
2015 2016 2015
Weighted Average Class A Shares
Outstanding (Used for Basic EPS)
216,913,032 216,439,077
218,160,131 216,138,405 Weighted average fully
vested restricted Class A share units with dividend equivalent
rights (303,762) (737,423) (755,599) (3,871,624) Weighted average
restricted Class A shares (886,867) (716,942) (822,628) (778,913)
Weighted Average Class A Shares
Outstanding
215,722,403 214,984,712
216,581,904 211,487,868 Weighted average
restricted Class A shares31 886,867 716,942 822,628 778,913
Weighted average fully vested restricted Class A share units which
are entitled to dividend equivalent payments 303,762 737,423
755,599 3,871,624 Weighted average unvested restricted Class A
share units which are entitled to dividend equivalent payments
8,063,715 10,825,209 7,982,073 10,119,674 Weighted average Fortress
Operating Group units 169,437,692 226,331,513 169,488,696
226,331,513
Weighted Average Class A Shares
Outstanding (Used for DEPS)
394,414,439 453,595,799
395,630,900 452,589,592 Weighted average vested and
unvested restricted Class A share units which are not entitled to
dividend equivalent payments 9,197,150
12,477,524 9,099,458 12,535,142
Weighted Average Fully Diluted Shares
and Units Outstanding (Used for Diluted DEPS)
403,611,589 466,073,323
404,730,358 465,124,734 31 Includes both fully
vested and unvested restricted Class A shares.
“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.
Fortress Investment Group
LLCExhibit 5Reconciliation of GAAP Book Value Per
Share to Net Cash and Investments Per
Share (dollars and shares in thousands)
As of September 30, 2016 As
of December 31, 2015
GAAP
Book Value
Net Cash and Investments
GAAP
Book Value
Net Cash and Investments
Cash and Cash equivalents $ 350,712 $ 350,712 $
339,842 $ 339,842 Investments 918,526 918,526 1,055,789 1,055,789
Investments in options32 42,554 - 30,427 - Due from Affiliates
189,461 - 273,811 - Deferred Tax Asset, net 422,237 - 427,102 -
Other Assets 134,425 - 148,310 -
Total Assets 2,057,915 1,269,238
2,275,281 1,395,631 Debt Obligations Payable $
182,838 $ 182,838 $ 230,677 $ 230,677 Accrued Compensation and
Benefits 260,212 - 318,750 - Due to Affiliates 360,301 - 365,218 -
Deferred Incentive Income 388,874 - 332,329 - Other Liabilities
107,603 - 86,503 -
Total
Liabilities 1,299,828 182,838 1,333,477
230,677
Net $
758,087 $ 1,086,400 $ 941,804 $ 1,164,954
Shares
Outstanding
Dividend Paying Shares and
Units Outstanding
Shares
Outstanding
Dividend Paying Shares and
Units Outstanding
Class A Shares 215,953 215,953 216,061 216,061 Restricted Class A
Shares 887 887 729 729 Fortress Operating Group Units 169,207
169,207 169,515 169,515 Fully Vested Class A Shares - Dividend
Paying - 359 - 1,361 Unvested Class A Shares - Dividend Paying
- 8,064 - 9,175
Shares
Outstanding 386,047 394,470 386,305
396,841
Per Share $
1.96 $ 2.75 $ 2.44 $
2.94 32 The intrinsic value of options in equity
method investees totaled $26 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 Permanent Capital Vehicles and
sold all of the resulting shares at their September 30, 2016
closing price and differs from the fair value derived from option
pricing models included in the table above.
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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161103005718/en/
INVESTOR & MEDIA RELATIONSFortress Investment
GroupGordon E. Runté, +1-212-798-6082grunte@fortress.com
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