Press Release

Fortress Reports Second Quarter 2010 Financial Results

Company Release - 8/5/2010 6:00 AM ET

NEW YORK--(BUSINESS WIRE)-- Fortress Investment Group LLC (NYSE: FIG) today reported its second quarter 2010 results.

Summary Highlights

  • Assets under management of $41.7 billion as of June 30, 2010
  • Raised $1.9 billion of new third-party capital in the second quarter, with $879 million to be added to assets under management when invested
  • Fund management distributable earnings and pre-tax distributable earnings (DE) of $73 million, or $0.14 per dividend paying share
  • GAAP net loss, excluding principals agreement compensation, of $14 million. GAAP net loss of $251 million. GAAP net loss attributable to Class A Shareholders of $92 million
  • Closed acquisition of Logan Circle Partners, adding $11.5 billion in traditional assets under management
  • Closed Fortress Japan Opportunity Domestic Fund, a real estate focused fund, at a cap of $800 million
  • Announced funds’ acquisition of CW Financial Services, nation’s second-largest commercial real estate special servicer

Subsequent Events in the Third Quarter

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

Second Quarter 2010 Results

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

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

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

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

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

 
  Second Quarter   $     First Half   $
2010   2009 Change 2010   2009 Change
(in millions, except per share amount)
GAAP
Net income (loss) $ (251 ) $ (171 ) $ (80 ) $ (513 ) $ (458 ) $ (55 )
 
Net income (loss) attributable to Class A Shareholders $ (92 ) $ (45 ) $ (47 ) $ (177 ) $ (112 ) $ (65 )
Per diluted share $ (0.57 ) $ (0.41 ) $ (0.16 ) $ (1.16 ) $ (1.10 ) $ (0.06 )
 
Net income (loss) excluding principals agreement compensation $ (14 ) $ 66 $ (80 ) $ (40 ) $ 14 $ (54 )
 
Distributable Earnings
Fund management DE $ 73 $ 53 $ 20 $ 165 $ 97 $ 68
 
Pre-tax DE $ 73 $ 59 $ 14 $ 169 $ 68 $ 101
Per dividend paying share/unit $ 0.14 $ 0.12 $ 0.02 $ 0.33 $ 0.14 $ 0.19
 
Weighted Average Dividend Paying Shares and Units Outstanding 516 482 516 472
 

For reconciliations of non-GAAP measures, please see Exhibit 2, “Reconciliation of Fund Management DE to Pre-tax DE and GAAP Net Income (Loss) and Reconciliation of Segment Revenues to GAAP Revenues,” Exhibit 3, “Reconciliation of GAAP Net Income (Loss) Excluding Principals Agreement Compensation to GAAP Net Income (Loss)” and Exhibit 4, “Reconciliation of Weighted Average Class A Shares Outstanding (Used for Basic EPS) to Weighted Average Dividend Paying Shares and Units Outstanding (Used for DEPS)” at the end of this release. Distributable earnings is a supplemental measure of our operating performance that we believe provides a meaningful basis for comparison between present and future periods.

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

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

 

Supplemental Data for Second Quarter 2010 and 2009:

 
Three Months Ended June 30, 2010
  Private Equity  

Liquid Hedge

  Credit Funds   Principal
(in millions) Total Funds   Castles

Funds

Hedge Funds   PE Funds Investments
 
Assets Under Management
AUM - April 1, 2010 $ 30,197 $ 11,555 $ 3,055 $ 4,273 $ 9,117 $ 2,197 $ -
Capital raised 974 - - 317 49 286 -
Equity raised - - - - - - -
Capital acquisitions 11,448 - - - - - -
Increase in invested capital 491 3 - 2 2 484 -
Redemptions (523 ) - - (332 ) (3 ) - -
SPV distributions (64 ) - - (64 ) - - -
RCA distributions 1 (392 ) - - - (392 ) - -
Return of capital distributions (273 ) (157 ) - - (2 ) (114 ) -
Equity buyback - - - - - - -
Crystallized Incentive Income (1 ) - - (1 ) - - -
Net Client Flows (284 ) - - - - - -
Income (loss) and foreign exchange   87     110     (184 )   (28 )   (27 )   43       -  
AUM - Ending Balance $ 41,660 $ 11,511 $ 2,871 $ 4,167 $ 8,744 $ 2,896 $ -
 
Third-Party Capital Raised $ 1,853 $ - $ - $ 317 $ 49 $ 1,165 $ -
 
Segment Revenues
Management fees $ 119 $ 33 $ 12 $ 20 $ 43 $ 11 $ -
Incentive income 50 - - (2 ) 5 47 -
Unallocated Revenues   4              
Total 173 33 12 18 48 58 -