Earnings Release

Fortress Reports Third Quarter 2014 Results and Announces Dividend of $0.08 per Share

Company Release - 10/30/2014 8:01 AM EDT

NEW YORK--(BUSINESS WIRE)-- Fortress Investment Group LLC (NYSE:FIG) (“Fortress” or the “Company”) today reported its third quarter 2014 financial results.

FINANCIAL SUMMARY

  • Fortress declares a cash dividend of $0.08 per dividend paying share for the third quarter of 2014
  • Management Fee Paying Assets Under Management (“AUM”) of $66.0 billion as of September 30, 2014, an increase of 3% from the previous quarter and an increase of 14% from September 30, 2013
  • GAAP net income of $10 million, or $0.02 per diluted Class A share, for the third quarter of 2014, compared to GAAP net income of $101 million, or $0.12 per diluted Class A share, for the third quarter of 2013
  • GAAP net income of $85 million, or $0.17 per diluted Class A share, for the nine months ended September 30, 2014, compared to GAAP net income of $166 million, or $0.21 per diluted Class A share, for the nine months ended September 30, 2013
  • Pre-tax distributable earnings (“DE”) of $55 million, or $0.12 per dividend paying share, for the third quarter of 2014, compared to pre-tax DE of $65 million, or $0.13 per dividend paying share, for the third quarter of 2013
  • Pre-tax DE of $323 million, or $0.72 per dividend paying share, for the nine months ended September 30, 2014, compared to pre-tax DE of $313 million, or $0.64 per dividend paying share, for the nine months ended September 30, 2013
  • Net cash and investments of $3.18 per dividend paying share as of September 30, 2014, up 5% from June 30, 2014
  • $1.0 billion, or $2.29 per dividend paying share, of gross embedded incentive income across funds and permanent capital vehicles as of September 30, 2014, that has not been recognized in DE
  • Total uncalled capital, or “dry powder,” of $7.5 billion as of September 30, 2014, including approximately $5.4 billion available for general investment purposes

BUSINESS HIGHLIGHTS

  • Raised $1.2 billion of capital across alternative investment businesses during the quarter, bringing total third-party alternative capital raised year-to-date through September 30, 2014 to $4.6 billion
  • Recorded $2.2 billion of net client inflows for Logan Circle during the quarter, bringing total net client inflows to $4.4 billion year-to-date through September 30, 2014
  • Investment performance summary as of September 30, 2014:
    • Third quarter 2014 net returns of 1.8% for Drawbridge Special Opportunities Fund (“DBSO”) LP, 1.1% for Fortress Macro Fund Ltd and 1.5% for Fortress Asia Macro Fund Ltd
    • Year-to-date 2014 net returns of 7.7% for DBSO LP, (4.9)% for Fortress Macro Fund Ltd and (4.0)% for Fortress Asia Macro Fund Ltd
    • Private Equity fund valuations increased 3.2% during the quarter and 5.2% year-to-date through September 30, 2014
    • Annualized inception-to-date net IRRs for the Credit Opportunities Fund and Credit Opportunities Fund II of 25.4% and 18.2%, respectively
    • 14 out of 16 Logan Circle fixed income strategies outperformed respective benchmarks year-to-date through September 30, 2014 and 15 of 16 strategies have outperformed respective benchmarks since inception

“Fortress is on track to deliver another strong full year of financial results,” said Fortress Chief Executive Officer Randy Nardone. “At $0.72 per share, we recorded our highest first three quarters of pre-tax distributable earnings since 2007. AUM closed the quarter at an all-time high of $66 billion, reflecting robust investor demand for Fortress and Logan Circle strategies and our permanent capital vehicles. Strong investment performance has continued to contribute to very substantial embedded value, both in our funds and on our balance sheet. Given these strengths, we are confident that we will have another strong full year, with catalysts in place for considerable upside in 2015 and the years ahead.”

SUMMARY FINANCIAL RESULTS

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

The table below summarizes Fortress’s operating results for the quarter and year-to-date period ended September 30, 2014. The consolidated GAAP statement of operations and balance sheet are presented on pages 13-14 of this press release.

                                                           
3Q 2Q 3Q   % Change   YTD YTD % Change
2014 2014 2013   QoQ     YoY   2014 2013 YoY
(in millions, except per share amount)
GAAP
Revenues $   404 $   427 $   232 (5)% 74% $   1,141 $   699 63%
Expenses 398 379 184 5% 116% 1,084 655 65%
Other Income 11 27 68 (59)% (84)% 47 163 (71)%
Net income (loss) 10 69 101 (86)% (90)% 85 166 (49)%
Net income (loss) attributable to Class A Shareholders     4     31     42   (87)%     (90)%       39     55 (29)%
Per diluted share $   0.02 $   0.12 $   0.12   (83)%     (83)%   $   0.17 $   0.21 (19)%
Weighted average Class A shares outstanding, diluted 221 445 502 (50)% (56)% 457 500 (9)%
 
Distributable Earnings
Fund management DE $ 67 $ 76 $ 53 (12)% 26% $ 230 $ 294 (22)%
Pre-tax DE     55     172     65   (68)%     (15)%       323     313 3%
Per dividend paying share/unit $   0.12 $   0.39 $   0.13   (69)%     (8)%   $   0.72 $   0.64 13%
Weighted average dividend paying shares and units outstanding 442 442 495 451 492
 
Assets Under Management
Private Equity $ 14,198 $ 13,831 $ 14,873 3% (5)% $ 14,198 $ 14,873 (5)%
Credit 13,223 12,982 12,595 2% 5% 13,223 12,595 5%
Liquid Markets 7,529 7,867 6,922 (4)% 9% 7,529 6,922 9%
Logan Circle     31,096     29,133     23,581   7%     32%       31,096     23,581 32%
Total Assets Under Management $   66,046 $   63,813 $   57,971   3%     14%   $   66,046 $   57,971 14%
 

CONSOLIDATED GAAP RESULTS

Fortress recorded GAAP net income of $10 million, or $0.02 per diluted Class A share, for the third quarter of 2014, compared to GAAP net income of $101 million, or $0.12 per diluted Class A share, for the third quarter of 2013. Our diluted earnings per share for all periods presented includes the income tax effects to net income (loss) attributable to Class A shareholders from the assumed conversion of Fortress Operating Group units and fully vested restricted partnership units to Class A shares.

In 2014, Fortress formed a new liquid hedge fund and a new private equity fund that Fortress determined qualify as variable interest entities of which Fortress is the primary beneficiary and therefore consolidates those funds. Consequently, Fortress’s financial statements include the assets, liabilities, related operations and cash flows of these funds and other consolidated entities (collectively, the “Investment Company”). In our consolidated financial statements, Fortress’s results and the results of the consolidated funds are disclosed under the Investment Manager caption and the consolidated funds’ related amounts are further detailed under the Investment Company caption.

Fortress also consolidates New Media Investment Group Inc.’s (“New Media” or the “Media Business”) (NYSE: NEWM) financial position and results of operations. Although New Media’s operating results impact GAAP net income, it does not have a material impact on the net income attributable to Fortress’s Class A shareholders, Class A basic and diluted earnings per share or total Fortress shareholders’ equity, as substantially all of the operating results of New Media are attributable to non-controlling interests. In our consolidated financial statements, New Media’s results are disclosed under the Non-Investment Manager caption.

The year-over-year decrease in Fortress’s third quarter 2014 GAAP net income was primarily driven by a $214 million increase in GAAP expenses and a $58 million decrease in Other Income, partially offset by a $172 million increase in GAAP revenues.

The increase in GAAP expenses was primarily attributable to $163 million of expenses associated with the Media Business as a result of the consolidation of New Media beginning in February 2014, as well as a $41 million increase in Investment Manager expenses related to compensation and benefits.

The decrease in Other Income was primarily related to $26 million of losses in the fair value of options and common stock in our publicly traded permanent capital vehicles in the third quarter.

The increase in GAAP revenues was primarily attributable to $165 million of revenues from the Media Business as a result of the consolidation of New Media.

CONSOLIDATED SEGMENT RESULTS (NON-GAAP)

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

In the third quarter of 2014, Fortress reorganized its segments by: (i) reclassifying its investments in and resulting pre-tax DE from the Fortress Funds, which were previously presented under the principal investments segment, to each of the other segments that the investment relates to, and (ii) reclassifying one of its private equity funds, WWTAI, from its Private Equity Funds segment to its Permanent Capital Vehicles segment. Prior period amounts have been reclassified to reflect this segment reorganization.

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

         
As of September 30, 2014
    Private Equity    

 

    Credit Funds    

 

(in millions) Total Funds    

Permanent
Capital Vehicles

Liquid Hedge
Funds

Hedge Funds     PE Funds

Logan Circle
Partners

 
Assets Under Management1 $   66,046 $     9,787 $ 4,411 $   7,529 $     6,140 $   7,083 $   31,096
Dry Powder $ 7,457 $ 2,127 $ 557 N/A $ 468 $ 4,305 N/A
Average Management Fee Rate2 1.2% 1.5% 1.8% 2.0% 1.4% 0.2%
 
Incentive Eligible NAV Above Incentive Income Threshold3 $ 18,629 $ 594 $ 1,844 $ 401 $ 5,449 $ 10,187 $ 154
 
Undistributed Incentive Income: Unrecognized $ 1,013 $ 16 $ 69 $ 7 $ 77 $ 844 $ -
Undistributed Incentive Income: Recognized     77       -   -     1       76     - $   -
Undistributed Incentive Income4 $   1,090 $     16 $ 69 $   8 $     153 $   844 $   -
 
Three Months Ended September 30, 2014
Private Equity

 

Credit Funds

 

(in millions) Total Funds

Permanent
Capital Vehicles

Liquid Hedge
Funds

Hedge Funds PE Funds

Logan Circle
Partners

 
Third-Party Capital Raised $ 1,216 $ 101 $ 673 $ 247 $ 165 $ 30 $ -
 
Segment Revenues
Management fees $ 149 $ 33 $ 17 $ 33 $ 29 $ 24 $ 13
Incentive income     88       -   16     2       29     41     -
Total 237 33 33 35 58 65 13
Segment Expenses
Operating expenses (112) (15) (18) (21) (17) (27) (14)
Profit sharing compensation expenses     (54)       -   (9)     (9)       (14)     (22)     -
Total     (166)       (15)   (27)     (30)       (31)     (49)     (14)
 
Principal Performance Payments (4) - - - (4) - -
             
Fund Management DE $   67 $     18 $ 6 $   5 $     23 $   16 $   (1)
 
Net Investment Income (12) - 1 (9) (5) 2 (1)
             
Pre-tax Distributable Earnings $   55 $     18 $ 7 $   (4) $     18 $   18 $   (2)
 

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1 The Assets Under Management presented for the Credit Hedge Funds includes $309 million related to the third-party originated Value Recovery Funds. Fortress earns fees from the Value Recovery Funds based only on collections.
2 The Average Management Fee Rate presented for the Credit Hedge Funds excludes the third-party originated Value Recovery Funds. See footnote (1) above.
3 The Incentive Eligible NAV Above Incentive Income Threshold presented for Liquid and Credit Hedge Funds excludes sidepocket investments. The Incentive Eligible NAV Above Incentive Income Threshold presented for Private Equity Funds (except for Fund V, of which a portion of the fund’s capital was above the incentive income threshold as of September 30, 2014) and Credit PE Funds represents total fund NAV. The Incentive Eligible NAV Above Incentive Income Threshold presented for the publicly traded permanent capital vehicles represents the equity basis that is used to calculate incentive income and, for the private permanent capital vehicle, total NAV.
4 The Undistributed Incentive Income presented includes the impact of sidepocket investments on Liquid and Credit Hedge Funds. Undistributed Incentive Income for Private Equity Funds, Credit PE Funds and Liquid and Credit Hedge Fund sidepocket and redeeming capital account (RCA) investments has not been recognized in Distributable Earnings and will be recognized when realized; Undistributed Incentive Income for other Hedge Fund investments was recognized in Distributable Earnings when earned. Undistributed Incentive Income for Permanent Capital Vehicles includes incentive income that would have been recorded in Distributable Earnings if Fortress had exercised all of its in-the-money Newcastle, New Residential and Eurocastle options and sold all of the resulting shares at their September 30, 2014 closing price.
 

Pre-tax DE was $55 million in the third quarter of 2014, down from $65 million in the third quarter of 2013. This decrease was primarily due to higher segment expenses and lower net investment income, partially offset by higher management fees and incentive income.

Management fees were $149 million in the third quarter of 2014, up from $136 million in the third quarter of 2013, primarily due to higher management fees from the Credit Hedge Funds, Logan Circle, Liquid Hedge Funds and Permanent Capital Vehicles, partially offset by lower management fees from the Private Equity Funds.

Incentive income recorded in the third quarter of 2014 totaled $88 million, up from $42 million recorded in the third quarter of 2013, primarily due to higher incentive income from the Credit PE Funds and Permanent Capital Vehicles and a reduction in the reversal of accrued incentive income from the Liquid Hedge Funds in third quarter of 2013, partially offset by lower incentive income from the Credit Hedge Funds and Private Equity Funds.

Additionally, Fortress had $1.0 billion in gross undistributed, unrecognized incentive income based on investment valuations as of September 30, 2014. This includes $949 million from our funds and private permanent capital vehicle and $64 million from options in our publicly traded permanent capital vehicles.

Net investment income (loss) totaled $(12) million in the third quarter of 2014, compared to $12 million in the third quarter of 2013. The decrease in net investment income was primarily due to losses and impairments related to investments held on our balance sheet.

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

ASSETS UNDER MANAGEMENT

As of September 30, 2014, AUM totaled $66.0 billion, up from $63.8 billion as of June 30, 2014. During the third quarter, Fortress recorded $2.2 billion of net client inflows for Logan Circle, had a $0.9 billion increase in invested capital, raised $0.7 billion of capital that was directly added to AUM and had $0.4 billion of market-driven valuation gains. These increases to AUM were partially offset by (i) $1.2 billion of capital distributions to investors, (ii) $0.6 billion of Liquid Hedge Fund redemptions and (iii) $0.2 billion of payments to Credit Hedge Fund investors from redeeming capital accounts.

As of September 30, 2014, the Credit Funds, Private Equity Funds and private permanent capital vehicle had approximately $4.8 billion, $2.1 billion and $0.6 billion of uncalled capital, respectively, that will become AUM if deployed/called. Uncalled capital or dry powder – capital committed to the funds but not invested and generating management fees – includes $2.0 billion that is only available for follow-on investments, management fees and other fund expenses. Notably, approximately 78% of alternative AUM was in funds with long-term investment structures as of September 30, 2014, which provides for a stable, predictable base of management fees.

BUSINESS SEGMENT RESULTS

Below is a discussion of third quarter 2014 segment results and business highlights.

Credit:

  • DBSO LP net returns of 1.8% for the third quarter of 2014 and 7.7% year-to-date through September 30, 2014
  • Credit Opportunities Fund, Credit Opportunities Fund II and Japan Opportunity Fund recorded annualized inception-to-date net IRRs of 25.4%, 18.2% and 29.6%, respectively, through September 30, 2014
  • Credit PE Funds distributed $0.4 billion of capital back to limited partners during the quarter, bringing capital distributions year-to-date through September 30, 2014 to $1.4 billion
  • Raised $165 million of capital across Credit Hedge Funds and $30 million across Credit PE Funds during the quarter

(See supplemental data on pages 20-21 for more detail on Credit results)

The Credit business, which includes our Credit PE Funds and Credit Hedge Funds, generated pre-tax DE of $36 million in the third quarter of 2014, compared to $40 million in the third quarter of 2013. The year-over-year decline in DE was primarily driven by higher expenses and lower net investment income, partially offset by higher incentive income and management fees.

The Credit PE Funds generated pre-tax DE of $18 million in the quarter, up from $9 million in the third quarter of 2013, as increased realization activity resulted in $41 million of incentive income recorded in the quarter. Positive Credit PE Fund performance in the last twelve months also contributed to a $232 million year-over-year net change in gross unrecognized Credit PE incentive income, which totaled $844 million as of September 30, 2014.

At quarter end, the Credit PE Funds had $10.2 billion of incentive eligible NAV above performance thresholds as all flagship Credit Opportunities and Japan Real Estate Funds were valued above their preferred thresholds and eligible to generate incentive income.

The Credit Hedge Funds generated pre-tax DE of $18 million in the quarter, down from $31 million in the third quarter of 2013, primarily due to lower incentive income and lower net investment income.

DBSO LP, Fortress’s flagship credit hedge fund, had net returns of 1.8% in the third quarter and 7.7% for the nine month period ending September 30, 2014. At quarter end, the Credit Hedge Funds had $5.4 billion of incentive eligible NAV above performance thresholds and eligible to generate additional incentive income. The Credit Hedge Funds raised $165 million of third-party capital in the quarter, primarily for the DBSO funds, of which $155 million immediately contributed to AUM. The Credit Hedge Funds have raised $947 million of third-party capital year-to-date through September 30, 2014.

Private Equity:

  • Fund portfolio investment valuations increased 3.2% in the quarter
  • Raised $361 million of capital for WWTAI in the quarter and reclassified its financial results from the Private Equity Funds segment to the Permanent Capital Vehicles segment
  • Newcastle Investment Corp. (NYSE: NCT) raised $198 million of capital in the quarter
  • New Media Investment Group (NYSE: NEWM) raised $115 million of capital in the quarter
  • Raised $101 million of capital for the Italian NPL Opportunities Fund in the quarter
  • Previously announced spin-off of Newcastle’s senior housing assets expected to be completed in November 2014

(See supplemental data on page 18-19 for more detail on Private Equity results)

The Private Equity business, which includes Private Equity Funds and Permanent Capital Vehicles, recorded pre-tax DE of $25 million in the third quarter of 2014, down from $37 million in the third quarter of 2013, primarily due to higher expenses and lower net investment income, partially offset by higher Permanent Capital Vehicle incentive income.

The Private Equity funds generated $18 million of pre-tax DE in the quarter, down from $30 million in the third quarter of 2013, primarily due to higher operating expenses and lower net investment income. During the quarter, the Private Equity business raised $101 million of capital for the Italian NPL Opportunities Fund, bringing total third-party commitments to approximately $830 million.

Private Equity Fund valuations increased 3.2% in the quarter, primarily due to appreciation of Springleaf Holdings, Inc. (NYSE: LEAF), a publicly traded portfolio company investment held within Fund V, and certain privately held portfolio company investments.

The Permanent Capital Vehicles generated $7 million of pre-tax DE in the quarter, flat compared to the third quarter of 2013, as increased incentive income and management fees were offset by higher expenses. During the quarter, the Permanent Capital Vehicles raised $673 million of capital, including $361 million for WWTAI, $198 million for NCT and $115 million for NEWM. Year-to-date through September 30, 2014, the Permanent Capital Vehicles have raised $1.1 billion of capital.

WWTAI, which has been reclassified from the Private Equity Fund segment to the Permanent Capital Vehicle segment, has filed IPO documents with the SEC. Fortress’s ability to complete an IPO of WWTAI is subject to certain conditions, including but not limited to, the SEC declaring the registration statement relating to the IPO effective and approval of an application to list WWTAI’s common stock on the NYSE. There can be no assurance these conditions will be satisfied.

In June 2014, NCT announced plans to spin off all of its senior housing assets into a new publicly traded real estate investment trust, New Senior Investment Group Inc. (“New Senior”). New Senior will be externally managed by an affiliate of Fortress and will primarily target senior housing related investments. The spin-off has been approved by NCT’s Board of Directors and is expected to be completed with the distribution of shares of common stock of New Senior (NYSE: SNR) on or about November 6, 2014 to shareholders of NCT.

Liquid Hedge Funds:

  • Fortress Macro Fund and Fortress Asia Macro Fund had a net returns of 1.1% and 1.5%, respectively, for the third quarter of 2014
  • Raised approximately $247 million of capital during the quarter and $2.1 billion year-to-date through September 30, 2014

(See supplemental data on page 22 for more detail on Liquid Hedge Funds results)

The Liquid Hedge Funds recorded a pre-tax DE loss of $4 million in the third quarter of 2014, compared to a pre-tax DE loss of $9 million in the third quarter of 2013. The year-over-year improvement in pre-tax DE was primarily due to a $26 million reversal of accrued incentive income in the third quarter of 2013.

Net returns for the quarter ended September 30, 2014 for the Fortress Macro Funds, Fortress Asia Macro Funds, Fortress Partners Funds and Fortress Convex Asia Funds were 1.1%, 1.5%, (1.4)% and (0.5)%, respectively. Net returns year-to-date through October 24, 2014 for the Fortress Macro Funds, Fortress Asia Macro Funds and Fortress Convex Asia Funds were (9.3)%, (7.3)% and (4.5)%, respectively.*

Liquid Hedge Funds ended the quarter with $7.5 billion of AUM, up 9% from the third quarter of 2013, primarily due to $2.4 billion of capital raised in the last twelve months, partially offset by $1.6 billion of redemptions in the last twelve months.

Subsequent to quarter end, the Liquid Hedge Funds raised approximately $168 million of additional capital, which will be added to AUM in the fourth quarter of 2014. As of September 30, 2014, there were $603 million Liquid Hedge Fund redemption notices outstanding, $296 million of which will be paid primarily within one quarter.

_________________________

* The net returns for the quarter ended September 30, 2014 for the Fortress Convex Asia Funds reflect returns for the Fortress Convex Asia Funds and Fortress Convex Asia PF Funds collectively. The calculation of net returns for the Fortress Convex Asia PF Funds reflect all expenses, including management fees, accrued incentive allocation (if any), and other expenses over the fund’s Trading Level. “Trading Level” is defined as the product of the fund’s NAV multiplied by the Funding Factor. The “Funding Factor” is 2x for Fortress Convex Asia Fund PF Ltd and Fortress Convex Asia Fund PF LP. The net returns year-to-date through October 24, 2014 do not reflect Fortress Convex Asia PF Funds’ performance, as the Fortress Convex Asia PF Funds were launched on July 1, 2014. The net returns of Fortress Partners Funds for the quarter ended September 30, 2014 represent a blended return. Please see supplemental data on page 22 for more detail on the returns of each Fortress Partners Fund.
 

Logan Circle:

  • 14 out of 16 Logan Circle fixed income investment strategies outperformed their respective benchmarks year-to-date, and 15 of 16 strategies have outperformed respective benchmarks since inception
  • Traditional asset management AUM totaled $31.1 billion at September 30, 2014, an increase of 32% compared to September 30, 2013
  • Net client inflows totaled $2.2 billion in the third quarter of 2014 and $4.4 billion year-to-date through September 30, 2014

(See supplemental data on page 23 for more detail on Logan Circle results)

Logan Circle, our traditional asset management business, recorded a pre-tax DE loss of $2 million in the quarter, flat compared to the third quarter of 2013, as increased management fees were offset by higher operating expenses and lower net investment income.

Logan Circle ended the quarter with $31.1 billion in AUM, a 7% increase compared to the prior quarter and a 32% increase compared to the previous year. The year-over-year increase in AUM was primarily due to net client inflows of $5.9 billion and market-driven valuation gains of $1.6 billion. Since Fortress’s acquisition of Logan Circle in April 2010, Logan Circle’s AUM has grown at a CAGR of 25%.

Notably, 14 of 16 of Logan Circle’s fixed income strategies outperformed their respective benchmarks year-to-date through September 30, 2014. Since inception, 15 of 16 Logan Circle fixed income strategies have outperformed their respective benchmarks and as of September 30, 2014, eight were ranked in the top quartile of performance for their competitor universe.

LIQUIDITY & CAPITAL

As of September 30, 2014, Fortress (excluding New Media and Investment Company consolidated VIEs) had cash and cash equivalents of $332 million and debt obligations of $75 million.

As of September 30, 2014, Fortress had $1.1 billion of investments in Fortress funds and $0.1 billion of investments in options in Permanent Capital Vehicles. As of September 30, 2014, Fortress had a total of $149 million of outstanding commitments to its funds.

In addition, at quarter end, the NAV of Fortress’s investments in its own funds exceeded its segment cost basis by $572 million, representing net unrealized gains that have not yet been recognized for segment reporting purposes.

DIVIDEND

Fortress’s Board of Directors declared a third quarter 2014 cash dividend of $0.08 per dividend paying share. The dividend is payable on November 17, 2014 to Class A shareholders of record as of the close of business on November 12, 2014.

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

NON-GAAP INFORMATION

DE is a primary metric used by management to measure Fortress’s operating performance. Consistent with GAAP, DE is the sole measure that management uses to manage, and thus report on, Fortress’s segments, namely: Private Equity, Permanent Capital Vehicles, Credit Hedge Funds, Credit PE Funds, Liquid Hedge Funds and Logan Circle. DE differs from GAAP net income in a number of material ways. For a detailed description of the calculation of pre-tax DE and fund management DE, see Exhibit 3 to this release and note 11 to the financial statements included in the Company’s most recent quarterly report on Form 10-Q.

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

CONFERENCE CALL

Management will host a conference call today, Thursday, October 30, 2014 at 10:00 A.M. Eastern Time. A copy of the earnings release is posted to the Investor Relations section of Fortress’s website, www.fortress.com. The conference call may be accessed by dialing 1-877-694-6694 (from within the U.S.) or 1-970-315-0985 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference “Fortress Third Quarter Earnings Call.” A simultaneous webcast of the conference call will be available to the public on a listen-only basis at www.fortress.com. Please allow extra time prior to the call to visit the site and download the necessary software required to listen to the internet broadcast. A telephonic replay of the conference call will also be available until 11:59 P.M. Eastern Time on Thursday, November 6, 2014 by dialing 1-855-859-2056 (from within the U.S.) or 1-404-537-3406 (from outside of the U.S.); please reference access code “18383849.”

ABOUT FORTRESS

Fortress Investment Group LLC (NYSE:FIG) is a leading, highly diversified global investment management firm with $66.0 billion in assets under management as of September 30, 2014. Fortress applies its deep experience and specialized expertise across a range of investment strategies - private equity, credit, liquid hedge funds and traditional asset management - on behalf of over 1,600 institutional clients and private investors worldwide. For more information regarding Fortress Investment Group LLC or to be added to its e-mail distribution list, please visit www.fortress.com.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this press release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding Fortress’s sources of management fees, incentive income and investment income (loss), estimated fund performance and the amount and source of expected capital commitments. These statements are not historical facts, but instead represent only the Company’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company’s control. It is possible that the sources and amounts of management fees, incentive income and investment income, the amount and source of expected capital commitments for any new fund or redemption amounts may differ, possibly materially, from these forward-looking statements, and any such differences could cause the Company’s actual results to differ materially from the results expressed or implied by these forward-looking statements. For a discussion of some of the risks and important factors that could affect such forward-looking statements, see the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Quarterly Report on Form 10-Q, which is, or will be, available on the Company’s website (www.fortress.com). In addition, new risks and uncertainties emerge from time to time, and it is not possible for the Company to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Accordingly, you should not place undue reliance on any forward-looking statements contained in this press release. The Company can give no assurance that the expectations of any forward-looking statement will be obtained. Such forward-looking statements speak only as of the date of this press release. The Company expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

U.S. FEDERAL INCOME TAX IMPLICATIONS OF DIVIDEND

This announcement is intended to be a qualified notice as provided in the Internal Revenue Code (the “Code”) and the Regulations thereunder. For U.S. federal income tax purposes, the dividend declared in October 2014 will be treated as a partnership distribution. The per share distribution components are as follows:

                   
U.S. Long Term Capital Gain(1) $ 0.0000
Non-U.S. Long Term Capital Gain $ 0.0000
U.S. Portfolio Interest Income (2)

 

$

0.0400

U.S. Dividend Income (3) $ 0.0100
Other Income (4) $ 0.0000
Return of Capital $ 0.0300
Distribution Per Share $ 0.0800
 
(1)   U.S. Long Term Capital Gain realized on the sale of a United States Real Property Holding Corporation. As a result, the gain from the sale will be treated as income that is effectively connected with a U.S. trade or business.
 
(2) Eligible for the U.S. portfolio interest exemption for any holder not considered a 10-Percent shareholder under §871(h)(3)(B) of the Code.
 
(3) This income is subject to withholding under §1441 of the Code.
 
(4) This income is not subject to withholding under §1441 or §1446 of the Code.
 
 

Fortress Investment Group LLC

Consolidated Statements of Operations (Unaudited)

(dollars in thousands, except share data)
 
        Three Months Ended September 30,     Nine Months Ended September 30,
2014       2013 2014       2013
Revenues
Investment Manager
Management fees: affiliates $ 133,674 $ 121,593 $ 397,200 $ 388,957
Management fees: non-affiliates 16,774 15,361 52,112 45,531
Incentive income: affiliates 30,941 40,934 125,634 103,176
Incentive income: non-affiliates 343 1,907 1,030 4,770
Expense reimbursements: affiliates 50,600 49,301 153,448 149,308
Expense reimbursements: non-affiliates 4,869 1,904 9,931 4,752
Other revenues 1,302 1,019 4,325 2,954
Investment Company - consolidated VIEs
Interest and dividend income   196   -   244   -
  238,699   232,019   743,924   699,448
Non-Investment Manager - consolidated VIE
Advertising 96,761 - 236,434 -
Circulation 49,803 - 118,049 -
Commercial printing and other   18,497   -   42,832   -
  165,061   -   397,315   -
Total Revenues   403,760   232,019   1,141,239   699,448
 
Expenses
Investment Manager
Compensation and benefits 187,249 146,457 543,882 539,591
General, administrative and other 40,855 33,315 120,646 99,970
Depreciation and amortization 4,997 3,501 14,335 10,094
Interest expense 916 778 2,554 4,856
Investment Company - consolidated VIEs
Other   466   -   685   -
  234,483   184,051   682,102   654,511
Non-Investment Manager - consolidated VIE
Operating costs 93,716 - 225,249 -
General, administrative and other 54,375 - 130,900 -
Depreciation and amortization 10,854 - 26,201 -
Interest expense 4,519 - 10,813 -
Loss on extinguishment of debt   -   -   9,047   -
  163,464   -   402,210   -
Total Expenses   397,947   184,051   1,084,312   654,511
 
Other Income (Loss)
Investment Manager
Gains (losses) (19,359) 7,503 (26,235) 45,578
Tax receivable agreement liability adjustment (4,036) - (4,036) (7,739)
Earnings (losses) from equity method investees 38,928 60,508 81,750 125,515
Investment Company - consolidated VIEs
Gains (losses)   (4,991)   -   (4,427)   -
Total Other Income (Loss)   10,542   68,011   47,052   163,354
 
Income (Loss) Before Income Taxes 16,355 115,979 103,979 208,291
Income tax benefit (expense) - Investment Manager (3,024) (14,794) (16,934) (42,236)
Income tax benefit (expense) - Non-Investment Manager - consolidated VIE   (3,116)   -   (1,704)   -
Total Income Tax Benefit (Expense) $ (6,140) $ (14,794) $ (18,638) $ (42,236)
Net Income (Loss) $ 10,215 $ 101,185 $ 85,341 $ 166,055
Allocation of Net Income (Loss)

 

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

10,842 58,804 58,946 111,421
Redeemable Non-Controlling Interests in Income (Loss) of Investment Company - consolidated VIE (2,042) - (1,885) -
Non-Controlling Interests in Income (Loss) of Investment Company - consolidated VIEs (9) - (9) -
Non-Controlling Interests in Income (Loss) of Non-Investment Manager - consolidated VIE (3,014) - (10,305) -
Net Income (Loss) Attributable to Class A Shareholders   4,438   42,381   38,594   54,634
$ 10,215 $ 101,185 $ 85,341 $ 166,055
 

Earnings (Loss) Per Class A Share

Net income (loss) per Class A share, basic $ 0.02 $ 0.17 $ 0.18 $ 0.23
Net income (loss) per Class A share, diluted $ 0.02 $ 0.12 $ 0.17 $ 0.21
Weighted average number of Class A shares outstanding, basic   208,014,692   239,404,587   210,874,640   234,750,585
Weighted average number of Class A shares outstanding, diluted   220,792,711   502,091,166   457,019,507   499,562,470
 
 

Fortress Investment Group LLC

Consolidated Balance Sheets

(dollars in thousands)
             

September 30, 2014
(Unaudited)

December 31, 2013
Assets
Investment Manager
Cash and cash equivalents $ 332,158 $ 364,583
Due from affiliates 165,074 407,124
Investments 1,099,955 1,253,266
Investments in options 70,251 104,338
Deferred tax asset, net 385,301 354,526
Other assets 174,623 190,595
Investment Company - consolidated VIEs
Cash and cash equivalents 16,604 -
Receivables from brokers and counterparties 40,825 -
Investments, at fair value 133,857 -
Other assets   920   -
2,419,568 2,674,432
Non-Investment Manager - consolidated VIE
Cash and cash equivalents 135,063 -
Fixed assets, net 290,481 -
Goodwill 125,407 -
Intangible assets, net 155,133 -
Other assets, net   116,893   -
  822,977   -
Total Assets $ 3,242,545 $ 2,674,432
 
Liabilities and Equity
 
Liabilities
Investment Manager
Accrued compensation and benefits $ 269,060 $ 417,309
Due to affiliates 356,189 344,832
Deferred incentive income 283,684 247,556
Debt obligations payable 75,000 -
Other liabilities 116,113 49,830
Investment Company - consolidated VIEs
Due to brokers and counterparties 12,577 -
Securities sold not yet purchased, at fair value 37,258 -
Other liabilities   1,477   -
1,151,358 1,059,527
Non-Investment Manager - consolidated VIE
Deferred revenue 36,125 -
Debt obligations payable 232,275 -
Accrued expenses and other liabilities   72,179   -
340,579 -
   
Total Liabilities $ 1,491,937 $ 1,059,527
 
Commitments and Contingencies
 
Redeemable Non-controlling Interests, Investment Company - consolidated VIE 34,887 -
 
Equity

Class A shares, no par value, 1,000,000,000 shares authorized, 208,004,183

and 240,741,920 shares issued and outstanding at September 30, 2014 and

December 31, 2013, respectively - -

Class B shares, no par value, 750,000,000 shares authorized, 226,331,513

and 249,534,372 shares issued and outstanding at September 30, 2014 and

December 31, 2013, respectively

- -
Paid-in capital 2,004,828 2,112,720
Retained earnings (accumulated deficit) (1,412,494) (1,286,131)
Accumulated other comprehensive income (loss)   (1,870)   (1,522)
 
Total Fortress shareholders' equity 590,464 825,067
Principals' and others' interests in equity of consolidated subsidiaries 587,315 789,838
Non-controlling interests in equity of Investment Company - consolidated VIEs 58,426 -
Non-controlling interests in equity of Non-Investment Manager - consolidated VIE   479,516   -
Total Equity   1,715,721   1,614,905
$ 3,242,545 $ 2,674,432
 
 

Fortress Investment Group LLC

Exhibit 1-a

Supplemental Data for the Three Months Ended September 30, 2014 and 2013

 
      Three Months Ended September 30, 2014
    Private Equity    

 

    Credit Funds    

 

(in millions) Total Funds    

Permanent Capital
Vehicles

Liquid Hedge
Funds

Hedge Funds     PE Funds

Logan Circle

Assets Under Management
AUM - July 1, 2014 $   63,813 $     9,810 $ 4,021 $ 7,867 $   6,084 $     6,898 $ 29,133
Capital raised 433 - - 247 155 31 -
Equity raised (Permanent Capital Vehicles) 312 - 312 - - - -
Increase in invested capital 938 67 133 - - 738 -
Redemptions (563) - - (562) (1) - -
RCA distributions5 (180) - - - (180) - -
Return of capital distributions (1,170) (644) (13) (83) (19) (411) -
Adjustment for reset date (86) - - - - (86) -
Crystallized Incentive Income (10) - - (1) (9) - -
Net Client Flows 2,178 - - - - - 2,178
Income (loss) and foreign exchange     381       554   (42)   61     110       (87)   (215)
AUM - Ending Balance $ 66,046 $ 9,787 $ 4,411 $ 7,529 $ 6,140 $ 7,083 $ 31,096
 
Third-Party Capital Raised $   1,216 $     101 $ 673 $ 247 $   165 $     30 $ -
 
Segment Revenues
Management fees $ 149 $ 33 $ 17 $ 33 $ 29 $ 24 $ 13
Incentive income     88       -   16   2     29       41   -
Total 237 33 33 35 58 65 13
 
Segment Expenses
Operating expenses (112) (15) (18) (21) (17) (27) (14)
Profit sharing compensation expenses     (54)       -   (9)   (9)     (14)       (22)   -
Total (166) (15) (27) (30) (31) (49) (14)
             
Fund Management DE (before Principal Performance Payments)     71       18   6   5     27       16   (1)
 
Principal Performance Payments (4) - - - (4) - -
             
Fund Management DE     67       18   6   5     23       16   (1)
 
Investment Income (12) - 1 (9) (5) 2 (1)
Unallocated Investment Income -
Unallocated Expenses -
             
Pre-tax Distributable Earnings $   55 $     18 $ 7 $ (4) $   18 $     18 $ (2)
 
Pre-tax Distributable Earnings per Dividend Paying Share $   0.12
 
         
Three Months Ended September 30, 2013
    Private Equity    

 

    Credit Funds    

 

(in millions) Total Funds    

Permanent Capital
Vehicles

Liquid Hedge
Funds

Hedge Funds     PE Funds

Logan Circle

Assets Under Management
AUM - July 1, 2013 $     54,610 $     10,920 $ 3,364 $ 6,461 $     5,760 $     6,708 $ 21,397
Capital raised 953 - - 857 96 - -
Equity raised (Permanent Capital Vehicles) - - - - - - -
Increase in invested capital 848 175 44 3 - 626 -
Redemptions (247) - - (212) (35) - -
RCA distributions5 (403) - - - (403) - -
Return of capital distributions (607) (152) - (47) - (408) -
Adjustment for reset date (6) - - - - (6) -
Crystallized Incentive Income (26) - - (14) (12) - -
Net Client Flows 1,938 - - - - - 1,938
Income (loss) and foreign exchange       911       501   21   (126)       261       8   246
AUM - Ending Balance $ 57,971 $ 11,444 $ 3,429 $ 6,922 $ 5,667 $ 6,928 $ 23,581
 
Third-Party Capital Raised $     2,036 $     1,083 $ - $ 857 $     96 $     - $ -
 
Segment Revenues
Management fees $ 136 $ 34 $ 14 $ 30 $ 25 $ 24 $ 9
Incentive income       42       1   6   (26)       44       17   -
Total 178 35 20 4 69 41 9
 
Segment Expenses
Operating expenses (94) (11) (11) (19) (16) (25) (12)
Profit sharing compensation expenses       (27)       -   (2)   3       (20)       (8)   -
Total (121) (11) (13) (16) (36) (33) (12)
             
Fund Management DE (before Principal Performance Payments)       57       24   7   (12)       33       8   (3)
 
Principal Performance Payments (4) - (1) 1 (4) - -
             
Fund Management DE       53       24   6  

(11)

      29       8   (3)
 
Investment Income 13 6 1 2 2 1 1
Unallocated Investment Income -
Unallocated Expenses (1)
             
Pre-tax Distributable Earnings $     65 $     30 $ 7 $ (9) $     31 $     9 $ (2)
 
Pre-tax Distributable Earnings per Dividend Paying Share $     0.13
 

_________________________

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

   
 

Fortress Investment Group LLC

Exhibit 1-a

Supplemental Data for the Nine Months Ended September 30, 2014 and 2013

 
        Nine Months Ended September 30, 2014
    Private Equity    

 

    Credit Funds    

 

(in millions) Total Funds    

Permanent Capital
Vehicles

Liquid Hedge
Funds

Hedge Funds

    PE Funds

Logan Circle

Assets Under Management
AUM - January 1, 2014 $     61,750 $     11,861 $ 3,722 $ 7,398 $     5,856 $     7,527 $ 25,386
Capital raised 2,615 - - 2,072 512 31 -
Equity raised (Permanent Capital Vehicles) 483 - 483 - - - -
Increase in invested capital 1,526 127 348 - 15 1,036 -
Redemptions (1,475) - - (1,438) (37) - -
RCA distributions6 (487) - - - (487) - -
Return of capital distributions (4,457) (2,798) (97) (120) (47) (1,395) -
Adjustment for reset date (86) - - - - (86) -
Crystallized Incentive Income (299) - - (130) (169) - -
Net Client Flows 4,385 - - - - - 4,385
Income (loss) and foreign exchange       2,091       597   (45)   (253)       497       (30)   1,325
AUM - Ending Balance $ 66,046 $ 9,787 $ 4,411 $ 7,529 $ 6,140 $ 7,083 $ 31,096
 
Third-Party Capital Raised $     4,587 $     206 $ 1,078 $ 2,072 $     947 $     284 $ -
 
Segment Revenues
Management fees $ 448 $ 104 $ 50 $ 103 $ 84 $ 72 $ 35
Incentive income       270       3   41   3       103       120   -
Total 718 107 91 106 187 192 35
 
Segment Expenses
Operating expenses (325) (38) (49) (68) (51) (79) (40)
Profit sharing compensation expenses       (146)       -   (15)   (18)       (49)       (64)   -
Total (471) (38) (64) (86) (100) (143) (40)
             
Fund Management DE (before Principal Performance Payments)       247       69   27   20       87       49   (5)
 
Principal Performance Payments (17) - (3) (1) (12) (1) -
             
Fund Management DE       230       69   24   19       75       48   (5)
 
Investment Income 94 95 2 (7) (2) 6 -
Unallocated Investment Income 1
Unallocated Expenses (2)
             
Pre-tax Distributable Earnings $     323 $     164 $ 26 $ 12 $     73 $     54 $ (5)
 
Pre-tax Distributable Earnings per Dividend Paying Share $     0.72
 
         
Nine Months Ended September 30, 2013
    Private Equity    

 

   

Credit Funds

   

 

(in millions) Total Funds    

Permanent Capital
Vehicles

Liquid Hedge
Funds

Hedge Funds     PE Funds

Logan Circle

Assets Under Management
AUM - January 1, 2013 $     53,430 $     10,510 $ 3,761 $ 5,060 $     5,665 $     7,749 $   20,685
Capital raised 2,588 - - 2,250 338 - -
Equity raised (Permanent Capital Vehicles) 1,097 - 1,097 - - - -
Increase in invested capital 1,704 428 98 3 - 1,175 -
Redemptions (813) - - (730) (83) - -
RCA distributions6 (824) - - - (824) - -
Return of capital distributions (2,334) (441) (7) (87) (8) (1,791) -
Adjustment for reset date (1,498) - (1,492) - - (6) -
Crystallized Incentive Income (235) - - (83) (152) - -
Net Client Flows 3,215 - - - - - 3,215
Income (loss) and foreign exchange       1,641       947   (28)   509       731       (199)     (319)
AUM - Ending Balance $ 57,971 $ 11,444 $ 3,429 $ 6,922 $ 5,667 $ 6,928 $ 23,581
 
Third-Party Capital Raised $     4,989 $     1,083 $ 1,318 $ 2,250 $     338 $     - $   -
 
Segment Revenues
Management fees $ 397 $ 100 $ 46 $ 79 $ 75 $ 71 $ 26
Incentive income       357       9   7   98       141       102     -
Total 754 109 53 177 216 173 26
 
Segment Expenses
Operating expenses (275) (33) (31) (55) (48) (75) (33)
Profit sharing compensation expenses       (161)       (3)   (2)   (36)       (67)       (53)     -
Total (436) (36) (33) (91) (115) (128) (33)
             
Fund Management DE (before Principal Performance Payments)       318       73   20   86       101       45     (7)
 
Principal Performance Payments (24) - (1) (8) (14) (1) -
             
Fund Management DE       294       73   19   78       87       44     (7)
 
Investment Income 24 7 2 3 5 6 1
Unallocated Investment Income -
Unallocated Expenses (5)
             
Pre-tax Distributable Earnings $     313 $     80 $ 21 $ 81 $     92 $     50 $   (6)
 
Pre-tax Distributable Earnings per Dividend Paying Share $     0.64
 

_________________________

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

Fortress Investment Group LLC

Exhibit 2-a

Assets Under Management and Fund Management DE

(dollars in millions)
 
      Three Months Ended     Three Months Ended

Nine Months
Ended
September 30,
2014

Fortress

March 31,
2013

 

June 30,
2013

 

September 30,
2013

 

December 31,
2013

Full Year
2013

March 31,
2014

 

June 30,
2014

 

September 30,
2014

Assets Under Management
Private Equity Funds $   10,986 $   10,920 $ 11,444 $   11,861 $   11,861 $   11,513 $   9,810 $   9,787 $ 9,787
Permanent Capital Vehicles 4,509 3,364 3,429 3,722 3,722 3,731 4,021 4,411 $ 4,411
Liquid Hedge Funds 5,490 6,461 6,922 7,398 7,398 7,738 7,867 7,529 $ 7,529
Credit Hedge Funds 5,620 5,760 5,667 5,856 5,856 5,968 6,084 6,140 $ 6,140
Credit Private Equity Funds 7,041 6,708 6,928 7,527 7,527 6,979 6,898 7,083 $ 7,083
Logan Circle     21,937     21,397   23,581     25,386     25,386     26,592     29,133     31,096 $ 31,096
AUM - Ending Balance $   55,583 $   54,610 $ 57,971 $   61,750 $   61,750 $   62,520 $   63,813 $   66,046 $ 66,046
 
Third-Party Capital Raised $   1,727 $   1,226 $ 2,036 $   1,489 $   6,478 $   1,609 $   1,762 $   1,216 $ 4,587
 
Segment Revenues
Management fees $ 132 $ 129 $ 136 $ 143 $ 540 $ 147 $ 152 $ 149 $ 448
Incentive income     116     199   42     136     493     104     78     88   270
Total 248 328 178 279 1,033 251 230 237 718
 
Segment Expenses
Operating expenses (90) (91) (94) (102) (377) (104) (109) (112) (325)
Profit sharing compensation expenses (54) (80) (27) (57) (218) (53) (39) (54) (146)
Unallocated expenses     -     -   -     -     -     -     -     -   -
Total (144) (171) (121) (159) (595) (157) (148) (166) (471)
                 
Fund Management DE (before Principal Performance Payments)     104     157   57     120     438     94     82     71   247
 
Principal Performance Payments (7) (13) (4) (11) (35) (7) (6) (4) (17)
                 
Fund Management DE $   97 $   144 $ 53 $   109 $   403 $   87 $   76 $   67 $ 230
 
Net Investment Income 3 4 12 12 31 10 96 (12) 93
                 
Pre-tax Distributable Earnings $   100 $   148 $ 65 $   121 $   434 $   97 $   172 $   55 $ 323
 
 

Fortress Investment Group LLC

Exhibit 2-b

Assets Under Management and Fund Management DE

(dollars in millions)
 
      Three Months Ended     Three Months Ended  

Nine Months
Ended
September 30,
2014

Private Equity Funds

March 31,
2013

 

June 30,
2013

 

September 30,
2013

 

December 31,
2013

Full Year

2013

March 31,

2014

  June 30,

2014

  September 30,

2014

 
Assets Under Management
Main Funds7 $   7,123 $   6,982 $ 7,418 $ 8,026 $   8,026 $   7,787 $   7,053 $   7,347 $ 7,347
Coinvestment Funds8 3,738 3,695 3,636 3,470 3,470 3,393 2,401 2,088 2,088
MSR Opportunities Funds9 125 243 390 365 365 332 344 341 341
Italian NPL Opportunities Fund     -     -   -   -     -     -     12     11   11
AUM - Ending Balance $   10,986 $   10,920 $ 11,444 $ 11,861 $   11,861 $   11,512 $   9,810 $   9,787 $ 9,787
 
Third-Party Capital Raised $   - $   - $ 1,083 $ 623 $   1,706 $   79 $   26 $   101 $ 206
 
Segment Revenues
Management fees $ 33 $ 33 $ 34 $ 35 $ 134 $ 35 $ 36 $ 33 $ 104
Incentive income     3     5   1   4     13     2     1     -   3
Total 36 38 35 39 147 37 37 33 107
 
Segment Expenses
Operating expenses (11) (11) (11) (15) (48) (11) (12) (15) (38)
Profit sharing compensation expenses     (1)     (2)   -   (1)     (4)     (1)     1     -   -
Total (12) (13) (11) (16) (52) (12) (11) (15) (38)
                 
Fund Management DE (before Principal Performance Payments)     24     25   24   23     95     25     26     18   69
 
Principal Performance Payments - - - - 1 - - - -
                 
Fund Management DE $   24 $   25 $ 24 $ 23 $   96 $   25 $   26 $   18 $ 69
 
Net Investment Income - 1 6 6 13 4 91 - 95
                 
Pre-tax Distributable Earnings $   24 $   26 $ 30 $ 29 $   109 $   29 $   117 $   18 $ 164
 

_________________________

7 Combined AUM for Fund III, Fund IV and Fund V.

8 Combined AUM for Fund III Coinvestment, Fund IV Coinvestment, Fund V Coinvestment, FRID, FRIC, FICO, FHIF, FECI and MAPS.

9 Combined AUM for MSR Opportunities Fund I A, MSR Opportunities Fund I B, MSR Opportunities Fund II A, MSR Opportunities Fund II B and MSR Opportunities Fund MA I.

 
 

Fortress Investment Group LLC

Exhibit 2-c

Assets Under Management and Fund Management DE

(dollars in millions)
 
      Three Months Ended     Three Months Ended  

Nine Months
Ended
September 30,
2014

Permanent Capital Vehicles

March 31,
2013

 

June 30,
2013

 

September 30,
2013

 

December 31,
2013

Full Year

2013

March 31,
2014

 

June 30,

2014

 

September 30,
2014

 
Assets Under Management
Newcastle Investment Corp. $   2,492 $   1,486 $ 1,494 $ 1,795 $   1,795 $   1,321 $   1,381 $ 1,579 $ 1,579
New Residential Investment Corp. - 1,204 1,196 1,196 1,196 1,196 1,367 1,366 1,366
Eurocastle Investment Limited 1,877 526 547 556 556 556 553 510 510
New Media Investment Group Inc. - - - - - 391 390 505 505
WWTAI10     140     148   192   175     175     267     330   451   451
AUM - Ending Balance $   4,509 $   3,364 $ 3,429 $ 3,722 $   3,721 $   3,731 $   4,021 $ 4,411 $ 4,411
 
Third-Party Capital Raised $   985 $   333 $ - $ 301 $   1,619 $   - $   405 $ 673 $ 1,078
 
Segment Revenues
Management fees $ 18 $ 14 $ 14 $ 14 $ 61 $ 16 $ 17 $ 17 $ 50
Incentive income     -     1   6   12     19     4     21   16   41
Total 18 15 20 26 80 20 38 33 91
 
Segment Expenses
Operating expenses (10) (10) (11) (11) (42) (14) (17) (18) (49)
Profit sharing compensation expenses     -     -   (2)   (3)     (5)     -     (6)   (9)   (15)
Total (10) (10) (13) (14) (47) (14) (23) (27) (64)
                 
Fund Management DE (before Principal Performance Payments)     8     5   7   12     33     6     15   6   27
 
Principal Performance Payments - - (1) (2) (4) (1) (2) - (3)
                 
Fund Management DE $   8 $   5 $ 6 $ 10 $   29 $   5 $   13 $ 6 $ 24
 
Net Investment Income - 1 1 - 2 - 1 1 2
                 
Pre-tax Distributable Earnings $   8 $   6 $ 7 $ 10 $   31 $   5 $   14 $ 7 $ 26
 

_________________________

10 WWTAI is currently a private permanent capital vehicle.

 
 

Fortress Investment Group LLC

Exhibit 2-d

Assets Under Management and Fund Management DE

(dollars in millions)
 
      Three Months Ended     Three Months Ended  

Nine Months
Ended
September 30,
2014

Credit Hedge Funds

March 31,
2013

 

June 30,
2013

 

September 30,
2013

 

December 31,
2013

Full Year
2013

March 31,
2014

 

June 30,
2014

 

September 30,
2014

 
Assets Under Management
Drawbridge Special Opportunities Funds11 $   5,152 $   5,302 $ 5,218 $ 5,454 $   5,454 $   5,616 $   5,745 $ 5,817 $ 5,817
Value Recovery Funds12 468 458 449 402 402 338 324 309 309
Japan Income Fund     -     -   -   -     -     14     15   14   14
AUM - Ending Balance $   5,620 $   5,760 $ 5,667 $ 5,856 $   5,856 $   5,968 $   6,084 $ 6,140 $ 6,140
 
Third-Party Capital Raised $   75 $   167 $ 96 $ 219 $   557 $   228 $   554 $ 165 $ 947
 
Segment Revenues
Management fees $ 25 $ 25 $ 25 $ 27 $ 102 $ 27 $ 28 $ 29 $ 84
Incentive income     33     64   44   50     191     32     42   29   103
Total 58 89 69 77 293 59 70 58 187
 
Segment Expenses
Operating expenses (15) (17) (16) (14) (62) (17) (17) (17) (51)
Profit sharing compensation expenses     (18)     (29)   (20)   (24)     (91)     (15)     (20)   (14)   (49)
Total (33) (46) (36) (38) (153) (32) (37) (31) (100)
                 
Fund Management DE (before Principal Performance Payments)     25     43   33   39     140     27     33   27   87
 
Principal Performance Payments (4) (6) (4) (5) (19) (5) (3) (4) (12)
                 
Fund Management DE $   21 $   37 $ 29 $ 34 $   121 $   22 $   30 $ 23 $ 75
 
Net Investment Income 1 1 2 2 6 1 2 (5) (2)
                 
Pre-tax Distributable Earnings $   22 $   38 $ 31 $ 36 $   127 $   23 $   32 $ 18 $ 73
 
 

Net Returns13

Drawbridge Special Opportunities Fund LP 4.0% 5.2% 3.8% 4.3% 18.4% 3.2% 2.5% 1.8% 7.7%
Drawbridge Special Opportunities Fund Ltd 3.4% 6.9% 2.4% 2.2% 15.6% 2.2% 1.6% 1.7% 5.6%
 

_________________________

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

12 Fortress will receive management fees from these funds equal to 1% of cash receipts and may receive limited incentive income if aggregate realizations exceed an agreed threshold.

13 The performance data contained herein reflects returns for a "new issue eligible," single investor class as of the close of business on the last day of the relevant period. Net returns reflect performance data after taking into account management fees borne by the Fund and incentive allocations. Specific performance may vary based on, among other things, whether fund investors are invested in one or more special investments. 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, December 31, 2009, December 31, 2010, December 31, 2011, December 31, 2012 and December 31, 2013 redemptions.

 
           

Fortress Investment Group LLC

Exhibit 2-e

Assets Under Management and Fund Management DE

(dollars in millions)
 
Three Months Ended Three Months Ended

Nine Months
Ended
September 30,
2014

Credit Private Equity Funds

March 31,
2013

 

June 30,
2013

 

September 30,
2013

 

December 31,
2013

Full Year
2013

March 31,
2014

 

June 30,
2014

 

September 30,
2014

 

Assets Under Management
Long Dated Value Funds14 $   459 $   458 $ 421 $ 417 $   417 $   395 $   375 $ 361 $ 361
Real Assets Funds 90 86 85 77 77 78 70 64 64
Fortress Credit Opportunities Funds15 4,479 4,287 4,554 5,260 5,260 4,712 4,649 4,960 4,960
Japan Opportunity Funds16     2,013     1,877   1,868   1,773     1,773     1,794     1,804   1,698   1,698
AUM - Ending Balance $   7,041 $   6,708 $ 6,928 $ 7,527 $   7,527 $   6,979 $   6,898 $ 7,083 $ 7,083
 
Third-Party Capital Raised $   - $   - $ - $ 50 $   50 $   - $   254 $ 30 $ 284
 
Segment Revenues
Management fees $ 25 $ 22 $ 24 $ 25 $ 96 $ 25 $ 23 $ 24 $ 72
Incentive income     48     37   17   18     120     66     13   41   120

Total

73 59 41 43 216 91 36 65 192
 
Segment Expenses
Operating expenses (27) (23) (25) (18) (93) (26) (26) (27) (79)
Profit sharing compensation expenses     (25)     (20)   (8)   (13)     (66)     (35)     (7)   (22)   (64)
Total (52) (43) (33) (31) (159) (61) (33) (49) (143)
                 
Fund Management DE (before Principal Performance Payments)     21     16   8   12     57     30     3   16   49
 
Principal Performance Payments (1) - - - (1) (1) - - (1)
                 
Fund Management DE $   20 $   16 $ 8 $ 12 $   56 $   29 $   3 $ 16 $ 48
 

Net Investment Income

4 2 1 1 8 4 - 2 6
                 
Pre-tax Distributable Earnings $   24 $   18 $ 9 $ 13 $   64 $   33 $   3 $ 18 $ 54
 

_________________________

14 Combined AUM for Long Dated Value Fund I, Long Dated Value Fund II, Long Dated Value Fund III and LDVF Patent Fund.

15 Combined AUM for Credit Opportunities Fund, Credit Opportunities Fund II, Credit Opportunities Fund III, FCO Managed Accounts, Net Lease Fund I, Global Opportunities Fund, Life Settlements Fund, Life Settlements Fund MA, SIP managed account, Real Estate Opportunities Fund, Real Estate Opportunities Fund II and Real Estate Opportunities REOC Fund.

16 Combined AUM for Japan Opportunity Fund, Japan Opportunity Fund II (Dollar) and Japan Opportunity Fund II (Yen).

 
 

Fortress Investment Group LLC

Exhibit 2-f

Assets Under Management and Fund Management DE

(dollars in millions)
 
      Three Months Ended     Three Months Ended

Nine Months
Ended
September 30,
2014

Liquid Hedge Funds

March 31,
2013

 

June 30,
2013

 

September 30,
2013

 

December 31,
2013

Full Year
2013

March 31,
2014

 

June 30,
2014

 

September 30,
2014

 
Assets Under Management
Fortress Macro Funds17 $   3,055 $   3,446 $ 3,528 $ 3,885 $   3,885 $   3,503 $   3,391 $ 3,083 $ 3,083
Fortress Convex Asia Funds18 75 85 107 96 96 130 136 189 189
Drawbridge Global Macro Funds19 342 340 293 284 284 286 261 223 223
Fortress Asia Macro Funds20 792 1,399 1,785 1,898 1,898 2,867 3,114 3,099 3,099
Fortress Partners Funds21     1,226     1,191   1,209   1,235     1,235     952     965   935   935
AUM - Ending Balance $   5,490 $   6,461 $ 6,922 $ 7,398 $   7,398 $   7,738 $   7,867 $ 7,529 $ 7,529
 
Third-Party Capital Raised $   667 $   726 $ 857 $ 296 $   2,546 $   1,302 $   523 $ 247 $ 2,072
 
Segment Revenues
Management fees $ 23 $ 26 $ 30 $ 32 $ 111 $ 33 $ 37 $ 33 $ 103
Incentive income     32     92   (26)   52     150     -     1   2   3
Total 55 118 4 84 261 33 38 35 106
 
Segment Expenses
Operating expenses (18) (18) (19) (29) (84) (23) (24) (21) (68)
Profit sharing compensation expenses     (10)     (29)   3   (16)     (52)     (2)     (7)   (9)   (18)
Total (28) (47) (16) (45) (136) (25) (31) (30) (86)
                 
Fund Management DE (before Principal Performance Payments)     27     71   (12)   39     125     8     7   5   20
 
Principal Performance Payments (2) (7) 1 (4) (12) - (1) - (1)
                 
Fund Management DE $   25 $   64 $ (11) $ 35 $   113 $   8 $   6 $ 5 $ 19
 
Net Investment Income - 1 2 1 4 1 1 (9) (7)
                 
Pre-tax Distributable Earnings $   25 $   65 $ (9) $ 36 $   117 $   9 $   7 $ (4) $ 12
 

Net Returns22

Fortress Macro Fund Ltd 3.8% 9.1% (3.0%) 4.0% 14.1% (5.5%) (0.4%) 1.1% (4.9%)
Drawbridge Global Macro Fund Ltd 3.6% 8.9% (3.8%) 4.7% 13.7% (5.5%) (0.6%) 0.7% (5.4%)
Fortress Asia Macro Fund Ltd 2.8% 9.8% (1.1%) 4.8% 17.1% (3.6%) (1.9%) 1.5% (4.0%)
Fortress Convex Asia Fund Ltd (0.9%) 1.6% (2.1%) (1.9%) (3.3%) (1.1%) (2.6%) (0.5%) (4.2%)
Fortress Partners Fund LP23 2.2% (2.0%) 4.1% 0.6% 4.8% 1.1% 2.1% (1.4%) 1.8%
Fortress Partners Offshore Fund LP23 3.1% (0.9%) 5.0% (0.6%) 6.7% 0.9% 2.2% (1.4%) 1.7%
 

_________________________

17 Combined AUM for Fortress Macro Onshore Fund LP, Fortress Macro Fund Ltd, Fortress Macro MA1, Fortress Redwood Fund Ltd and Fortress Macro managed accounts.

18 Combined AUM for Fortress Convex Asia Fund LP, Fortress Convex Asia Fund Ltd, Fortress Convex Asia Fund PF LP and Fortress Convex Asia Fund PF Ltd.

19 Combined AUM for Drawbridge Global Macro Fund LP and Drawbridge Global Macro Intermediate Fund LP.

20 Combined AUM for Fortress Asia Macro Fund Ltd, Fortress Asia Macro Fund LP and Fortress Asia Macro managed accounts.

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

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

23 The returns for the Fortress Partners Funds include gains and losses from Special Investments. Investors' specific performance may vary dependent upon their ownership in one or more Special Investments.

 
 

Fortress Investment Group LLC

Exhibit 2-g

Assets Under Management and Fund Management DE

(dollars in millions)
 
        Three Months Ended     Three Months Ended  

Nine Months
Ended
September 30,
2014

Logan Circle

March 31,
2013

 

June 30,
2013

 

September 30,
2013

 

December 31,
2013

Full Year
2013

March 31,
2014

 

June 30,
2014

 

September 30,
2014

 
Assets Under Management
AUM - Ending Balance $   21,937 $   21,397 $ 23,581 $ 25,386 $   25,386 $   26,592 $   29,133 $ 31,096 $ 31,096
 
Net Client Flows $   1,153 $   124 $ 1,938 $ 1,538 $   4,753 $   477 $   1,730 $ 2,178 $ 4,385
 
Segment Revenues
Management fees $   8 $   9 $ 9 $ 10 $   36 $   11 $   11 $ 13 $ 35
Incentive income     -     -   -   -     -     -     -   -   -
Total 8 9 9 10 36 11 11 13 35
 
Segment Expenses
Operating expenses (9) (12) (12) (15) (48) (13) (13) (14) (40)
Profit sharing compensation expenses     -     -   -   -     -     -     -   -   -
Total (9) (12) (12) (15) (48) (13) (13) (14) (40)
                 
Fund Management DE $   (1) $   (3) $ (3) $ (5) $   (12) $   (2) $   (2) $ (1)   (5)
 
Net Investment Income - - 1 2 3 - 1 (1) -
                 
Pre-tax Distributable Earnings $   (1) $   (3) $ (2) $ (3) $   (9) $   (2) $   (1) $ (2) $ (5)
 
 

Fortress Investment Group LLC

Exhibit 3

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

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

(dollars in millions)

 
    Three Months Ended    

 

    Three Months Ended    

 

March 31,
2013

   

June 30,
2013

   

September 30,
2013

   

December 31,
2013

Full Year
2013

March 31,
2014

   

June 30,
2014

   

September 30,
2014

Nine Months Ended
September 30, 2014

                   
GAAP Net Income (Loss) $   67 $   (2)   $ 101 $ 318 $   484 $   6 $   69 $ 10 $ 85
Principals' and Others' Interests in (Income) Loss of Consolidated Subsidiaries   (53)   -   (59) (171)   (283)   (6)   (42) (11) (59)
Redeemable non-controlling interests in Income (Loss) of Consolidated Investment Company - - - - - - - 2 2
Non-Controlling Interests in (Income) Loss of Non-Investment Manager - consolidated VIE     -     -     -   -     -     3     4   3   10
GAAP Net Income (Loss) Attributable to Class A Shareholders $   14 $   (2)   $ 42 $ 147 $   201 $   3 $   31 $ 4 $ 39
Private Equity incentive income 22 34 2 (38) 20 37 (8) 36 63
Hedge Fund and Logan Circle incentive income 59 133 (6) (186) - 30 26 21 77
Reserve for clawback 2 - 1 4 7 2 - - 2
Distributions of earnings from equity method investees 4 5 3 3 15 9 47 6 62
Losses (earnings) from equity method investees (35) (24) (57) (8) (124) (17) (20) (38) (75)
Equity method (earnings) losses earned by Fortress in the Investment Company - - - - - - - (3) (3)
Losses (gains) on options (29) 5 (3) 2 (25) 5 1 23 29
Losses (gains) on other Investments (11) (2) 4 (6) (15) 5 42 (16) 31
Impairment of investments - (1) - - (1) - - (3) (3)
Adjust income from the receipt of options (26) (10) - (7) (43) - (2) (2) (3)
Amortization of intangible assets and impairment of goodwill - - - - - - - - -
Employee, Principal and director compensation 15 13 6 13 47 12 6 6 24
Adjust non-controlling interests related to Fortress Operating Group units 51 (4) 58 172 277 5 40 10 55
Tax receivable agreement liability reduction 8 - - 1 9 - - 4 4
Adjust income taxes - Investment Manager 26 1 15 24 66 6 8 3 17
Adjust consolidated Non-Investment Manager income (loss) allocable to Class A Shareholders - - - - - - 1 (1) -
Adjust consolidated Investment Company income (loss) allocable to Class A Shareholders     -     -     -   -     -     -     -   3   3
Pre-tax Distributable Earnings $   100 $   148   $ 65 $ 121 $   434 $   97 $   172 $ 55 $ 323
Investment Loss (income) (5) (6) (13) (12) (36) (10) (97) 11 (95)
Interest Expense     2     2     1   -     5     -     1   1   2
Fund Management DE $   97 $   144   $ 53 $ 109 $   403 $   87 $   76 $ 67 $ 230
                   
GAAP Revenues $   244 $   223   $ 232 $ 566 $   1,265 $   310 $   427 $ 404 $ 1,141
Adjust management fees - - - (1) (1) - - - (1)
Adjust management fees for Non-Investment Manager - consolidated VIE - - - - - 1 1 2 4
Adjust management fees for Investment Company - consolidated VIE - - - - - - - - -
Adjust incentive income 83 167 (3) (218) 29 69 17 57 143
Adjust income from the receipt of options (26) (10) - (7) (43) - (1) (2) (3)
Other revenues (53) (53) (51) (60) (217) (55) (56) (57) (168)
Total revenues - consolidated Non-Investment Manager - - - - - (74) (158) (165) (397)
Total revenues - consolidated Investment Company     -     -     -   -     -     -     -   -   -
Segment Revenues $   248 $   327   $ 178 $ 280 $   1,033 $   251 $   230 $ 238 $ 718
                   
GAAP Expenses $   221 $   249   $ 184 $ 244 $   898 $   307 $   379 $ 398 $ 1,084
Adjust interest expense (2) (2) (1) - (5) - (1) (1) (2)
Adjust employee, Principal and director compensation (15) (6) (3) (11) (35) (12) (6) (3) (21)
Adjust amortization of intangible assets and impairment of goodwill - - - - - - - - -
Adjust expense reimbursements from affiliates and non-affiliates (51) (52) (51) (60) (214) (54) (52) (55) (161)
Adjust Principal Performance Payments (10) (17) (7) (13) (47) (9) (9) (9) (27)
Other - (1) (1) - (2) - - (1) (1)
Total expenses - consolidated Non-Investment Manager     -     -     -   -     -     (75)     (163)   (163)   (401)
Segment Expenses $   143 $   171   $ 121 $ 160 $   595 $   157 $   148 $ 166 $ 471
 

‘‘Distributable earnings’’ is Fortress’s supplemental measure of operating performance used by management in analyzing segment and overall results. It reflects the value created which management considers available for distribution during any period. As compared to generally accepted accounting principles (‘‘GAAP’’) net income, distributable earnings excludes the effects of unrealized gains (or losses) on illiquid investments, reflects contingent revenue which has been received as income to the extent it is not expected to be reversed, and disregards expenses which do not require an outlay of assets, whether currently or on an accrued basis. Distributable earnings is reflected on an unconsolidated and pre-tax basis, and, therefore, the interests in consolidated subsidiaries related to Fortress Operating Group units (held by the principals) and income tax expense are added back in its calculation. Distributable earnings is not a measure of cash generated by operations which is available for distribution nor should it be considered in isolation or as an alternative to cash flow or net income in accordance with GAAP and it is not necessarily indicative of liquidity or cash available to fund the Company’s operations. For a complete discussion of distributable earnings and its reconciliation to GAAP, as well as an explanation of the calculation of distributable earnings impairment, see note 11 to the financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014.

Fortress’s management uses distributable earnings:

  • in its determination of periodic distributions to equity holders;
  • in making operating decisions and assessing the performance of each of the Company’s core businesses;
  • for planning purposes, including the preparation of annual operating budgets; and
  • as a valuation measure in strategic analyses in connection with the performance of its funds and the performance of its employees.

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

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

   

Fortress Investment Group 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 September 30,       Nine Months Ended September 30,
2014       2013 2014       2013
                                   

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

        208,014,692       239,404,587       210,874,640       234,750,585
 
Weighted average fully vested restricted Class A share units with dividend equivalent rights (88,508) (982,225) (1,789,026) (2,821,011)
Weighted average fully vested restricted Class A shares (1,045,134) (952,016) (1,006,503) (909,641)
                                   

Weighted Average Class A Shares Outstanding

        206,881,050       237,470,346       208,079,111       231,019,933
 
Weighted average restricted Class A shares24 1,045,134 952,016 1,006,503 909,641
Weighted average fully vested restricted Class A share units which are entitled to dividend equivalent payments 88,508 982,225 1,789,026 2,821,011
Weighted average unvested restricted Class A share units which are entitled to dividend equivalent payments 7,513,984 5,744,629 7,016,497 4,759,829
Weighted average Fortress Operating Group units 226,331,513 249,534,372 232,790,917 249,534,372
Weighted average Fortress Operating Group RPUs25 - - - 3,255,189
                                   

Weighted Average Class A Shares Outstanding (Used for DEPS)

        441,860,189       494,683,588       450,682,054       492,299,975
Weighted average vested and unvested restricted Class A share units which are not entitled to dividend equivalent payments       13,592,852       14,766,136       13,167,782       15,761,068

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

        455,453,041       509,449,724       463,849,836       508,061,043
 

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

_________________________

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

25 Includes both fully vested and unvested Fortress Operating Group RPUs.

 
 

Fortress Investment Group LLC

Exhibit 5

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

(dollars and shares in thousands)
 
      As of September 30, 2014     As of December 31, 2013

GAAP
Book Value

   

Investment Manager
Book Value26

   

Net Cash and
Investments

GAAP
Book Value

   

Investment Manager
Book Value26

   

Net Cash and
Investments

Cash and Cash equivalents $   332,158 $ 332,158 $ 332,158 $   364,583 $ 364,583 $ 364,583
Investments 1,099,955 1,099,955 1,099,955 1,253,266 1,253,266 1,253,266
Investments in options27 70,251 70,251 - 104,338 104,338 -
Due from Affiliates 165,074 165,074 - 407,124 407,124 -
Deferred Tax Asset, net 385,301 385,301 - 354,526 354,526 -
Other Assets 174,623 174,623 - 190,595 190,595 -
Investment Company - consolidated VIEs     192,206   192,206   47,079      
Assets - Investment Manager 2,419,568 2,419,568 1,479,192 2,674,432 2,674,432 1,617,849
Assets - Non-Investment Manager - consolidated VIE     822,977   -   -     -   -   -
Total Assets     3,242,545   2,419,568   1,479,192     2,674,432   2,674,432   1,617,849
 
Debt Obligations Payable $ 75,000 $ 75,000 $ 75,000 $ - $ - $ -
Accrued Compensation and Benefits 269,060 269,060 - 417,309 417,309 -
Due to Affiliates 356,189 356,189 - 344,832 344,832 -
Deferred Incentive Income 283,684 283,684 - 247,556 247,556 -
Other Liabilities 116,113 116,113 - 49,830 49,830 -
Investment Company - consolidated VIEs     51,312   51,312        
Liabilities - Investment Manager 1,151,358 1,151,358 75,000 1,059,527 1,059,527 -
Liabilities - Non-Investment Manager - consolidated VIE     340,579   -   -   -   -   -
Total Liabilities     1,491,937   1,151,358   75,000   1,059,527   1,059,527   -
 
Less: Redeemable Non-controlling Interests, Investment Company - consolidated VIE 34,887 34,887 N/A N/A - -
Less: Non-controlling Interests in equity of Investment Company - consolidated VIEs N/A 58,426 N/A N/A - -
Add: Investment in, Options and Receivables due from Non-Investment Manager - consolidated VIE N/A 6,474 1,245 N/A - -
           
Net $   1,715,721 $ 1,181,371 $ 1,405,437 $   1,614,905 $ 1,614,905 $ 1,617,849
 
Shares

Outstanding

Dividend Paying
Shares and Units
Outstanding

Shares

Outstanding

Dividend Paying
Shares and Units
Outstanding

Class A Shares 206,959 206,959 239,786 239,786
Restricted Class A Shares 1,045 1,045 956 956
Fortress Operating Group Units 226,332 226,332 249,534 249,534
Fully Vested Class A Shares - Dividend Paying - 103 - 7
Unvested Class A Shares - Dividend Paying   -   7,514   -   5,233
Shares Outstanding   434,336   441,953   490,276   495,516
       
Per Share $ 2.72 $ 3.18 $ 3.29 $ 3.26
 

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

_________________________

26 Investment Manager Book Value excludes Non-Investment Manager - consolidated VIE as Fortress has no obligation to satisfy the liabilities of New Media and, similarly, Fortress does not have the right to make use of New Media's assets to satisfy its obligations.

27 The definition of Net Cash and Investments has been modified to exclude investments in options. The intrinsic value of options in equity method investees totaled $64 million at quarter end and is included in our undistributed, unrecognized incentive income. This value represents incentive income that would have been recorded in Distributable Earnings if Fortress had exercised all of its in-the-money Newcastle, New Residential and Eurocastle options and sold all of the resulting shares at their September 30, 2014 closing price and differs from the fair value derived from option pricing models included in the table above. All prior periods have been recast to reflect this change.

 

INVESTOR & MEDIA RELATIONS
Fortress Investment Group
Gordon E. Runté, +1-212-798-6082
grunte@fortress.com

Source: Fortress Investment Group LLC