Fortress Investment Group LLC

Pre-Tax DE

Financial Fundamentals

 

Pre-Tax DE

 

Three Months Ended

Full Year
2015

Three Months Ended

($ in millions, except per share)

03/31/2015

06/30/2015

09/30/2015

12/31/2015

03/31/2016

06/30/2016

Segment Revenues

Management Fees

 

$

139

 

$

144

 

$

151

 

$

148

 

$

582

 

$

141

 

$

141

Incentive Income

   

51

   

183

   

70

   

132

   

436

   

64

   

131

Total Segment Revenues

 

$

190

 

$

327

 

$

221

 

$

280

 

$

1,018

 

$

205

 

$

272

   

Segment Expenses

Operating Expenses

 

$

(115)

 

$

(121)

 

$

(112)

 

$

(105)

 

$

(453)

 

$

(109)

 

$

(106)

Profit Sharing Compensation Expenses

   

(30)

   

(54)

   

(37)

   

(47)

   

(168)

   

(31)

   

(58)

Total Segment Expenses

   

(145)

   

(175)

   

(149)

   

(152)

   

(621)

   

(140)

   

(164)

   

Earnings from Affiliated Managers

 

$

9

 

$

(1)

 

$

2

 

$

(1)

 

$

9

 

$

1

 

$

1

   

Fund Management DE (before Principal Performance Payments)

 

$

54

 

$

151

 

$

74

 

$

127

 

$

406

 

$

66

 

$

109

Principal Performance Payments

   

(3)

   

(18)

   

(7)

   

(14)

   

(42)

   

(3)

   

(11)

Fund Management DE

 

$

51

 

$

133

 

$

67

 

$

113

 

$

364

 

$

63

 

$

98

Operating Margin

   

27%

   

41%

   

30%

   

40%

   

36%

   

31%

   

36%

Net Investment Income

   

4

   

4

   

2

   

17

   

27

   

1

   

3

Pre-Tax DE

 

$

55

 

$

137

 

$

69

 

$

130

 

$

391

 

$

64

 

$

101

   

Pre-Tax DE per Dividend Paying Share/Unit

 

$

0.12

 

$

0.30

 

$

0.15

 

$

0.30

 

$

0.87

 

$

0.16

 

$

0.26

Weighted Average Dividend Paying Shares and Units Outstanding (in millions)

   

450

   

454

   

454

   

430

   

447

   

398

   

394

NOTE: The information in this table is presented on a segment reporting (i.e., non-GAAP) basis only. The following tables present a reconciliation of Fund Management DE to Pre-Tax DE and GAAP Net Income (Loss) and a reconciliation of Weighted Average Dividend Paying Shares and Units to Weighted Average Class A Shares. For a reconciliation of segment revenues to GAAP revenues, see our most recent earnings release, which is available on our website under Public Shareholders / Financial Reports and Filings.

DEFINITIONS

Total Segment Revenues are revenues generated by Fortress's business segments.

Management Fees are typically based on a fixed annual percentage of the capital we manage for each fund investor, and are intended to compensate us for the time and effort we expend in researching, making, managing and realizing investments.

Incentive Income is typically based on achieving specified performance criteria, and is intended to align our interests with those of the fund investors and to incentivize us to earn attractive returns.

Total Segment Expenses are expenses incurred by Fortress's business segments.

Operating Expenses are comprised mainly of employee compensation and general & administrative expenses. Employee compensation is mostly salaries, discretionary bonuses, payroll taxes and benefits.

Profit Sharing Compensation Expenses are tied directly to the performance of certain of our funds.

Earnings from Affiliated Managers are related to our interests in Affiliated Managers which commenced during January 2015.

Fund Management DE (before Principal Performance Payments) is Total Segment Revenues less Total Segment Expenses.

Principal Performance Payments represent compensation related to the new Principals Agreement that became effective January 1, 2012.

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 plus Earnings from Affiliated Managers less Total Segment Expenses and Principal Performance Payments.

Operating Margin represents Fund Management DE divided by Total Segment Revenues.

Net Investment Income is the total return, including gains/(losses), recognized on our Principal Investment Assets and Cash, less interest expense on our outstanding debt. Gains/(losses) 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.

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.

Pre-Tax DE per Dividend Paying Share/Unit is Pre-Tax DE divided by the total number of dividend paying shares and units.

Weighted Average Dividend Paying Shares and Units is the average, weighted by the period outstanding, number of shares and units outstanding during the period that were entitled to receive dividends or related distributions.

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