EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

LOGO

 

Investor Contact:      Media Contact:
Lilly H. Donohue      Gordon E. Runté
212-798-6118      212-798-6082

Fortress Reports Second Quarter 2010 Financial Results

New York, NY. August 5, 2010 – Fortress Investment Group LLC (NYSE: FIG) today reported its second quarter 2010 results.

Summary Highlights

 

  •  

Assets under management of $41.7 billion as of June 30, 2010

 

  •  

Raised $1.9 billion of new third-party capital in the second quarter, with $879 million to be added to assets under management when invested

 

  •  

Fund management distributable earnings and pre-tax distributable earnings (DE) of $73 million, or $0.14 per dividend paying share

 

  •  

GAAP net loss, excluding principals agreement compensation, of $14 million. GAAP net loss of $251 million. GAAP net loss attributable to Class A Shareholders of $92 million

 

  •  

Closed acquisition of Logan Circle Partners, adding $11.5 billion in traditional assets under management

 

  •  

Closed Fortress Japan Opportunity Domestic Fund, a real estate focused fund, at a cap of $800 million

 

  •  

Announced funds’ acquisition of CW Financial Services, nation’s second-largest commercial real estate special servicer

Subsequent Events in the Third Quarter

 

  •  

In July, the Fortress Credit Opportunities Funds II had its final closing and raised an additional $664 million of capital commitments, which will be added to assets under management when invested. The fund and related managed accounts closed at $2.6 billion of total commitments

Second Quarter 2010 Results

For the quarter ended June 30, 2010, our GAAP net loss was $251 million compared to a loss of $171 million for second quarter 2009. Our GAAP net loss attributable to Class A Shareholders was $92 million, or $0.57 loss per diluted share, as compared to a loss of $45 million, or $0.41 loss per diluted share, for the second quarter 2009. Excluding principals agreement compensation, second quarter GAAP net loss was $14 million, as compared to net income of $66 million for second quarter 2009.

For the second quarter, fund management distributable earnings was $73 million compared to $53 million in the second quarter of 2009.

Pre-tax DE for the second quarter was $73 million, or $0.14 per dividend paying shares, versus $59 million for the second quarter of 2009, or $0.12 per dividend paying share.

“We delivered solid results in a quarter marked by extremely challenging market dynamics, with strong momentum in capital raising, stable management fees and continued recognition of incentive income,” stated Daniel H. Mudd, Chief Executive Officer. “Equally important, we continued to grow and diversify our business, while capitalizing on historically attractive opportunities to deploy capital on our partners’ behalf. We’ve been opportunistic in a market that continues to align with the core strengths of Fortress.”

 

1

The table below details Fortress’s GAAP Net Income (Loss) and Distributable Earnings for the second quarter and first half of 2010 and 2009:

 

     Second Quarter     $
Change		     First Half     $
Change		  
(in millions, except per share amount)    2010     2009       2010     2009    

GAAP

             

Net income (loss)

    $ (251 )    $ (171 )    $ (80 )    $ (513 )    $ (458 )    $ (55 ) 

Net income (loss) attributable to Class A Shareholders

    $ (92 )    $ (45 )    $ (47 )    $ (177 )    $ (112 )    $ (65 ) 

Per diluted share

    $ (0.57 )    $ (0.41 )    $ (0.16 )    $ (1.16 )    $ (1.10 )    $ (0.06 ) 

Net income (loss) excluding principals agreement compensation

    $ (14 )    $ 66      $ (80 )    $ (40 )    $ 14      $ (54 ) 

Distributable Earnings

             

Fund management DE

    $ 73      $ 53      $ 20      $ 165      $ 97      $ 68   

Pre-tax DE

    $ 73      $ 59      $ 14      $ 169      $ 68      $ 101   

Per dividend paying share/unit

    $ 0.14      $ 0.12      $ 0.02      $ 0.33      $ 0.14      $ 0.19   

Weighted Average Dividend Paying Shares and Units Outstanding

      516        482          516        472     

For reconciliations of non-GAAP measures, please see Exhibit 2, “Reconciliation of Fund Management DE to Pre-tax DE and GAAP Net Income (Loss) and Reconciliation of Segment Revenues to GAAP Revenues,” Exhibit 3, “Reconciliation of GAAP Net Income (Loss) Excluding Principals Agreement Compensation to GAAP Net Income (Loss)” and 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)” at the end of this release. Distributable earnings is a supplemental measure of our operating performance that we believe provides a meaningful basis for comparison between present and future periods.

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

The following discussion of our results is based on segment reporting as presented in our Quarterly Report on Form 10-Q. Our GAAP statement of operations and balance sheet are presented following this discussion. The following table is a summary presentation of our segment performance with supplemental data provided for informational purposes.

 

2

Supplemental Data for Second Quarter 2010 and 2009:

 

     Three Months Ended June 30, 2010  
     Total     Private Equity     Liquid Hedge
Funds		     Credit Funds     Principal
Investments 		 
(in millions)      Funds     Castles       Hedge Funds     PE Funds    

Assets Under Management

               

AUM - April 1, 2010

    $ 30,197      $ 11,555      $ 3,055      $ 4,273      $ 9,117      $ 2,197      $ —     

Capital raised

      974        —          —          317        49        286        —     

Equity raised

      —          —          —          —          —          —          —     

Capital acquisitions

      11,448        —          —          —          —          —          —     

Increase in invested capital

      491        3        —          2        2        484        —     

Redemptions

      (523 )      —          —          (332 )      (3 )      —          —     

SPV distributions

      (64 )      —          —          (64 )      —          —          —     

RCA distributions 1

      (392 )      —          —          —          (392 )      —          —     

Return of capital distributions

      (273 )      (157 )      —          —          (2 )      (114 )      —     

Equity buyback

      —          —          —          —          —          —          —     

Crystallized Incentive Income

      (1 )      —          —          (1 )      —          —          —     

Net Client Flows

      (284 )      —          —          —          —          —          —     

Income (loss) and foreign exchange

      87        110        (184 )      (28 )      (27 )      43        —     
                                                        

AUM - Ending Balance

    $ 41,660      $ 11,511      $ 2,871      $ 4,167      $ 8,744      $ 2,896      $ —     

Third-Party Capital Raised

    $ 1,853      $ —        $ —        $ 317      $ 49      $ 1,165      $ —     

Segment Revenues

               

Management fees

    $ 119      $ 33      $ 12      $ 20      $ 43      $ 11      $ —     

Incentive income

      50        —          —          (2 )      5        47        —     

Unallocated Revenues

      4               
                                                        

Total

      173        33        12        18        48        58        —     

Segment Expenses

               

Operating expenses

      (61 )      (8 )      (7 )      (16 )      (25 )      (5 )      —     

Profit sharing compensation expenses

      (30 )      —          —          (1 )      (5 )      (24 )      —     

Unallocated Expenses

      (9 )             
                                                        

Total

      (100 )      (8 )      (7 )      (17 )      (30 )      (29 )      —     
                                                        

Fund Management DE

      73        25        5        1        18        29        —     
                                                        

Investment Income

      4                  4   

Interest Expense

      (4 )                (4 ) 
                                                        

Pre-tax Distributable Earnings

    $ 73      $ 25      $ 5      $ 1      $ 18      $ 29      $ —     
                                                        
     Three Months Ended June 30, 2009  
     Total     Private Equity     Liquid Hedge
Funds		     Credit Funds     Principal
Investments 		 
(in millions)      Funds     Castles       Hedge Funds     PE Funds    

Assets Under Management

               

AUM - April 1, 2009

    $ 26,302      $ 10,161      $ 3,078      $ 4,809      $ 6,215      $ 2,039      $ —     

Capital raised

      233        —          —          99        —          134        —     

Equity raised

      —          —          —          —          —          —          —     

Capital acquisitions 2

      3,140        —          —          —          3,140        —          —     

Increase in invested capital

      327        10        —          —          2        315        —     

Redemptions

      (475 )      —          —          (475 )      —          —          —     

SPV distributions

      (110 )      —          —          (110 )      —          —          —     

RCA distributions

      (151 )      —          —          —          (151 )      —          1   

Return of capital distributions

      (168 )      (88 )      —          —          (1 )      (79 )      —     

Equity buyback

      —          —          —          —          —          —          —     

Reset Date

      —          —          —          —          —          —          —     

Crystallized Incentive Income

      —          —          —          —          —          —          —     

Income (loss) and foreign exchange

      1,698        519        115        248        468        348        —     
                                                        

AUM - Ending Balance

    $ 30,796      $ 10,602      $ 3,193      $ 4,571      $ 9,673      $ 2,757      $ 1   

Third-Party Capital Raised

    $ 233      $ —        $ —        $ 99      $ —        $ 134      $ —     

Segment Revenues

               

Management fee

    $ 110      $ 40      $ 12      $ 20      $ 30      $ 8      $ —     

Incentive income

      7        —          —          —          —          7        —     
                                                        

Total

      117        40        12        20        30        15        —     

Segment Expenses

               

Operating expenses

      (56 )      (12 )      (5 )      (11 )      (21 )      (7 )      —     

Profit sharing compensation expenses

      (8 )      —          —          (2 )      (2 )      (4 )      —     

Unallocated Expenses

      —                 
                                                        

Total

      (64 )      (12 )      (5 )      (13 )      (23 )      (11 )      —     
                                                        

Fund Management DE

      53        28        7        7        7        4        —     
                                                        

Investment Income

      14                  14   

Interest Expense

      (8 )                (8 ) 
                                                        

Pre-tax Distributable Earnings

    $ 59      $ 28      $ 7      $ 7      $ 7      $ 4      $ 6   
                                                        

 

1

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

2

Includes $3.1 billion of capital under management due to Fortress’s take over of management of the D.B. Zwirn funds and related investment vehicles.

 

3

Supplemental Data for First Half 2010 and 2009:

 

     Six Months Ended June 30, 2010  
     Total     Private Equity     Liquid Hedge
Funds		     Credit Funds     Principal
Investments 		 
(in millions)      Funds     Castles       Hedge Funds     PE Funds    

Assets Under Management

              

AUM - January 1, 2010

    $ 31,476      $ 11,344      $ 3,232      $ 4,297      $ 9,256      $ 3,347      $ —     

Capital raised

      1,712        —          —          951        130        309        —     

Equity raised

      2        —          2        —          —          —          —     

Capital acquisitions

      11,448        —          —          —          —          —          —     

Increase in invested capital

      693        5        —          3        3        682        —     

Redemptions

      (794 )      —          —          (549 )      (57 )      —          —     

SPV distributions

      (574 )      —          —          (574 )      —          —          —     

RCA distributions 3

      (743 )      —          —          —          (743 )      —          —     

Return of capital distributions

      (1,637 )      (162 )      —          —          (3 )      (1,472 )      —     

Equity buyback

      (62 )      —          (62 )      —          —          —          —     

Crystallized Incentive Income

      (4 )      —          —          (4 )      —          —          —     

Net Client Flows

      (284 )      —          —          —          —          —          —     

Income (loss) and foreign exchange

      427        324        (301 )      43        158        30        —     
                                                        

AUM - Ending Balance

    $ 41,660      $ 11,511      $ 2,871      $ 4,167      $ 8,744      $ 2,896      $ —     

Third-Party Capital Raised

    $ 2,743      $ —        $ —        $ 951      $ 130      $ 1,340      $ —     

Segment Revenues

              

Management fees

    $ 227      $ 66      $ 24      $ 39      $ 77      $ 21      $ —     

Incentive income

      149        —          —          4        13        132        —     

Unallocated Revenues

      4               
                                                        

Total

     380        66        24        43        90        153        —     

Segment Expenses

               

Operating expenses

      (125 )      (17 )      (15 )      (30 )      (52 )      (11 )      —     

Profit sharing compensation expenses

      (80 )      —          —          (4 )      (9 )      (67 )      —     

Unallocated Expenses

      (10 )             
                                                        

Total

     (215 )      (17 )      (15 )      (34 )      (61 )      (78 )      —     
                                                        

Fund Management DE

      165        49        9        9        29        75        —     
                                                        

Investment Income

      12                  12   

Interest Expense

      (8 )                (8 ) 
                                                        

Pre-tax Distributable Earnings

    $ 169      $ 49      $ 9      $ 9      $ 29      $ 75      $ 4   
                                                        
     Six Months Ended June 30, 2009  
     Total     Private Equity     Liquid Hedge
Funds		     Credit Funds     Principal
Investments 		 
(in millions)      Funds     Castles       Hedge Funds     PE Funds    

Assets Under Management

              

AUM - January 1, 2009

    $ 29,229      $ 10,307      $ 3,182      $ 7,169      $ 6,269      $ 2,302      $ —     

Capital raised

      242        —          —          108        —          134        —     

Equity raised

      —          —          —          —          —          —          —     

Capital acquisitions 4

      3,140        —          —          —          3,140        —          —     

Increase in invested capital

      763        70        —          —          2        691        —     

Redemptions

      (2,969 )      —          —          (2,969 )      —          —          —     

SPV distributions

      (110 )      —          —          (110 )      —          —          —     

RCA distributions

      (303 )      —          —          —          (303 )      —          —     

Return of capital distributions

      (745 )      (93 )      —          —          (8 )      (644 )      —     

Equity buyback

      —          —          —          —          —          —          —     

Reset Date

      —          —          —          —          —          —          —     

Crystallized Incentive Income

      —          —          —          —          —          —          —     

Income (loss) and foreign exchange

      1,549        318        11        373        573        274        —     
                                                        

AUM - Ending Balance

    $ 30,796      $ 10,602      $ 3,193      $ 4,571      $ 9,673      $ 2,757      $ —     

Third-Party Capital Raised

    $ 242      $ —        $ —        $ 108      $ —        $ 134      $ —     

Segment Revenues

              

Management fee

    $ 216      $ 77      $ 24      $ 43      $ 58      $ 14      $ —     

Incentive income

      8        —          —          —          1        7        —     
                                                        

Total

      224        77        24        43        59        21        —     

Segment Expenses

               

Operating expenses

      (115 )      (20 )      (13 )      (25 )      (46 )      (11 )      —     

Profit sharing compensation expenses

      (12 )      —          —          (5 )      (3 )      (4 )      —     

Unallocated Expenses

      —                 
                                                        

Total

      (127 )      (20 )      (13 )      (30 )      (49 )      (15 )      —     
                                                        

Fund Management DE

      97        57        11        13        10        6        —     
                                                        

Investment Income

      (13 )                (13 ) 

Interest Expense

      (16 )                (16 ) 
                                                        

Pre-tax Distributable Earnings

    $ 68      $ 57      $ 11      $ 13      $ 10      $ 6      $ (29 ) 
                                                        

 

3

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

4

Includes $3.1 billion of capital under management due to Fortress’s take over of management of the D.B. Zwirn funds and related investment vehicles.

 

4

Overview

We managed $41.7 billion of assets in private equity funds, liquid hedge funds, credit funds and our traditional asset management business at June 30, 2010. We earn management fees based on the amount of capital we manage, incentive income based on the performance of our alternative investment funds, and investment income (loss) from our principal investments.

In the second quarter of 2010, we generated fund management distributable earnings of $73 million. Including principal investments, Fortress generated pre-tax DE of $73 million.

For the quarter ended June 30, 2010, the private equity segments accounted for approximately 26% of total segment revenues, the liquid hedge funds segment accounted for approximately 11% of total segment revenues, the credit funds segments accounted for approximately 61% of total segment revenues and the traditional asset management business accounted for approximately 2% of total segment revenues.

Private Equity – Funds

For the quarter ended June 30, 2010, the Company’s private equity funds had pre-tax DE of $25 million compared to pre-tax DE of $28 million for the quarter ended June 30, 2009.

Assets under management for private equity funds was $11.5 billion at June 30, 2010 compared to $10.6 billion at June 30, 2009.

Private Equity – Castles

For the quarter ended June 30, 2010, the Company’s Castles generated pre-tax DE of $5 million compared to $7 million for the quarter ended June 30, 2009.

Assets under management for the Castles was $2.9 billion at June 30, 2010 compared to $3.2 billion at June 30, 2009.

Liquid Hedge Funds

For the quarter ended June 30, 2010, the Company’s liquid hedge fund business generated pre-tax DE of $1 million compared to $7 million for the quarter ended June 30, 2009.

Assets under management for the liquid hedge funds was $4.2 billion at June 30, 2010 compared to $4.6 billion at June 30, 2009.

The following table shows our Assets Under Management by fund:

 

(dollars in billions)    June 30, 2010    December 31, 2009    June 30, 2009

Macro Funds 5

    $ 3.1    $ 3.4    $ 3.7

Fortress Commodities Funds 6

    $ 1.1    $ 0.9    $ 0.9

 

5

Combined AUM for Fortress Macro Onshore Fund LP, Fortress Macro Offshore Fund L.P., Fortress Macro Fund Ltd, Fortress Macro managed accounts, Drawbridge Global Macro Fund L.P., Drawbridge Global Macro Intermediate Fund L.P., Drawbridge Global Macro Alpha Intermediate Fund L.P., DBGM Offshore Ltd, DBGM Onshore LP, DBGM Alpha V Ltd and Drawbridge Global Macro managed accounts.

6

Combined AUM for Fortress Commodities Fund L.P., Fortress Commodities Fund MA1 Ltd and Fortress Commodities managed accounts.

 

5

The following table shows our gross and net returns by fund: 7

 

      Three Months Ended
June 30, 2010		     Six Months Ended
June 30, 2010		     Estimated
Seven Months Ended
July  31, 2010		  

Gross Returns

       

Fortress Macro Offshore Fund L.P.

    -0.3 %    4.0 %    2.3 % 

Drawbridge Global Macro Fund Ltd

    -1.0 %    3.1 %    1.4 % 

Fortress Commodities Fund L.P.

    2.7 %    -0.4 %    -4.7 % 

Net Returns

       

Fortress Macro Offshore Fund L.P.

    -0.7 %    2.3 %    0.9 % 

Drawbridge Global Macro Fund Ltd

    -1.5 %    2.1 %    0.2 % 

Fortress Commodities Fund L.P.

    2.2 %    -1.4 %    -5.9 % 
      

Credit – Hedge Funds

For the quarter ended June 30, 2010, the Company’s credit hedge fund business generated pre-tax DE of $18 million compared to $7 million for the quarter ended June 30, 2009.

Assets under management for the credit hedge funds was $8.7 billion at June 30, 2010 compared to $9.7 billion at June 30, 2009.

The following table shows our Assets Under Management by fund:

 

(dollars in billions)    June 30, 2010    December 31, 2009    June 30, 2009

Drawbridge Special Opportunities Funds 8

    $ 5.2    $ 5.2    $ 5.1

Fortress Partners Funds 9

    $ 1.5    $ 1.6    $ 1.4

Fortress Value Recovery Funds 10

    $ 2.0    $ 2.5    $ 3.1

 

7

The performance data contained herein reflects returns for a “new issue eligible,” single investor class as of the close of business on the last day of the relevant period. Gross returns reflect performance data prior to management fees borne by the Fund and incentive allocations while net returns reflect performance data after taking into account management fees borne by the Fund and incentive allocations.

8

Combined AUM for Drawbridge Special Opportunities Fund Ltd, Drawbridge Special Opportunities Fund LP, Drawbridge Special Opportunities Fund managed accounts and Worden Fund LP.

9

Combined AUM for Fortress Partners Offshore Fund LP and Fortress Partners Fund LP.

10

Fortress will receive management fees from these funds equal to 1% of cash receipts and up to 1% per annum on certain managed assets, subject to collectability, and may receive limited incentive income if aggregate realizations exceed an agreed threshold.

 

6

The following table shows our gross and net returns by fund:11

 

    Three Months Ended
June 30, 2010		     Six Months Ended
June 30, 2010		  

Gross Returns

    

Drawbridge Special Opportunities LP 12

   4.6 %    12.4 % 

Drawbridge Special Opportunities Ltd 12

   4.1 %    11.9 % 

Fortress Partners Fund LP

   -0.1 %    3.2 % 

Fortress Partners Offshore Fund LP

   0.7 %    3.7 % 

Net Returns

    

Drawbridge Special Opportunities LP 12

   4.0 %    11.2 % 

Drawbridge Special Opportunities Ltd 12

   3.4 %    10.7 % 

Fortress Partners Fund LP

   -0.3 %    2.6 % 

Fortress Partners Offshore Fund LP

  0.5 %    3.1 % 

Credit – Private Equity Funds

For the quarter ended June 30, 2010, the Company’s credit private equity fund business generated pre-tax DE of $29 million as compared to $4 million for the quarter ended June 30, 2009.

Assets under management for the credit private equity funds was $2.9 billion at June 30, 2010 compared to $2.8 billion at June 30, 2009. Currently, the credit private equity funds have approximately $4.1 billion of uncalled or recallable committed capital that will become assets under management when invested.

Principal Investments

At June 30, 2010, we had $0.7 billion of assets (excluding cash and cash equivalents) in our principal investments segment, compared to $0.8 billion (excluding cash and cash equivalents) at June 30, 2009. During the second quarter of 2010, we increased commitments to our principal investments by $20 million and funded $6 million of our commitments. We had $130 million of unfunded commitments to our principal investments as of June 30, 2010.

Our principal investments segment pre-tax DE was unchanged for the three months ended June 30, 2010, due primarily to gains and distributions of $4 million from our balance sheet investments offset by $4 million of interest expense.

Segment Expenses

Segment expenses were $100 million in the second quarter of 2010, up from $64 million for the second quarter of 2009. Segment expenses for the second quarter of 2010 included $30 million of profit sharing compensation, which is a function of revenues received from our various funds.

The Company had $286 million of share-based compensation expense (primarily relating to expense recorded in connection with the principals agreement, the issuance of restricted stock units to Fortress employees, and the

 

11 The performance data contained herein reflects returns for a “new issue eligible,” single investor class as of the close of business on the last day of the relevant period. Gross returns reflect performance data prior to management fees borne by the Fund and incentive allocations while net returns reflect performance data after taking into account management fees borne by the Fund and incentive allocations. Specific performance may vary based on, among other things, whether fund investors are invested in one or more special investments.
12 The returns for the Drawbridge Special Opportunities Funds reflect the performance of each fund excluding the performance of the redeeming capital accounts which relate to December 31, 2008 and December 31, 2009 redemptions.

 

7

issuance of restricted partnership units) for the quarter ended June 30, 2010, which contributed to our reporting a GAAP net loss. Share-based compensation expense is not included in segment expenses or in the calculation of distributable earnings.

Corporate Credit Agreement

During the second quarter, we paid down the credit facility by $14 million. As of June 30, 2010, we have $356 million of debt outstanding and have capacity available of approximately $60 million under our revolving credit facility.

Dividend Policy

Each quarter, we evaluate whether to pay quarterly dividends on our Class A shares. The amount of any dividends will be determined by our board of directors. However, no assurance can be given that any dividends, whether quarterly or otherwise, will or can be paid. In determining the amount of any dividends, our board will take into account various factors, including our financial performance, on both an actual and projected basis, earnings, liquidity and the operating performance of our segments as assessed by management.

Non-GAAP Information

Fortress discloses certain non-GAAP financial information, which management believes provides a meaningful basis for comparison among present and future periods. The following are non-GAAP measures used in the accompanying financial information:

 

  •  

Pre-tax DE and pre-tax DE per dividend paying share

 

  •  

Fund management distributable earnings

 

  •  

Segment revenues

 

  •  

GAAP net income excluding principals agreement compensation

 

  •  

Weighted Average Dividend Paying Shares and Units Outstanding (Used for DEPS)

We urge you to read the reconciliation of such data to the related GAAP measures appearing in the exhibits to this release.

Conference Call

Management will host a conference call today, Thursday, August 5, 2010 at 8:00 a.m. (Eastern Time). A copy of the earnings release is posted to the Investor Relations section of Fortress’s website, www.fortress.com.

All interested parties are welcome to participate on the live call. The conference call may be accessed by dialing 1-877-252-8576 (from within the U.S.) or 1-706-679-1521 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference “Fortress Second Quarter Earnings Call.”

A simultaneous webcast of the conference call will be available to the public on a listen-only basis at www.fortress.com. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast.

A telephonic replay of the conference call will also be available until 11:59 P.M. Eastern Time on Thursday, August 12, 2010 by dialing 1-800-642-1687 (from within the U.S.) or 1-706-645-9291 (from outside of the U.S.); please reference access code “89300732.”

 

8

About Fortress

Fortress is a leading global investment manager with approximately $41.7 billion in assets under management as of June 30, 2010. Fortress offers alternative and traditional investment products and was founded in 1998. For more information regarding Fortress Investment Group LLC or to be added to our e-mail distribution list, please visit www.fortress.com.

Cautionary Note Regarding Forward-Looking Statements — Certain statements in this press release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our sources of management fees, incentive income and investment income (loss), estimated fund performance, the amount and source of expected capital commitments and amount of redemptions. 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 our actual results to differ materially from the results expressed or implied by these forward-looking statements. For a discussion of some of the risks and important factors that could affect such forward-looking statements, see the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 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.

 

9

Fortress Investment Group LLC

Consolidated Statements of Operations (Unaudited)

(dollars in thousands, except share data)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2010     2009     2010     2009  

Revenues

         

Management fees from affiliates

    $ 112,894      $ 108,425      $ 219,430      $ 214,077   

Incentive income from affiliates

      28,849        6,958        46,405        6,958   

Expense reimbursements from affiliates

      40,794        20,661        63,861        33,708   

Other revenues

      8,793        3,043        21,822        6,640   
                                
     191,330        139,087        351,518        261,383   
                                

Expenses

         

Interest expense

      3,698        7,605        7,494        15,791   

Compensation and benefits

      159,529        113,456        338,922        222,692   

Principals agreement compensation

      237,367        237,367        472,126        472,126   

General, administrative and other

      24,242        21,034        45,350        38,219   

Depreciation and amortization

      3,294        2,761        5,976        5,402   
                                
     428,130        382,223        869,868        754,230   
                                

Other Income (Loss)

         

Gains (losses) from investments

      (12,957 )      19,441        (12,385 )      16,968   

Tax receivable agreement liability adjustment

      —          —          1,317        (55 ) 

Earnings (losses) from equity method investees

      6,150        51,057        26,031        16,208   
                                
     (6,807 )      70,498        14,963        33,121   
                                

Income (Loss) Before Income Taxes

      (243,607 )      (172,638 )      (503,387 )      (459,726 ) 

Income tax benefit (expense)

      (7,634 )      1,308        (9,186 )      1,715   
                                

Net Income (Loss)

    $ (251,241 )    $ (171,330 )    $ (512,573 )    $ (458,011 ) 
                                

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

         

Consolidated Subsidiaries

    $ (158,857 )    $ (126,738 )    $ (336,038 )    $ (346,260 ) 
                                

Net Income (Loss) Attributable to Class A Shareholders

    $ (92,384 )    $ (44,592 )    $ (176,535 )    $ (111,751 ) 
                                

Dividends declared per Class A share

    $ —        $ —        $ —        $ —     
                                

Earnings Per Class A share - Fortress Investment Group

                         

Net income (loss) per Class A share, basic

    $ (0.57 )    $ (0.40 )    $ (1.14 )    $ (1.10 ) 
                                

Net income (loss) per Class A share, diluted

    $ (0.57 )    $ (0.41 )    $ (1.16 )    $ (1.10 ) 
                                

Weighted average number of Class A shares outstanding, basic

      165,246,781        115,547,744        161,385,135        105,447,324   
                                

Weighted average number of Class A shares outstanding, diluted

      165,246,781        427,619,294        465,388,269        417,518,874   
                                

 

10

Fortress Investment Group LLC

Consolidated Balance Sheets

(dollars in thousands, except share data)

 

     June 30,
2010
(Unaudited)		     December 31,
2009		  

Assets

     

Cash and cash equivalents

    $ 167,527      $ 197,099   

Due from affiliates

      132,243        64,511   

Investments

      869,432        867,215   

Deferred tax asset

      454,806        440,639   

Other assets

      114,831        90,803   
                
   $ 1,738,839      $ 1,660,267   
                

Liabilities and Equity

     

Liabilities

     

Accrued compensation and benefits

    $ 101,413      $ 131,134   

Due to affiliates

      351,979        345,976   

Deferred incentive income

      244,966        160,097   

Debt obligations payable

      355,900        397,825   

Other liabilities

      35,543        25,921   
                
     1,089,801        1,060,953   
                

Commitments and Contingencies

     

Equity

     

Class A shares, no par value, 1,000,000,000 shares authorized, 165,036,886 and 145,701,622 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively

      —          —     

Class B shares, no par value, 750,000,000 shares authorized, 300,273,852 and 307,773,852 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively

      —          —     

Paid-in capital

      1,252,148        1,029,536   

Retained earnings (accumulated deficit)

      (944,529 )      (767,994 ) 

Accumulated other comprehensive income (loss)

      (1,075 )      (325 ) 
                

Total Fortress shareholders’ equity

      306,544        261,217   

Principals’ and others’ interests in equity of consolidated subsidiaries

      342,494        338,097   
                

Total equity

      649,038        599,314   
                
   $ 1,738,839      $ 1,660,267   
                

 

11

Fortress Investment Group LLC

Exhibit 1

Assets Under Management and Fund Management DE

(dollars in millions)

 

     Three Months Ended     Full Year
2009		     Three Months Ended     Six  Months
Ended
June 30,
2010		  
     March 31,
2009		     June 30,
2009		     September 30,
2009		     December 31,
2009		       March 31,
2010		     June 30,
2010		    

Fortress

                

Assets Under Management

                 

Private Equity & Castles

    $ 13,239      $ 13,795      $ 14,336      $ 14,576      $ 14,576      $ 14,610      $ 14,382      $ 14,382   

Liquid Hedge Funds

      4,809        4,571        4,483        4,297        4,297        4,273        4,167        4,167   

Credit Hedge Funds

      6,215        9,673        9,560        9,256        9,256        9,117        8,744        8,744   

Credit Private Equity Funds

      2,039        2,757        3,351        3,347        3,347        2,197        2,896        2,896   

Traditional Asset Management

      —          —          —          —          —          —          11,471        11,471   
                                                                

AUM - Ending Balance

    $ 26,302      $ 30,796      $ 31,730      $ 31,476      $ 31,476      $ 30,197      $ 41,660      $ 41,660   

Third-Party Capital Raised

    $ 9      $ 233      $ 460      $ 677      $ 1,379      $ 890      $ 1,853      $ 2,743   

Segment Revenues

                 

Management fees

    $ 106      $ 110      $ 108      $ 100      $ 424      $ 108      $ 119      $ 227   

Incentive income

      1        7        10        57        75        99        50        149   

Unallocated revenues

      —          —          —          —          —          —          4        4   
                                                                

Total

      107        117        118        157        499        207        173        380   

Segment Expenses

                 

Operating expenses

      (59 )      (56 )      (58 )      (70 )      (243 )      (64 )      (61 )      (125 ) 

Profit sharing compensation expenses

      (4 )      (8 )      (9 )      (26 )      (47 )      (50 )      (30 )      (80 ) 

Unallocated expenses

      —          —          —          (1 )      (1 )      (1 )      (9 )      (10 ) 
                                                                

Total

      (63 )      (64 )      (67 )      (97 )      (291 )      (115 )      (100 )      (215 ) 
                                                                

Fund Management DE

    $ 44      $ 53      $ 51      $ 60      $ 208      $ 92      $ 73      $ 165   
                                                                

 

12

Fortress Investment Group LLC

Exhibit 1

Assets Under Management and Fund Management DE

(dollars in millions)

 

     Three Months Ended           Three Months Ended     Six Months
Ended
June 30,
2010		  
     March 31,
2009		     June 30,
2009		     September 30,
2009		     December 31,
2009		     Full Year
2009		     March 31,
2010		     June 30,
2010		    

Private Equity Funds & Castles

                

Assets Under Management

                 

Private Equity Funds

    $ 10,161      $ 10,602      $ 11,057      $ 11,344      $ 11,344      $ 11,555      $ 11,511      $ 11,511   

Castles

      3,078        3,193        3,279        3,232        3,232        3,055        2,871        2,871   
                                                                

AUM - Ending Balance

    $ 13,239      $ 13,795      $ 14,336      $ 14,576      $ 14,576      $ 14,610      $ 14,382      $ 14,382   

Third-Party Capital Raised

    $ —        $ —        $ —        $ —        $ —        $ —        $ —        $ —     

Segment Revenues

                 

Management fees

    $ 49      $ 52      $ 45      $ 35      $ 181      $ 45      $ 45      $ 90   

Incentive income

      —          —          —          36        36        —          —          —     
                                                                

Total

     49        52        45        71        217        45        45        90   

Segment Expenses

                 

Operating expenses

      (16 )      (17 )      (15 )      (19 )      (67 )      (17 )      (15 )      (32 ) 

Profit sharing compensation expenses

      —          —          —          (13 )      (13 )      —          —          —     
                                                                

Total

     (16 )      (17 )      (15 )      (32 )      (80 )      (17 )      (15 )      (32 ) 
                                                                

Fund Management DE

    $ 33      $ 35      $ 30      $ 39      $ 137      $ 28      $ 30      $ 58   
                                                                

 

13

Fortress Investment Group LLC

Exhibit 1

Assets Under Management and Fund Management DE

(dollars in millions)

 

    Three Months Ended           Three Months Ended     Six Months
Ended
June 30,
2010		  
    March 31,
2009		     June 30,
2009		     September 30,
2009		     December 31,
2009		     Full Year
2009		     March 31,
2010		     June 30,
2010		    

Liquid Hedge Funds

               

Assets Under Management

                

Fortress Macro Funds 13

   $ —        $ 1,174      $ 1,544      $ 1,986      $ 1,986      $ 2,482      $ 2,427      $ 2,427   

Drawbridge Global Macro Funds 14

    3,781        2,484        2,074        1,429        1,429        771        657        657   

Fortress Commodities Funds 15

    1,028        913        865        882        882        1,020        1,083        1,083   
                                                               

AUM - Ending Balance

   $ 4,809      $ 4,571      $ 4,483      $ 4,297      $ 4,297      $ 4,273      $ 4,167      $ 4,167   

Third-Party Capital Raised

   $ 9      $ 99      $ 187      $ 409      $ 704      $ 634      $ 317      $ 951   

Segment Revenues

                

Management fees

   $ 23      $ 20      $ 18      $ 19      $ 80      $ 19      $ 20      $ 39   

Incentive income

     —          —          9        5        14        6        (2 )      4   
                                                               

Total

    23        20        27        24        94        25        18        43   

Segment Expenses

                

Operating expenses

     (14 )      (11 )      (14 )      (18 )      (57 )      (14 )      (16 )      (30 ) 

Profit sharing compensation expenses

     (3 )      (2 )      (7 )      (4 )      (16 )      (3 )      (1 )      (4 ) 
                                                               

Total

    (17 )      (13 )      (21 )      (22 )      (73 )      (17 )      (17 )      (34 ) 
                                                               

Fund Management DE

   $ 6      $ 7      $ 6      $ 2      $ 21      $ 8      $ 1      $ 9   
                                                               

Returns

                

Gross Returns 16

                

Fortress Macro Offshore Fund L.P.

     N/A        4.3 %      4.9 %      3.9 %      13.7 %      4.3 %      -0.3 %      4.0 % 

Drawbridge Global Macro Fund Ltd

     5.7 %      6.2 %      7.9 %      4.4 %      26.5 %      4.2 %      -1.0 %      3.1 % 

Fortress Commodities Fund L.P.

     0.0 %      2.3 %      5.2 %      3.2 %      11.0 %      -3.0 %      2.7 %      -0.4 % 

Net Returns 16

                

Fortress Macro Offshore Fund L.P.

     N/A        3.2 %      3.6 %      2.7 %      9.8 %      3.0 %      -0.7 %      2.3 % 

Drawbridge Global Macro Fund Ltd

     5.2 %      5.8 %      7.4 %      3.9 %      24.2 %      3.7 %      -1.5 %      2.1 % 

Fortress Commodities Fund L.P.

     -0.5 %      1.8 %      3.9 %      2.0 %      7.3 %      -3.5 %      2.2 %      -1.4 % 

 

13

Combined AUM for Fortress Macro Onshore Fund LP, Fortress Macro Offshore Fund L.P., Fortress Macro Fund Ltd and Fortress Macro managed accounts.

1 4

Combined AUM for Drawbridge Global Macro Fund L.P., Drawbridge Global Macro Intermediate Fund L.P., Drawbridge Global Macro Alpha Intermediate Fund L.P., DBGM Offshore Ltd, DBGM Onshore LP, DBGM Alpha V Ltd and Drawbridge Global Macro managed accounts.

15

Combined AUM for Fortress Commodities Fund L.P., Fortress Commodities Fund MA1 Ltd and Fortress Commodities managed accounts.

16

The performance data contained herein reflects returns for a “new issue eligible,” single investor class as of the close of business on the last day of the relevant period. Gross returns reflect performance data prior to management fees borne by the Fund and incentive allocations while net returns reflect performance data after taking into account management fees borne by the Fund and incentive allocations.

 

14

Fortress Investment Group LLC

Exhibit 1

Assets Under Management and Fund Management DE

(dollars in millions)

 

    Three Months Ended     Full Year
2009		     Three Months Ended     Six Months
Ended
June 30,
2010		  
    March 31,
2009		     June 30,
2009		     September 30,
2009		     December 31,
2009		       March 31,
2010		     June 30,
2010		    

Credit Hedge Funds

               

Assets Under Management

                

Drawbridge Special Opportunities Funds 17

   $ 4,915      $ 5,097      $ 5,296      $ 5,209      $ 5,209      $ 5,227      $ 5,176      $ 5,176   

Fortress Partners Funds 18

    1,300        1,436        1,513        1,584        1,584        1,564        1,539        1,539   

Value Recovery Funds 19

    —          3,140        2,751        2,463        2,463        2,326        2,029        2,029   
                                                               

AUM - Ending Balance

   $ 6,215      $ 9,673      $ 9,560      $ 9,256      $ 9,256      $ 9,117      $ 8,744      $ 8,744   

Third-Party Capital Raised

   $ —        $ —        $ —        $ —        $ —        $ 81      $ 49      $ 130   

Segment Revenues

                

Management fees

   $ 28      $ 30      $ 32      $ 33      $ 123      $ 34      $ 43      $ 77   

Incentive income

     1        —          —          1        2        8        5        13   
                                                               

Total

    29        30        32        34        125        42        48        90   

Segment Expenses

                

Operating expenses

     (25 )      (21 )      (24 )      (27 )      (97 )      (27 )      (25 )      (52 ) 

Profit sharing compensation expenses

     (1 )      (2 )      (2 )      (1 )      (6 )      (4 )      (5 )      (9 ) 
                                                               

Total

    (26 )      (23 )      (26 )      (28 )      (103 )      (31 )      (30 )      (61 ) 
                                                               

Fund Management DE

   $ 3      $ 7      $ 6      $ 6      $ 22      $ 11      $ 18      $ 29   
                                                               

Returns

                

Gross Returns 20

               

Drawbridge Special Opportunities LP 21

     3.6 %      7.8 %      7.4 %      6.3 %      27.5 %      7.5 %      4.6 %      12.4 % 

Drawbridge Special Opportunities LTD 21

     4.0 %      6.5 %      10.8 %      7.9 %      32.6 %      7.6 %      4.1 %      11.9 % 

Fortress Partners Funds LP

     -1.7 %      8.8 %      5.0 %      5.1 %      18.0 %      3.3 %      -0.1 %      3.2 % 

Fortress Partners Funds LTD

     -1.1 %      9.5 %      4.7 %      6.0 %      20.2 %      2.9 %      0.7 %      3.7 % 

Net Returns 20

               

Drawbridge Special Opportunities LP 21

     3.1 %      7.3 %      6.8 %      5.8 %      25.0 %      6.9 %      4.0 %      11.2 % 

Drawbridge Special Opportunities LTD 21

     3.5 %      6.0 %      10.3 %      7.4 %      30.0 %      7.0 %      3.4 %      10.7 % 

Fortress Partners Funds LP

     -2.0 %      8.5 %      4.7 %      4.8 %      16.7 %      3.0 %      -0.3 %      2.6 % 

Fortress Partners Funds LTD

     -1.4 %      9.2 %      4.4 %      5.7 %      18.9 %      2.6 %      0.5 %      3.1 % 

 

17

Combined AUM for Drawbridge Special Opportunities Fund Ltd, Drawbridge Special Opportunities Fund LP, Drawbridge Special Opportunities Fund managed accounts and Worden Fund LP.

18

Combined AUM for Fortress Partners Offshore Fund LP and Fortress Partners Fund LP.

19

Fortress will receive management fees from these funds equal to 1% of cash receipts and up to 1% per annum on certain managed assets, subject to collectability, and may receive limited incentive income if aggregate realizations exceed an agreed threshold.

20

The performance data contained herein reflects returns for a “new issue eligible,” single investor class as of the close of business on the last day of the relevant period. Gross returns reflect performance data prior to management fees borne by the Fund and incentive allocations while net returns reflect performance data after taking into account management fees borne by the Fund and incentive allocations. Specific performance may vary based on, among other things, whether fund investors are invested in one or more special investments.

21

The returns for the Drawbridge Special Opportunities Funds reflect the performance of each fund excluding the performance of the redeeming capital accounts which relate to December 31, 2008 and December 31, 2009 redemptions.

 

15

Fortress Investment Group LLC

Exhibit 1

Assets Under Management and Fund Management DE

(dollars in millions)

 

     Three Months Ended     Full Year
2009		     Three Months Ended     Six Months
Ended
June 30,
2010		  
     March 31,
2009		     June 30,
2009		     September 30,
2009		     December 31,
2009		       March 31,
2010		     June 30,
2010		    

Credit Private Equity Funds

                 

Assets Under Management

                 

Long Dated Value Funds

    $ 537      $ 537      $ 569      $ 623      $ 623      $ 665      $ 660      $ 660   

Real Assets Funds

      207        207        178        164        164        167        172        172   

Fortress Credit Opportunities Funds

      1,295        1,876        2,224        2,074        2,074        859        1,231        1,231   

Japan Opportunities Funds

      —          137        380        486        486        506        833        833   
                                                                

AUM - Ending Balance

    $ 2,039      $ 2,757      $ 3,351      $ 3,347      $ 3,347      $ 2,197      $ 2,896      $ 2,896   

Third-Party Capital Raised

    $ —        $ 134      $ 273      $ 268      $ 675      $ 175      $ 1,165      $ 1,340   

Segment Revenues

                 

Management fees

    $ 6      $ 8      $ 13      $ 13      $ 40      $ 10      $ 11      $ 21   

Incentive income

      —          7        1        15        23        85        47        132   
                                                                

Total

      6        15        14        28        63        95        58        153   

Segment Expenses

                 

Operating expenses

      (4 )      (7 )      (5 )      (6 )      (22 )      (6 )      (5 )      (11 ) 

Profit sharing compensation expenses

      —          (4 )      —          (8 )      (12 )      (43 )      (24 )      (67 ) 
                                                                

Total

      (4 )      (11 )      (5 )      (14 )      (34 )      (49 )      (29 )      (78 ) 
                                                                

Fund Management DE

    $ 2      $ 4      $ 9      $ 14      $ 29      $ 46      $ 29      $ 75   
                                                                

 

16

Fortress Investment Group LLC

Exhibit 2

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

Reconciliation of Segment Revenues to GAAP Revenues

(dollars in millions)

 

     Three Months Ended     Full Year
2009		     Three Months Ended     Six Months
Ended
June 30,
2010		  
     March 31,
2009		     June 30,
2009		     September 30,
2009		     December 31,
2009		       March 31,
2010		     June 30,
2010		    

Fund Management DE

    $ 44      $ 53      $ 51      $ 60      $ 208      $ 92      $ 73      $ 165   
                                                                

Investment Income (Loss)

      (27 )      14        10        (55 )      (58 )      8        4        12   

Interest Expense

      (8 )      (8 )      (4 )      (4 )      (24 )      (4 )      (4 )      (8 ) 
                                                                

Pre-tax Distributable Earnings

    $ 9      $ 59      $ 57      $ 1      $ 126      $ 96      $ 73      $ 169   
                                                                

Private Equity incentive income

      —          —          —          3        3        (67 )      (18 )      (85 ) 

Hedge Fund incentive income

      —          —          (2 )      2        —          (6 )      (4 )      (10 ) 

Reserve for clawback

      —          —          —          (27 )      (27 )      —          —          —     

Distributions of earnings from equity method investees

      —          —          —          (1 )      (1 )      (6 )      (3 )      (9 ) 

Earnings (losses) from equity method investees

      (39 )      37        29        (7 )      20        13        4        17   

Gains (losses) on options

      —          —          1        —          1        1        (1 )      —     

Gains (losses) on other Investments

      (2 )      20        19        (13 )      24        —          (12 )      (12 ) 

Incentive income guarantee recorded as a loss

      —          —          —          3        3        —          —          —     

Impairment of investments

      32        —          2        67        101        4        1        5   

Employee equity-based compensation

      (53 )      (53 )      (61 )      (61 )      (228 )      (64 )      (49 )      (113 ) 

Principal compensation

      (235 )      (237 )      (240 )      (240 )      (952 )      (235 )      (237 )      (472 ) 

Employee portion of incentive income

      —          —          —          10        10        —          —          —     

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

      220        128        133        179        660        180        161        341   

Tax receivable agreement liability reduction

      —          —          —          —          —          1        —          1   

Taxes

      1        1        3        —          5        (1 )      (8 )      (9 ) 
                                                                

GAAP Net Income (Loss) Attributable to Class A Shareholders

    $ (67 )    $ (45 )    $ (59 )    $ (84 )    $ (255 )    $ (84 )    $ (93 )    $ (177 ) 
                                                                

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

      (220 )      (126 )      (131 )      (177 )      (654 )      (177 )      (159 )      (336 ) 
                                                                

GAAP Net Income (Loss)

    $ (287 )    $ (171 )    $ (190 )    $ (261 )    $ (909 )    $ (261 )    $ (252 )    $ (513 ) 
                                                                

Segment Revenues

    $ 107      $ 117      $ 118      $ 157      $ 499      $ 207      $ 173      $ 380   
                                                                

Adjust management fees

      (1 )      (1 )      (1 )      13        10        (1 )      (10 )      (11 ) 

Adjust incentive income

      (1 )      —          (2 )      (22 )      (25 )      (82 )      (21 )      (103 ) 

Other revenues

      17        23        29        31        100        36        50        86   
                                                                

GAAP Revenues

    $ 122      $ 139      $ 144      $ 179      $ 584      $ 160      $ 192      $ 352   
                                                                

“Distributable earnings” is our supplemental measure of operating performance. It reflects the value created which management considers available for distribution during any period. As compared to generally accepted accounting principles (“GAAP”) net income, distributable earnings excludes the effects of unrealized gains (or losses) on illiquid investments, reflects contingent revenue which has been received as

 

17

income to the extent it is not expected to be reversed, and disregards expenses which do not require an outlay of assets, whether currently or on an accrued basis. Distributable earnings is reflected on an unconsolidated and pre-tax basis, and, therefore, the interests in consolidated subsidiaries related to Fortress Operating Group units (held by the principals) and income tax expense are added back in its calculation. Distributable earnings is not a measure of cash generated by operations which is available for distribution nor should it be considered in isolation or as an alternative to cash flow or net income and it is not necessarily indicative of liquidity or cash available to fund our operations. For a complete discussion of distributable earnings and its reconciliation to GAAP, as well as an explanation of the calculation of distributable earnings impairment, see note 10 to our financial statements included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.

Our management uses distributable earnings:

 

  •  

in its determination of periodic distributions to equity holders;

 

  •  

in making operating decisions and assessing the performance of each of our core businesses;

 

  •  

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

 

  •  

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

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

 

18

Fortress Investment Group LLC

Exhibit 3

Reconciliation of GAAP Net Income (Loss) Excluding Principals Agreement

Compensation to GAAP Net Income (Loss)

(dollars in thousands)

 

     Three Months Ended     Six Months Ended  
     June 30, 2010     June 30, 2009     June 30, 2010     June 30, 2009  

GAAP net loss

    $ (251,241 )    $ (171,330 )    $ (512,573 )    $ (458,011 ) 

Principals agreement compensation

      237,367        237,367        472,126        472,126   
                                

GAAP net income (loss) excluding principals agreement compensation

    $ (13,874 )    $ 66,037      $ (40,447 )    $ 14,115   
                                

 

19

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 June 30,  
     2010     2009  

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

    165,246,781      115,547,744   
            

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

    (3,683,174 )    (631,260 ) 

Weighted average fully vested restricted Class A shares

    (131,110 )    (105,728 ) 
            

Weighted Average Class A Shares Outstanding

    161,432,497      114,810,756   
            

Weighted average restricted Class A shares 22

    270,395      138,160   

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

    3,683,174      631,260   

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

    19,518,811      22,955,132   

Weighted average Fortress Operating Group units

    300,273,852      312,071,550   

Weighted average Fortress Operating Group RPUs

    31,000,000      31,000,000   
            

Weighted Average Dividend Paying Shares and Units Outstanding (Used for DEPS)

    516,178,729      481,606,858   
            
     Six Months Ended June 30,  
     2010     2009  

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

    161,385,135      105,447,324   
            
   —        —     

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

    (7,466,731 )    (631,260 ) 

Weighted average fully vested restricted Class A shares

    (122,823 )    (104,404 ) 
            
   —        —     

Weighted Average Class A Shares Outstanding

    153,795,581      104,711,660   
            

Weighted average restricted Class A shares 22

    250,951      136,836   

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

    7,466,731      631,260   

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

    19,719,641      22,955,132   

Weighted average Fortress Operating Group units

    304,003,134      312,071,550   

Weighted average Fortress Operating Group RPUs

    31,000,000      31,000,000   
            

Weighted Average Dividend Paying Shares and Units Outstanding (Used for DEPS)

    516,236,038      471,506,438   
            

 

22

Includes both fully vested and nonvested weighted average restricted class A shares.

 

20