Fortress Investment Group LLC

RECONCILIATION OF GAAP NET INCOME (LOSS) TO PRE-TAX DE AND FUND MANAGEMENT DE

Financial Fundamentals

 

RECONCILIATION OF GAAP NET INCOME (LOSS) TO PRE-TAX DE AND FUND MANAGEMENT DE

 

Three Months Ended

Full Year
2015

Three Months Ended

($ in millions)

03/31/2015

06/30/2015

09/30/2015

12/31/2015

03/31/2016

06/30/2016

   
   

GAAP Net Income (Loss)

 

$

87

 

$

5

 

$

(26)

 

$

116

 

$

182

 

$

(16)

 

$

(27)

Income Tax Benefit (Expense)

   

18

   

(5)

   

3

   

39

   

55

   

1

   

4

GAAP Income (Loss) Before Income Taxes

   

105

   

-

   

(23)

   

155

   

237

   

(15)

   

(23)

Incentive Income

 

$

26

 

$

99

 

$

22

 

$

(62)

 

$

85

 

$

31

 

$

99

Unrealized Losses (Gains)

   

(63)

   

25

   

68

   

33

   

63

   

42

   

22

Compensation Adjustments - employees, Principals and directors

   

20

   

6

   

2

   

5

   

33

   

3

   

2

Other

   

(33)

   

7

   

-

   

(1)

   

(27)

   

3

   

1

Pre-Tax DE

 

$

55

 

$

137

 

$

69

 

$

130

 

$

391

 

$

64

 

$

101

Investment Loss (Income)

   

(5)

   

(4)

   

(3)

   

(19)

   

(31)

   

(4)

   

(6)

Interest Expense

   

1

   

-

   

1

   

2

   

4

   

3

   

3

Fund Management DE

 

$

51

 

$

133

 

$

67

 

$

113

 

$

364

 

$

63

 

$

98

DEFINITIONS

GAAP Net Income (Loss) is derived directly from our GAAP Statements of Operations.

Income Tax Benefit (Expense) is derived directly from our GAAP Statements of Operations.

GAAP Income (Loss) Before Income Taxes is derived directly from our GAAP Statements of Operations.

The Incentive Income adjustment adjusts between GAAP incentive income, which is based on the recognition of incentive income only when it is no longer subject to contingencies, and segment basis incentive income, which is based on realized or realizable incentive income less a reserve for contingencies (as necessary).

The adjustment for Unrealized Gains (Losses) and Losses (Earnings) from Equity Method Investees relates to the following items that are recognized for GAAP but not for segment reporting purposes: (i) Losses (earnings) from equity method investees, (ii) losses (gains) on options, (iii) losses (gains) on other Investments and (iv) income from the receipt of options. In addition, impairment of investments and distributions of earnings from equity method investees are recognized for segment reporting purposes but not for GAAP and are included in the above.

The adjustments for Compensation relate to equity-based compensation expense for employees, Principals and directors. These expenses are not recognized for segment reporting purposes. In addition, it includes adjustments to the employee portion of incentive income from private equity funds, pursuant to profit-sharing arrangements, accrued prior to the realization of incentive income.

Pre-Tax DE is a measure of operating performance used by Fortress's management in analyzing Fortress's business segments and overall results. Pre-Tax DE is the sum of Fund Management DE and Net Investment Income.

Investment Loss (Income) is the total return, including losses/(gains), recognized on our Principal Investment Assets and Cash. Losses/(gains) are recognized on a mark-to-market basis for our Hedge Fund assets. For our Private Equity assets, gains are only recognized when realized and losses are taken either when realized or if an asset is permanently impaired.

Interest Expense is the cost incurred by Fortress with respect to corporate borrowings.

Fund Management DE is used by Fortress's management to measure the performance of Fortress's business segments on a stand-alone basis. Fund Management DE is Total Segment Revenues less Total Segment Expenses and Principal Performance Payments.

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