EX-99.1 2 dex991.htm PRESS RELEASE Press release

Exhibit 99.1

LOGO

Contact:

Lilly H. Donohue

212-798-6118

Fortress Reports First Quarter 2010 Financial Results

First Quarter 2010 Highlights

 

  •  

Pro-forma assets under management of $41.6 billion as of March 31, 2010 1

 

  •  

Raised $890 million of new third-party capital, of which $740 million is included in assets under management

 

  •  

Fund management distributable earnings of $92 million

 

  •  

Pre-tax distributable earnings (DE) of $96 million

 

  •  

GAAP net loss, excluding principals agreement compensation, of $27 million. GAAP net loss of $261 million. GAAP net loss attributable to Class A Shareholders of $84 million

Subsequent Events in the Second Quarter

 

  •  

Fortress funds agreed to purchase European mortgage assets and platforms from Residential Capital

 

  •  

Fortress closed the acquisition of Logan Circle Partners

New York, NY. May 6, 2010 – Fortress Investment Group LLC (NYSE: FIG) today reported its first quarter 2010 results.

First Quarter 2010

For the quarter ended March 31, 2010, our GAAP net loss was $261 million compared to a loss of $287 million for first quarter 2009. Our GAAP net loss attributable to Class A Shareholders was $84 million, or $0.58 loss per diluted share, as compared to a loss of $67 million, or $0.71 loss per diluted share, for the first quarter 2009. Excluding principals agreement compensation, first quarter GAAP net loss was $27 million, as compared to a net loss of $52 million for first quarter 2009.

For the first quarter, fund management distributable earnings was $92 million compared to $44 million in the first quarter of 2009.

Pre-tax DE for the first quarter was $96 million versus $9 million for the first quarter of 2009.

 

1

Amount gives pro-forma effect to the acquisition of Logan Circle Partners in April 2010. As of the acquisition date on April 16, 2010, Logan Circle Partners had approximately $11.4 billion of assets under management.

 

1

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

 

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

GAAP

       

Net income (loss)

    $ (261 )    $ (287 )    $ 26   

Net income (loss) attributable to Class A Shareholders

    $ (84 )    $ (67 )    $ (17 ) 

Per diluted share

    $ (0.58 )    $ (0.71 )    $ 0.13   

Net income (loss) excluding principals agreement compensation

    $ (27 )    $ (52 )    $ 25   

Distributable Earnings

       

Fund management DE

    $ 92      $ 44      $ 48   

Pre-tax DE

    $ 96      $ 9      $ 87   

Per dividend paying share/unit

    $ 0.19      $ 0.02      $ 0.17   

Weighted Average Dividend Paying Shares and Units Outstanding

      516        461     

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 First Quarter 2010 and 2009:

 

     Three Months Ended March 31, 2010  
           Private Equity     Liquid Hedge
Funds		     Credit Funds     Principal
Investments 		 
(in millions)    Total     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

      740        —          2        634        81        23        —     

Capital acquisitions

      —          —          —          —          —          —          —     

Increase in invested capital

      202        2        —          1        1        198        —     

Redemptions

      (271 )      —          —          (217 )      (54 )      —          —     

SPV/RCA distributions

      (861 )      —          —          (510 )      (351 )      —          —     

Return of capital distributions

      (1,364 )      (5 )      —          —          (1 )      (1,358 )      —     

Equity buyback

      (62 )      —          (62 )      —          —          —          —     

Crystallized Incentive Income

      (3 )      —          —          (3 )      —          —          —     

Income (loss) and foreign exchange

      340        214        (117 )      71        185        (13 )      —     
                                                        

AUM - Ending Balance

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

Third-Party Capital Raised

    $ 890      $ —        $ —        $ 634      $ 81      $ 175      $ —     

Segment Revenues

               

Management fees

    $ 108      $ 33      $ 12      $ 19      $ 34      $ 10      $ —     

Incentive income

      99        —          —          6        8        85        —     
                                                        

Total

      207        33        12        25        42        95        —     

Segment Expenses

               

Operating expenses

      (64 )      (9 )      (8 )      (14 )      (27 )      (6 )      —     

Profit sharing compensation expenses

      (50 )      —          —          (3 )      (4 )      (43 )      —     

Unallocated Expenses

      (1 )             
                                                        

Total

      (115 )      (9 )      (8 )      (17 )      (31 )      (49 )      —     
                                                        

Fund Management DE

      92        24        4        8        11        46        —     
                                                        

Investment Income

      8                  8   

Interest Expense

      (4 )                (4 ) 
                                                        

Pre-tax DE

    $ 96      $ 24      $ 4      $ 8      $ 11      $ 46      $ 4   
                                                        

 

     Three Months Ended March 31, 2009  
           Private Equity     Liquid Hedge
Funds		     Credit Funds     Principal
Investments 		 
(in millions)    Total     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

      9        —          —          9        —          —          —     

Increase in invested capital

      436        60        —          —          —          376        —     

Redemptions

      (2,494 )      —          —          (2,494 )      —          —          —     

SPV/RCA distributions

      (152 )      —          —          —          (152 )      —          —     

Return of capital distributions

      (577 )      (5 )      —          —          (7 )      (565 )      —     

Equity buyback

      —          —          —          —          —          —          —     

Reset Date

      —          —          —          —          —          —          —     

Crystallized Incentive Income

      —          —          —          —          —          —          —     

Income (loss) and foreign exchange

      (149 )      (201 )      (104 )      125        105        (74 )      —     
                                                        

AUM - Ending Balance

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

Third-Party Capital Raised

    $ 9      $ —        $ —        $ 9      $ —        $ —        $ —     

Segment Revenues

               

Management fee

    $ 106      $ 37      $ 12      $ 23      $ 28      $ 6      $ —     

Incentive income

      1        —          —          —          1        —          —     
                                                        

Total

      107        37        12        23        29        6        —     

Segment Expenses

               

Operating expenses

      (59 )      (8 )      (8 )      (14 )      (25 )      (4 )      —     

Profit sharing compensation expenses

      (4 )      —          —          (3 )      (1 )      —          —     

Unallocated Expenses

      —                 
                                                        

Total

      (63 )      (8 )      (8 )      (17 )      (26 )      (4 )      —     
                                                        

Fund Management DE

      44        29        4        6        3        2        —     
                                                        

Investment Income

      (27 )                (27 ) 

Interest Expense

      (8 )                (8 ) 
                                                        

Pre-tax DE

    $ 9      $ 29      $ 4      $ 6      $ 3      $ 2      $ (35 ) 
                                                        

 

3

Overview

On a pro-forma basis, we managed $41.6 billion of assets in private equity funds, liquid hedge funds, credit funds and traditional asset management funds at March 31, 2010.2 Fortress’s revenues consist of (i) management fees, which are based on the size of our funds, (ii) incentive income, which is based on the performance of our funds, and (iii) investment income (loss), which is based on our principal investments.

In the first quarter of 2010, we generated fund management distributable earnings of $92 million. Including principal investments, Fortress generated pre-tax DE of $96 million.

For the quarter ended March 31, 2010, the private equity segments accounted for approximately 22% of total segment revenues, the liquid hedge funds segment accounted for approximately 12% of total segment revenues and the credit funds segments accounted for approximately 66% of total segment revenues.

For the quarter ended March 31, 2010, the private equity, liquid hedge funds and credit funds businesses accounted for approximately 30%, 8% and 62%, respectively, of total fund management distributable earnings.

Private Equity – Funds

For the quarter ended March 31, 2010, the Company’s private equity funds had pre-tax DE of $24 million compared to pre-tax DE of $29 million for the quarter ended March 31, 2009.

Assets under management for private equity funds was $11.6 billion at March 31, 2010 compared to $10.2 billion at March 31, 2009.

Private Equity – Castles

For the quarter ended March 31, 2010, the Company’s Castles generated pre-tax DE of $4 million compared to $4 million for the quarter ended March 31, 2009.

Assets under management for the Castles was $3.1 billion at March 31, 2010 compared to $3.1 billion at March 31, 2009.

Liquid Hedge Funds

For the quarter ended March 31, 2010, the Company’s liquid hedge fund business generated pre-tax DE of $8 million compared to $6 million for the quarter ended March 31, 2009.

Assets under management for the liquid hedge funds was $4.3 billion at March 31, 2010 compared to $4.8 billion at March 31, 2009.

 

 

2

Amount gives pro-forma effect to the acquisition of Logan Circle Partners in April 2010. As of the acquisition date on April 16, 2010, Logan Circle Partners had approximately $11.4 billion of assets under management.

 

4

The following table shows our Assets Under Management by fund:

 

(dollars in billions)    March 31, 2010    December 31, 2009    March 31, 2009

Macro Funds 3

    $ 3.3    $ 3.4    $ 3.8

Fortress Commodities Funds 4

    $ 1.0    $ 0.9    $ 1.0

The following table shows our gross and net returns by fund:5

 

     Three Months Ended
March 31, 2010		     Estimated
Four Months Ended
April 30, 2010		  

Gross Returns

     

Fortress Macro Offshore Fund L.P.

    4.3 %    3.7 % 

Drawbridge Global Macro Fund Ltd

    4.2 %    3.5 % 

Fortress Commodities Fund L.P.

    -3.0 %    -3.5 % 

Net Returns

     

Fortress Macro Offshore Fund L.P.

    3.0 %    2.4 % 

Drawbridge Global Macro Fund Ltd

    3.7 %    2.8 % 

Fortress Commodities Fund L.P.

    -3.5 %    -4.2 % 
    

Credit – Hedge Funds

For the quarter ended March 31, 2010, the Company’s credit hedge fund business generated pre-tax DE of $11 million compared to $3 million for the quarter ended March 31, 2009.

Assets under management for the credit hedge funds was $9.1 billion at March 31, 2010 compared to $6.2 billion at March 31, 2009.

The following table shows our Assets Under Management by fund:

 

(dollars in billions)    March 31, 2010    December 31, 2009    March 31, 2009

Drawbridge Special Opportunities Funds 6

    $ 5.2    $ 5.2    $ 4.9

Fortress Partners Funds 7

    $ 1.6    $ 1.6    $ 1.3

Fortress Value Recovery Funds 8

    $ 2.3    $ 2.5      N.A.

 

3

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.

4

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

5

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

6

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

7

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

8

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.

 

5

The following table shows our gross and net returns by fund:9

 

     Three Months Ended
March 31, 2010		  

Gross Returns

   

Drawbridge Special Opportunities LP 10

    7.4 % 

Drawbridge Special Opportunities Ltd 10

    7.6 % 

Fortress Partners Fund LP

    3.3 % 

Fortress Partners Offshore Fund LP

    2.9 % 

Net Returns

   

Drawbridge Special Opportunities LP 10

    6.9 % 

Drawbridge Special Opportunities Ltd 10

    7.0 % 

Fortress Partners Fund LP

    3.0 % 

Fortress Partners Offshore Fund LP

    2.6 % 

Credit – Private Equity Funds

For the quarter ended March 31, 2010, the Company’s credit private equity fund business generated pre-tax DE of $46 million as compared to $2 million for the quarter ended March 31, 2009.

Assets under management for the credit private equity funds was $2.2 billion at March 31, 2010 compared to $2.0 billion at March 31, 2009. As of March 31, 2010, the credit private equity funds had approximately $2.9 billion of uncalled or recallable committed capital that will become assets under management when invested.

Principal Investments

At March 31, 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 March 31, 2009. During the first quarter of 2010, we increased commitments to our principal investments by $1 million and funded $32 million of our commitments. We had $115 million of unfunded commitments to our principal investments as of March 31, 2010.

Our principal investments segment generated a net gain of $4 million for the three months ended March 31, 2010, due primarily to gains of $8 million from our balance sheet investments offset by $4 million of interest expense.

Segment Expenses

Segment expenses were $115 million in the first quarter of 2010, up from $63 million for the first quarter of 2009. Segment expenses for the first quarter of 2010 included $50 million of profit sharing compensation, which is a function of revenues received from our various funds.

 

9

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.

10

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.

 

6

The Company had $299 million of share-based compensation expense (primarily relating to expense recorded in connection with the principals agreement, the issuance of restricted stock units to Fortress employees, and the issuance of restricted partnership units) for the quarter ended March 31, 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 first quarter, we paid down the credit facility by $28 million. As of March 31, 2010, we have $370 million of debt outstanding and have capacity available of approximately $60 million under our revolving credit facility.

Non-GAAP Information

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

 

  •  

Pre-tax 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, May 6, 2010 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.

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 First Quarter Earnings Call.”

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

A telephonic replay of the conference call will also be available until 11:59 P.M. Eastern Time on Thursday, May 13, 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 “71653027.”

About Fortress

Fortress is a leading global investment manager with approximately $41.6 billion in pro-forma assets under management as of March 31, 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.

 

7

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.

 

8

Fortress Investment Group LLC

Consolidated Statements of Operations (Unaudited)

(dollars in thousands, except share data)

 

     Three Months Ended March 31,  
     2010     2009  

Revenues

     

Management fees from affiliates

    $ 106,536      $ 105,652   

Incentive income from affiliates

      17,556        —     

Expense reimbursements from affiliates

      23,067        13,047   

Other revenues

      13,029        3,597   
                
     160,188        122,296   
                

Expenses

     

Interest expense

      3,796        8,186   

Compensation and benefits

      179,393        109,236   

Principals agreement compensation

      234,759        234,759   

General, administrative and other

      21,108        17,185   

Depreciation and amortization

      2,682        2,641   
                
     441,738        372,007   
                

Other Income (Loss)

     

Gains (losses) from investments

      572        (2,473 ) 

Tax receivable agreement liability adjustment

      1,317        (55 ) 

Earnings (losses) from equity method investees

      19,881        (34,849 ) 
                
     21,770        (37,377 ) 
                

Income (Loss) Before Income Taxes

      (259,780 )      (287,088 ) 

Income tax benefit (expense)

      (1,552 )      407   
                

Net Income (Loss)

    $ (261,332 )    $ (286,681 ) 
                

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

     

Consolidated Subsidiaries

    $ (177,181 )    $ (219,522 ) 
                

Net Income (Loss) Attributable to Class A Shareholders

    $ (84,151 )    $ (67,159 ) 
                

Dividends declared per Class A share

    $ —        $ —     
                

Earnings Per Class A share - Fortress Investment Group

             

Net income (loss) per Class A share, basic

    $ (0.56 )    $ (0.71 ) 
                

Net income (loss) per Class A share, diluted

    $ (0.58 )    $ (0.71 ) 
                

Weighted average number of Class A shares outstanding, basic

      157,821,895        95,202,243   
                

Weighted average number of Class A shares outstanding, diluted

      465,595,747        95,202,243   
                

 

9

Fortress Investment Group LLC

Consolidated Balance Sheets

(dollars in thousands, except share data)

 

     March 31,
2010
(Unaudited)		     December 31,
2009		  

Assets

     

Cash and cash equivalents

    $ 223,421      $ 197,099   

Due from affiliates

      101,130        64,511   

Investments

      878,467        867,215   

Deferred tax asset

      443,359        440,639   

Other assets

      89,150        90,803   
                
   $ 1,735,527      $ 1,660,267   
                

Liabilities and Equity

     

Liabilities

     

Accrued compensation and benefits

    $ 64,828      $ 131,134   

Due to affiliates

      362,568        345,976   

Deferred incentive income

      227,303        160,097   

Debt obligations payable

      369,876        397,825   

Other liabilities

      58,054        25,921   
                
     1,082,629        1,060,953   
                

Commitments and Contingencies

     

Equity

     

Class A shares, no par value, 1,000,000,000 shares authorized, 151,070,002 and 145,701,622 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively

      —          —     

Class B shares, no par value, 750,000,000 shares authorized, 307,773,852 shares issued and outstanding at March 31, 2010

     —          —     

Paid-in capital

      1,130,850        1,029,536   

Retained earnings (accumulated deficit)

      (852,145 )      (767,994 ) 

Accumulated other comprehensive income (loss)

      (635 )      (325 ) 
                

Total Fortress shareholders’ equity

      278,070        261,217   

Principals’ and others’ interests in equity of consolidated subsidiaries

      374,828        338,097   
                

Total equity

      652,898        599,314   
                
   $ 1,735,527      $ 1,660,267   
                

 

10

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
March 31,
2010		  
     March 31,
2009		     June 30,
2009		     September 30,
2009		     December 31,
2009		      

Fortress

             

Assets Under Management

             

Private Equity & Castles

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

Liquid Hedge Funds

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

Credit Hedge Funds

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

Credit Private Equity Funds

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

AUM - Ending Balance

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

Third-Party Capital Raised

    $ 9      $ 233      $ 460      $ 677      $ 1,379      $ 890   

Segment Revenues

             

Management fees

    $ 106      $ 110      $ 108      $ 100      $ 424      $ 108   

Incentive income

      1        7        10        57        75        99   
                                                

Total

      107        117        118        157        499        207   

Segment Expenses

             

Operating expenses

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

Profit sharing compensation expenses

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

Unallocated Expenses

      —          —          —          (1 )      (1 )      (1 ) 
                                                

Total

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

Fund Management DE

    $ 44      $ 53      $ 51      $ 60      $ 208      $ 92   
                                                

 

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
March 31,
2010		  
     March 31,
2009		     June 30,
2009		     September 30,
2009		     December 31,
2009		      

Private Equity Funds & Castles

             

Assets Under Management

             

Private Equity Funds

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

Castles

      3,078        3,193        3,279        3,232        3,232        3,055   
                                                

AUM - Ending Balance

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

Third-Party Capital Raised

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

Segment Revenues

             

Management fees

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

Incentive income

      —          —          —          36        36        —     
                                                

Total

      49        52        45        71        217        45   

Segment Expenses

             

Operating expenses

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

Profit sharing compensation expenses

      —          —          —          (13 )      (13 )      —     
                                                

Total

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

Fund Management DE

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

 

12

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
March 31,
2010		  
     March 31,
2009		     June 30,
2009		     September 30,
2009		     December 31,
2009		      

Liquid Hedge Funds

             

Assets Under Management

             

Fortress Macro Funds 11

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

Drawbridge Global Macro Funds 12

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

Fortress Commodities Funds 13

      1,028        913        865        882        882        1,020   
                                                

AUM - Ending Balance

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

Third-Party Capital Raised

    $ 9      $ 99      $ 187      $ 409      $ 704      $ 634   

Segment Revenues

             

Management fees

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

Incentive income

      —          —          9        5        14        6   
                                                

Total

      23        20        27        24        94        25   

Segment Expenses

             

Operating expenses

      (14 )      (11 )      (14 )      (18 )      (57 )      (14 ) 

Profit sharing compensation expenses

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

Total

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

Fund Management DE

    $ 6      $ 7      $ 6      $ 2      $ 21      $ 8   
                                                

Returns

             

Gross Returns 14

            

Fortress Macro Offshore Fund L.P.

      N/A        4.3 %      4.9 %      3.9 %      13.7 %      4.3 % 

Drawbridge Global Macro Fund Ltd

      5.7 %      6.2 %      7.9 %      4.4 %      26.5 %      4.2 % 

Fortress Commodities Fund L.P.

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

Net Returns 14

            

Fortress Macro Offshore Fund L.P.

      N/A        3.2 %      3.6 %      2.7 %      9.8 %      3.0 % 

Drawbridge Global Macro Fund Ltd

      5.2 %      5.8 %      7.4 %      3.9 %      24.2 %      3.7 % 

Fortress Commodities Fund L.P.

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

 

11

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

12

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.

13

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

14

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.

 

13

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
March 31,
2010		  
     March 31,
2009		     June 30,
2009		     September 30,
2009		     December 31,
2009		      

Credit Hedge Funds

             

Assets Under Management

             

Drawbridge Special Opportunities Funds 15

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

Fortress Partners Funds 16

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

Value Recovery Funds 17

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

AUM - Ending Balance

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

Third-Party Capital Raised

    $ —        $ —        $ —        $ —        $ —        $ 81   

Segment Revenues

             

Management fees

    $ 28      $ 30      $ 32      $ 33      $ 123      $ 34   

Incentive income

      1        —          —          1        2        8   
                                                

Total

      29        30        32        34        125        42   

Segment Expenses

             

Operating expenses

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

Profit sharing compensation expenses

      (1 )      (2 )      (2 )      (1 )      (6 )      (4 ) 
                                                

Total

      (26 )      (23 )      (26 )      (28 )      (103 )      (31 ) 
                                                

Fund Management DE

    $ 3      $ 7      $ 6      $ 6      $ 22      $ 11   
                                                

Returns

             

Gross Returns 18

            

Drawbridge Special Opportunities LP 19

      3.6 %      7.8 %      7.4 %      6.3 %      27.5 %      7.4 % 

Drawbridge Special Opportunities LTD 19

      4.0 %      6.5 %      10.8 %      7.9 %      32.6 %      7.6 % 

Fortress Partners Funds LP

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

Fortress Partners Funds LTD

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

Net Returns 18

            

Drawbridge Special Opportunities LP 19

      3.1 %      7.3 %      6.8 %      5.8 %      25.0 %      6.9 % 

Drawbridge Special Opportunities LTD 19

      3.5 %      6.0 %      10.3 %      7.4 %      30.0 %      7.0 % 

Fortress Partners Funds LP

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

Fortress Partners Funds LTD

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

 

15

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

16

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

17

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.

18

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.

19

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.

 

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
March 31,
2010		  
     March 31,
2009		     June 30,
2009		     September 30,
2009		     December 31,
2009		      

Credit Private Equity Funds

             

Assets Under Management

             

Long Dated Value Funds

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

Real Assets Funds

      207        207        178        164        164        167   

Fortress Credit Opportunities Funds

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

Japan Opportunities Funds

      —          137        380        486        486        506   
                                                

AUM - Ending Balance

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

Third-Party Capital Raised

    $ —        $ 134      $ 273      $ 268      $ 675      $ 175   

Segment Revenues

             

Management fees

    $ 6      $ 8      $ 13      $ 13      $ 40      $ 10   

Incentive income

      —          7        1        15        23        85   
                                                

Total

      6        15        14        28        63        95   

Segment Expenses

             

Operating expenses

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

Profit sharing compensation expenses

      —          (4 )      —          (8 )      (12 )      (43 ) 
                                                

Total

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

Fund Management DE

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

 

15

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
March 31,
2010		  
     March 31,
2009		     June 30,
2009		     September 30,
2009		     December 31,
2009		      

Fund Management DE

    $ 44      $ 53      $ 51      $ 60      $ 208      $ 92   
                                                

Investment Income (Loss)

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

Interest Expense

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

Pre-tax DE

    $ 9      $ 59      $ 57      $ 1      $ 126      $ 96   
                                                

Private Equity incentive income

      —          —          —          3        3        (67 ) 

Hedge Fund incentive income

      —          —          (2 )      2        —          (6 ) 

Reserve for clawback

      —          —          —          (27 )      (27 )      —     

Distributions of earnings from equity method investees

      —          —          —          (1 )      (1 )      (6 ) 

Earnings (losses) from equity method investees

      (39 )      37        29        (7 )      20        13   

Gains (losses) on options

      —          —          1        —          1        1   

Gains (losses) on other Investments

      (2 )      20        19        (13 )      24        —     

Incentive income guarantee recorded as a loss

      —          —          —          3        3        —     

Impairment of investments

      32        —          2        67        101        4   

Employee equity-based compensation

      (53 )      (53 )      (61 )      (61 )      (228 )      (64 ) 

Principal compensation

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

Employee portion of incentive income

      —          —          —          10        10        —     

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

      220        128        133        179        660        180   

Tax receivable agreement liability reduction

      —          —          —          —          —          1   

Taxes

      1        1        3        —          5        (1 ) 
                                                

GAAP Net Income (Loss) Attributable to Class A Shareholders

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

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

      (220 )      (126 )      (131 )      (177 )      (654 )      (177 ) 
                                                

GAAP Net Income (Loss)

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

Segment Revenues

    $ 107      $ 117      $ 118      $ 157      $ 499      $ 207   
                                                

Adjust management fees

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

Adjust incentive income

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

Other revenues

      17        23        29        31        100        36   
                                                

GAAP Revenues

    $ 122      $ 139      $ 144      $ 179      $ 584      $ 160   
                                                

“Distributable earnings” is our supplemental measure of operating performance. It reflects the value created which management considers available for distribution during any period. As compared to generally accepted accounting principles (“GAAP”) net income, distributable earnings excludes the effects of unrealized gains (or losses) on illiquid investments, reflects contingent revenue which has been received as income to the extent it is not expected to be reversed, and disregards expenses which do not require an outlay of assets, whether currently or on

 

16

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 March 31, 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.

 

17

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
March 31, 2010		     Three Months Ended
March 31, 2009		  

GAAP net loss

    $ (261,332 )    $ (286,681 ) 

Principals agreement compensation

      234,759        234,759   
                

GAAP net income (loss) excluding principals agreement compensation

    $ (26,573 )    $ (51,922 ) 
                

 

18

Fortress Investment Group LLC

Exhibit 4

Reconciliation of Weighted Average Class A Shares Outstanding (Used for Basic EPS) to Weighted Average Dividend Paying Shares and Units Outstanding (Used for DEPS)

 

     Three Months Ended March 31,  
     2010     2009  

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

    157,821,895      95,202,243   
            

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

    (11,606,613 )    (631,260 ) 

Weighted average fully vested restricted Class A shares

    (141,472 )    (70,632 ) 
            

Weighted Average Class A Shares Outstanding

    146,073,810      94,500,351   
            

Weighted average restricted Class A shares 20

    231,292      135,496   

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

    11,606,613      631,260   

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

    19,651,275      22,955,132   

Weighted average Fortress Operating Group units

    307,773,852      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)

    516,336,842      461,293,789   
            

 

20

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

 

19