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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
ý      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended March 31, 2017
or
o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to              
Commission File Number: 001-33294
2000474284_figlogo33117.jpg
Fortress Investment Group LLC
(Exact name of registrant as specified in its charter) 
Delaware
 
20-5837959
(State or other jurisdiction of incorporation
 
(I.R.S. Employer Identification No.)
or organization)
 
 
1345 Avenue of the Americas, New York, NY
 
10105
(Address of principal executive offices)
 
(Zip Code)
(212) 798-6100
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý  No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ý  Yes  No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
 
Smaller reporting company o
Emerging growth company o
 
 
If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date.
Class A Shares: 218,008,370 outstanding as of May 5, 2017.
Class B Shares: 169,207,335 outstanding as of May 5, 2017.



FORTRESS INVESTMENT GROUP LLC
FORM 10-Q
INDEX
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheets as of March 31, 2017 (unaudited) and December 31, 2016
 
 
 
 
Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2017 and 2016
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 31, 2017 and 2016
 
 
 
 
Condensed Consolidated Statement of Changes in Equity (unaudited) for the three months ended March 31, 2017
 
 
 
 
Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2017 and 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

Set forth below is information about certain terms used in this Quarterly Report on Form 10-Q:

"Management Fee Paying Assets Under Management," or "AUM," refers to the management fee paying assets we manage or co-manage, including, as applicable, capital we have the right to call from our investors pursuant to their capital commitments to various funds. In addition, AUM includes management fee paying assets managed by autonomous businesses in which we retain a minority interest. Our AUM equals the sum of:

(i)
the capital commitments or invested capital (or net asset value, "NAV," if lower) of our private equity funds and credit PE funds, depending on which measure management fees are being calculated upon at a given point in time, which in connection with certain private equity funds includes the mark-to-market value of certain public securities held within the funds,
(ii)
the contributed capital or book equity (as defined) of our publicly traded permanent capital vehicles,
(iii)
the NAV of our hedge funds, including the Value Recovery Funds which pay fees based on realizations;
(iv)
the NAV or fair value of our managed accounts, to the extent management fees are charged; and
(v)
AUM of the funds related to the affiliated manager and co-managed funds.

For each of the above, the amounts exclude assets under management for which we charge either no or nominal fees, generally related to our investments in our funds as well as investments in our funds by our principals, directors and employees.

Our calculation of AUM may differ from the calculations of other asset managers and, as a result, this measure may not be comparable to similar measures presented by other asset managers. Our definition of AUM is not based on any definition of assets under management contained in our operating agreement or in any of our Fortress Fund management agreements. Finally, our calculation of AUM differs from the manner in which our affiliates registered with the United States Securities and Exchange Commission report "Regulatory Assets Under Management" on Form ADV and Form PF in various ways.  Significantly, Regulatory Assets Under Management, unlike Management Fee Paying Assets Under Management, is not reduced by liabilities or indebtedness associated with assets under management and it includes assets under management and uncalled capital for which Fortress receives no compensation.

"Fortress," "we," "us," "our," the "company" and the "public company" refer, collectively, to Fortress Investment Group LLC and its subsidiaries, including the Fortress Operating Group (as defined below) and all of its subsidiaries.

"Fortress Funds" and "our funds" refers to the private investment funds, permanent capital vehicles and related managed accounts that we manage or co-manage. The Drawbridge Special Opportunities Fund is our flagship credit hedge fund.

"Fortress Operating Group" or "FOG" refers to the limited partnerships and their subsidiaries through which we conduct our business and hold our investments. The public company controls the Fortress Operating Group through wholly owned subsidiaries that serve as the general partner of each FOG entity.

Economic interests in each FOG entity are represented by Class A common units and Class B common units. Class A common units are (indirectly) owned by the public company, and Class B common units are owned by the principals (defined below). Class B units have, from time to time, also been held by a former senior employee, who exchanged his remaining Class B units, together with his remaining Class B shares of the public company, for Class A shares of the public company in September 2016.

The number of outstanding Class A common units equals the number of outstanding Class A shares of the public company. The number of outstanding Class B common units equals the number of outstanding Class B shares of the public company.

"Fortress Operating Group units" or "FOGUs" is the term we use to refer to the aggregate of one limited partner interest (either a Class A common unit or a Class B common unit, as applicable) in each FOG entity. One FOGU together with one Class B share is convertible into one Class A share. A surrendered Class B common unit automatically converts into a Class A common unit.

"principals" or "Principals" refers to Peter Briger, Wesley Edens and Randal Nardone, collectively, as well as Michael Novogratz until his retirement in January 2016. The principals significantly influence the public company through their ownership of the public company's Class B shares. The Class B shares and the Class A shares are each entitled to one vote per share. The Class B shares do not represent an economic interest in the public company and therefore are not entitled to any dividends. The principals own their economic interest in the public company primarily through their direct ownership of FOGUs.


Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under Part II, Item 1A, "Risk Factors," Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," Part I, Item 3, "Quantitative and Qualitative Disclosures About Market Risk" and elsewhere in this Quarterly Report on Form 10-Q may contain forward-looking statements which reflect our current views with respect to, among other things, future events and financial performance. Readers can identify these forward-looking statements by the use of forward-looking words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of those words or other comparable words. Any forward-looking statements contained in this report are based upon the historical performance of us and our subsidiaries and on our current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy, liquidity and planned transactions. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from those indicated in these statements. Accordingly, you should not place undue reliance on any forward-looking statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. We do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

SPECIAL NOTE REGARDING EXHIBITS

In reviewing the agreements included as exhibits to this Quarterly Report on Form 10‑Q, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the company or the other parties to the agreements.  The agreements contain representations and warranties by each of the parties to the applicable agreement.  These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.  Additional information about the company may be found elsewhere in this Quarterly Report on Form 10‑Q and the company's other public filings, which are available without charge through the Securities and Exchange Commission's ("SEC") website at http://www.sec.gov.
The company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading.




Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FORTRESS INVESTMENT GROUP LLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
 
March 31, 2017
(Unaudited)
 
December 31, 2016
Assets
 

 
 

   Cash and cash equivalents
$
334,682

 
$
397,125

   Due from affiliates
194,163

 
320,633

   Investments
821,894

 
880,001

   Investments in options
87,963

 
53,206

   Deferred tax asset, net
415,242

 
424,244

   Other assets
125,623

 
126,165

Total Assets
$
1,979,567

 
$
2,201,374

 


 


Liabilities and Equity
 

 
 

   Accrued compensation and benefits
$
154,402

 
$
370,413

   Due to affiliates
327,799

 
360,769

   Deferred incentive income
369,976

 
330,354

   Debt obligations payable
182,838

 
182,838

   Other liabilities
98,074

 
69,255

Total Liabilities
1,133,089

 
1,313,629

 
 
 
 
Commitments and Contingencies


 


 
 
 
 
Equity
 

 
 

Class A shares, no par value, 1,000,000,000 shares authorized, 218,008,370
 
 
 
and 216,891,601 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively

 

Class B shares, no par value, 750,000,000 shares authorized, 169,207,335
 
 
 
shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively

 

Paid-in capital
1,892,521

 
1,899,163

Retained earnings (accumulated deficit)
(1,337,679
)
 
(1,333,828
)
Accumulated other comprehensive income (loss)
(2,519
)
 
(1,094
)
Total Fortress shareholders' equity
552,323

 
564,241

Principals' and others' interests in equity of consolidated subsidiaries
294,155

 
323,504

Total Equity
846,478

 
887,745

Total Liabilities and Equity
$
1,979,567

 
$
2,201,374



See notes to condensed consolidated financial statements.


1

Table of Contents

FORTRESS INVESTMENT GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(dollars in thousands, except per share data)

 
Three Months Ended March 31,
 
2017
 
2016
Revenues
 
 
 
Management fees: affiliates
$
126,169

 
$
127,390

Management fees: non-affiliates
14,223

 
13,419

Incentive income: affiliates
30,373

 
31,778

Incentive income: non-affiliates
410

 
451

Expense reimbursements: affiliates
58,294

 
55,291

Expense reimbursements: non-affiliates
619

 
1,157

Other revenues (affiliate portion disclosed in Note 6)
2,140

 
2,131

Total Revenues
232,228

 
231,617

 
 
 
 
Expenses
 
 
 
Compensation and benefits
181,992

 
164,205

General, administrative and other
52,945

 
33,126

Depreciation and amortization
4,455

 
6,266

Interest expense
1,979

 
3,037

Total Expenses
241,371

 
206,634

 
 
 
 
Other Income (Loss)
 
 
 
Gains (losses) (affiliate portion disclosed in Note 3)
20,439

 
(16,673
)
Tax receivable agreement liability adjustment

 
(2,699
)
Earnings (losses) from equity method investees
(19,868
)
 
(20,780
)
Total Other Income (Loss)
571

 
(40,152
)
 
 
 
 
Income (Loss) Before Income Taxes
(8,572
)
 
(15,169
)
   Income tax benefit (expense)
1,738

 
(783
)
Net Income (Loss)
$
(6,834
)
 
$
(15,952
)
Allocation of Net Income (Loss):
 
 
 
Principals' and Others' Interests in Income (Loss) of Consolidated Subsidiaries
$
(3,585
)
 
$
(7,426
)
Net Income (Loss) Attributable to Class A Shareholders
(3,249
)
 
(8,526
)
 
$
(6,834
)
 
$
(15,952
)
Dividends declared per Class A share
$
0.09

 
$
0.08

 
 
 
 
Earnings (Loss) Per Class A share
 
 
 
Net income (loss) per Class A share, basic
$
(0.02
)
 
$
(0.04
)
Net income (loss) per Class A share, diluted
$
(0.02
)
 
$
(0.04
)
Weighted average number of Class A shares outstanding, basic
220,496,395

 
220,847,407

Weighted average number of Class A shares outstanding, diluted
220,496,395

 
220,847,407


See notes to condensed consolidated financial statements.

2

Table of Contents

FORTRESS INVESTMENT GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(dollars in thousands)

 
Three Months Ended March 31,
 
2017
 
2016
Comprehensive income (loss) (net of tax)
 

 
 

Net income (loss)
$
(6,834
)
 
$
(15,952
)
Foreign currency translation income (loss)
(3,268
)
 
(103
)
Comprehensive income (loss) from equity method investees
(1
)
 
(130
)
Total comprehensive income (loss)
$
(10,103
)
 
$
(16,185
)
Allocation of Comprehensive Income (Loss):
 
 
 
Comprehensive income (loss) attributable to principals' and others' interests
$
(5,432
)
 
$
(7,570
)
Comprehensive income (loss) attributable to Class A shareholders
(4,671
)
 
(8,615
)
 
$
(10,103
)
 
$
(16,185
)



































See notes to condensed consolidated financial statements.

3

Table of Contents

FORTRESS INVESTMENT GROUP LLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 2017
(dollars in thousands)
 
 
Class A Shares
 
Class B Shares
 
Paid-In Capital
 
Retained
Earnings
(Accumulated
Deficit)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total Fortress
Shareholders'
Equity
 
Principals'
and Others'
Interests in
Equity of
Consolidated
Subsidiaries
 
Total Equity
Equity - December 31, 2016
216,891,601

 
169,207,335

 
$
1,899,163

 
$
(1,333,828
)
 
$
(1,094
)
 
$
564,241

 
$
323,504

 
$
887,745

Cumulative-effect adjustment from adoption of ASU 2016-09 (Note 1)

 

 

 
(602
)
 

 
(602
)
 
(468
)
 
(1,070
)
Contributions from principals' and others' interests in equity

 

 
6,735

 

 

 
6,735

 
10,218

 
16,953

Distributions to principals' and others' interests in equity (net of tax)

 

 

 

 

 

 
(35,742
)
 
(35,742
)
Class A dividends declared

 

 
(19,621
)
 

 

 
(19,621
)
 

 
(19,621
)
Dividend equivalents accrued in connection with equity-based
    compensation (net of tax)

 

 
(507
)
 

 

 
(507
)
 
(393
)
 
(900
)
Net deferred tax effects resulting from changes in ownership of
Fortress Operating Group units

 

 
1,655

 

 

 
1,655

 

 
1,655

Director restricted share grant
47,325

 

 
129

 

 

 
129

 
101

 
230

Capital increase related to equity-based compensation (net of tax)
1,069,444

 

 
4,127

 

 

 
4,127

 
3,204

 
7,331

Dilution impact of equity transactions (Note 6)

 

 
840

 

 
(3
)
 
837

 
(837
)
 

Comprehensive income (loss) (net of tax)
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income (loss)

 

 

 
(3,249
)
 

 
(3,249
)
 
(3,585
)
 
(6,834
)
Foreign currency translation income (loss)

 

 

 

 
(1,421
)
 
(1,421
)
 
(1,847
)
 
(3,268
)
Comprehensive income (loss) from equity method investees

 

 

 

 
(1
)
 
(1
)
 

 
(1
)
Total comprehensive income (loss)
 

 
 

 
 

 
 

 
 

 
(4,671
)
 
(5,432
)
 
(10,103
)
Equity - March 31, 2017
218,008,370

 
169,207,335

 
$
1,892,521

 
$
(1,337,679
)
 
$
(2,519
)
 
$
552,323

 
$
294,155

 
$
846,478










See notes to condensed consolidated financial statements.

4

Table of Contents

FORTRESS INVESTMENT GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
 
Three Months Ended March 31,
 
2017
 
2016
Cash Flows From Operating Activities
 

 
 

Net income (loss)
$
(6,834
)
 
$
(15,952
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
 
 
 
Depreciation and amortization
4,455

 
6,266

Other amortization (included in interest expense)
172

 
273

(Earnings) losses from equity method investees
19,868

 
20,780

Distributions of earnings from equity method and other investees
30,863

 
3,993

(Gains) losses
(20,439
)
 
16,673

Deferred incentive income
(15,026
)
 
(29,310
)
Deferred tax (benefit) expense
10,567

 
11,656

Options received from affiliates
(8,068
)
 

Tax receivable agreement liability adjustment

 
2,699

Equity-based compensation
6,401

 
8,023

Options in affiliates granted to employees
5,772

 
653

Other
74

 
530

Cash flows due to changes in
 
 
 
Due from affiliates
33,774

 
44,155

Other assets
(8,793
)
 
(26,473
)
Accrued compensation and benefits
(205,691
)
 
(185,983
)
Due to affiliates
(38,344
)
 
9,557

Deferred incentive income
49,482

 
(53,182
)
Other liabilities
37,824

 
44,318

Purchase of investments by consolidated funds
(15,831
)
 
(24,369
)
Proceeds from sale of investments by consolidated funds
15,077

 
28,503

Receivables from brokers and counterparties
(448
)
 
(889
)
Due to brokers and counterparties
1,260

 
2,139

Net cash provided by (used in) operating activities
(103,885
)
 
(135,940
)
Cash Flows From Investing Activities
 

 
 

Contributions to equity method investees
(8,914
)
 
(6,527
)
Distributions of capital from equity method and other investees
113,228

 
106,762

Purchase of fixed assets
(3,741
)
 
(4,884
)
Net cash provided by (used in) investing activities
100,573

 
95,351








Continued on next page.

5

Table of Contents

FORTRESS INVESTMENT GROUP LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
 
Three Months Ended March 31,
 
2017
 
2016
Cash Flows From Financing Activities
 

 
 

Repayments of debt obligations

 
(145,000
)
Borrowings under debt obligations

 
175,000

Payment of deferred financing costs

 
(3,289
)
Repurchase of Class A shares (Note 8)
(8,434
)
 
(34,047
)
Payments to settle RSU statutory withholding tax

 
(6,486
)
Dividends and dividend equivalents paid
(20,489
)
 
(18,024
)
Principals' and others' interests in equity of consolidated subsidiaries - contributions
829

 
71

Principals' and others' interests in equity of consolidated subsidiaries - distributions
(31,037
)
 
(41,925
)
Net cash provided by (used in) financing activities
(59,131
)
 
(73,700
)
Net Increase (Decrease) in Cash and Cash Equivalents
(62,443
)
 
(114,289
)
Cash and Cash Equivalents, Beginning of Period
397,125

 
339,842

Cash and Cash Equivalents, End of Period
$
334,682

 
$
225,553

Supplemental Disclosure of Cash Flow Information
 
 
 
Cash paid during the period for interest
$
2,107

 
$
3,104

Cash paid during the period for income taxes
$
994

 
$
8,262

Supplemental Schedule of Non-cash Investing and Financing Activities
 
 
 
Employee compensation invested directly in subsidiaries
$
4,161

 
$
17,361

Investments of incentive receivable amounts into Fortress Funds
$
108,724

 
$
55,248

Dividends, dividend equivalents and Fortress Operating Group unit distributions declared but not yet paid
$
4,489

 
$
1,162

Contribution of interests in a Fortress Fund from certain principals to certain senior employees (Note 7)
$
11,963

 
$




















See notes to condensed consolidated financial statements.

6

Table of Contents
  
FORTRESS INVESTMENT GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2017
(dollars in tables in thousands, except share and per share data)


1. ORGANIZATION AND BASIS OF PRESENTATION

Fortress Investment Group LLC (the "Registrant," or, together with its subsidiaries, "Fortress,") is a leading, highly diversified global investment management firm. Its primary business is to sponsor the formation of, and provide investment management services for, various investment funds, permanent capital vehicles and related managed accounts (collectively, the "Fortress Funds"). Fortress generally makes investments in these funds.

Proposed Acquisition by SoftBank

On February 14, 2017, Fortress entered into an Agreement and Plan of Merger (the "Merger Agreement") with SB Foundation Holdings LP, a Cayman Islands exempted limited partnership ("Parent"), and Foundation Acquisition LLC, a Delaware limited liability company and wholly owned subsidiary of Parent ("Merger Sub"), pursuant to which, among other things, Merger Sub will merge with and into Fortress, with Fortress surviving as a wholly owned subsidiary of Parent (the "Merger").

At the effective time of the Merger, each Class A share issued and outstanding immediately prior to the effective time (subject to certain exceptions) and each restricted stock unit with respect to the Class A shares outstanding immediately prior to the effective time will be converted into the right to receive $8.08 in cash, without interest, less any applicable taxes required to be withheld. Each Class B share outstanding immediately prior to the effective time will be canceled and retired in exchange for no consideration. The Merger Agreement also provides that Fortress's shareholders may also receive up to two regular quarterly dividends prior to the closing, each in an amount not to exceed $0.09 per Class A share. There are no appraisal or dissenters' rights available with respect to the Merger.

Fortress's board of directors, acting on the unanimous recommendation of a special committee consisting entirely of independent and disinterested directors (the "Special Committee"), unanimously approved the terms of the Merger Agreement and unanimously recommended the approval of the Merger by Fortress's shareholders (the "Board Recommendation").

Consummation of the Merger is subject to certain customary conditions, including, without limitation, the approval by the holders of a majority of the Class A shares and Class B shares (voting as one class) and the receipt of certain governmental and regulatory approvals. In addition, the obligations of Parent and Merger Sub to consummate the Merger are subject to, among other conditions, the absence of a Material Adverse Effect (as defined in the Merger Agreement), and the receipt of consent of advisory clients representing at least 87.5% of Base Aggregate Management Fees (as defined in the Merger Agreement).

Fortress has made customary representations and warranties in the Merger Agreement and has agreed to customary covenants, including with respect to, among other things, the operation of the business of Fortress prior to the closing. In addition, the Merger Agreement contains a customary "no shop" provision that, in general, restricts Fortress's ability to solicit alternative acquisition proposals and to provide nonpublic information to and engage in discussions or negotiations regarding alternative acquisition proposals, subject to a customary "fiduciary out" exception.

The Merger Agreement contains certain customary termination rights, including, without limitation, if the Merger is not consummated on or before December 31, 2017. Upon termination of the Merger Agreement under specified circumstances, including with respect to Fortress's entry into an agreement with respect to a Superior Offer (as defined in the Merger Agreement), Fortress will be required to pay Parent a termination fee of $98.4 million. If the Merger Agreement is terminated by Parent or Fortress following withdrawal or modification of the Board Recommendation based on an Intervening Event (as defined in the Merger Agreement), Fortress will be required to pay Parent a termination fee of $131.1 million.

Parent has secured from SoftBank Group Corp. ("SoftBank") committed equity financing for the entire amount of the purchase price payable under the Merger Agreement, and Fortress has received a corresponding limited guarantee from SoftBank that also requires SoftBank to comply with certain specified covenants under the Merger Agreement. The Merger Agreement permits the syndication of a portion of Parent's equity, subject to certain conditions and limitations, provided that no such syndication will reduce SoftBank's obligations under the equity commitment letter or limited guarantee. At the completion of the equity syndication period specified under the Merger Agreement, Parent had not entered into any investment agreements with any potential equity investors.


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FORTRESS INVESTMENT GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2017
(dollars in tables in thousands, except share and per share data)

On February 14, 2017, concurrently with the entry into the Merger Agreement, Parent entered into a Founders Agreement (the "Founders Agreement") with Fortress, FIG Corp., FIG Asset Co. LLC (together with FIG Corp., the "Buyers"), each of the Principals and the Principals' related parties that own FOGUs (collectively with the Principals, the "Sellers"), pursuant to which, among other things, the Buyers will purchase from the Sellers 100% of the FOGUs that are not already owned by Fortress of each of the FOG entities. At the closing of the transactions contemplated by the Founders Agreement, which is to occur substantially concurrently with the closing of the Merger, each FOGU will be acquired from the Sellers in exchange for $8.08 in cash, subject to reduction for certain items. Each Seller will place 50% of the after-tax proceeds from the sale of its FOGUs into escrow at the closing. These escrowed proceeds and retained investments will be invested in funds and investment vehicles of Fortress or SoftBank, or in stock of SoftBank, among other things. The Closing under the Founders Agreement is subject to certain conditions, including, without limitation, the satisfaction of the conditions to the Merger.

In connection with entering into the Merger Agreement, on February 14, 2017, Parent entered into a Voting and Support Agreement (each, a "Support Agreement") with each Principal and his related parties that own Class A or Class B shares (the "Supporting Members"). The Support Agreements generally require that the Supporting Members vote their Covered Securities (as defined in the Support Agreement) of Fortress that represent, in the aggregate, 34.99% of the total voting power of Fortress, in favor of the adoption of the Merger Agreement and against any competing acquisition proposals, subject to the limitations set forth therein. Subject to certain exceptions, the Support Agreements prohibit transfers by the Supporting Members of any of their Covered Securities.

In connection with entering into the Merger Agreement, on February 14, 2017, FIG Corp. entered into a Waiver Agreement (the "TRA Waiver") with certain other subsidiaries of Fortress and the Principals, effective as of the closing, pursuant to which, among other things, the Principals waive their rights to receive any payments under the tax receivable agreement arising out of the transactions contemplated by the Founders Agreement and other transactions occurring after February 14, 2017. With respect to all previous exchanges for which a tax receivable agreement obligation is still outstanding, the waivers and amendments provided for in the TRA Waiver will generally have the effect of reducing and/or deferring the payments to which the Principals would otherwise have been entitled under the tax receivable agreement.

In connection with their execution of the Founders Agreement, each of the Principals entered into an Amended and Restatement Employment, Non-Competition, and Non-Solicitation Agreement with FIG LLC, an operating subsidiary of Fortress. The employment agreements will become effective on and subject to the closing and will have an initial five-year term.

In connection with entering into the Founders Agreement, the Second Amended and Restated Fortress Investment Group LLC Principal Compensation Plan (the "PCP") will be further amended and restated, effective as of and subject to the closing, to make certain clarifying and conforming changes. Under the PCP, the Principals will continue to receive annual payments based on their respective success in raising and investing new and existing funds and the performance of the Fortress funds during a given fiscal year and, for the credit hedge fund business, on the performance of the existing AUM of Fortress's flagship hedge funds during a given year.

On February 14, 2017, the Board, having determined that it was in the best interests of Fortress and its shareholders to amend Fortress's Fourth Amended and Restated Limited Liability Company Agreement (the "LLC Agreement"), approved an amendment to the LLC Agreement (the "Amendment"). The Amendment amends and restates Section 12.8 of the LLC Agreement, providing that the Court of Chancery of the State of Delaware will be the exclusive forum for any action, claim or proceeding arising out of or relating to the LLC Agreement, Fortress or its business or affairs.

Fortress's Business

Fortress's primary sources of income from the Fortress Funds are management fees, incentive income, and investment income on its investments in the funds. In addition, Fortress receives certain expense reimbursements pursuant to its management agreements. The Fortress Funds fall into the following business segments in which Fortress operates:

1)
Private equity:
a)    General buyout and sector-specific funds focused on control-oriented investments in cash flow generating assets and asset-based businesses in North America, the Caribbean and Western Europe; and
b)
Entities which Fortress collectively refers to as "permanent capital vehicles" which includes Drive Shack Inc. ("Drive Shack") formerly known as Newcastle Investment Corp., New Residential Investment Corp. ("New

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FORTRESS INVESTMENT GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2017
(dollars in tables in thousands, except share and per share data)

Residential"), Eurocastle Investment Limited ("Eurocastle"), New Media Investment Group Inc. ("New Media"), New Senior Investment Group Inc. ("New Senior") and Fortress Transportation and Infrastructure Investors LLC ("FTAI"), which are publicly traded companies that are externally managed by Fortress pursuant to management agreements (collectively referred to as the "publicly traded permanent capital vehicles"). FHC Property Management LLC (together with its subsidiaries, referred to as "Blue Harbor"), a senior living property management business, is also part of the permanent capital vehicles segment. The publicly traded permanent capital vehicles invest in a wide variety of real estate related assets, including securities, loans, real estate properties and mortgage servicing related assets, media assets, senior living properties and transportation and infrastructure assets.

2)
Credit funds:
a)
Credit hedge funds, which make highly diversified investments in direct lending, corporate debt and securities, portfolios and orphaned assets, real estate and structured finance, on a global basis and throughout the capital structure, with a value orientation, as well as non-Fortress originated funds for which Fortress has been retained as manager or co-manager as part of an advisory business; and
b)            Credit private equity ("PE") funds which are comprised of a family of "credit opportunities" funds focused on investing in distressed and undervalued assets, a family of ''long dated value'' funds focused on investing in undervalued assets with limited current cash flows and long investment horizons, a family of "real assets" funds focused on investing in tangible and intangible assets in the following principal categories (real estate, capital assets, natural resources and intellectual property), a family of Asia funds, including Japan real estate funds and an Asian investor based global opportunities fund, and a family of real estate opportunities funds, as well as certain sector-specific funds with narrower investment mandates tailored for the applicable sector.

3)
Liquid hedge funds include (i) funds managed by an autonomous asset management business named Graticule Asset Management Asia ("Affiliated Manager" or "Graticule"), an external manager in which Fortress has a minority interest and accounts for using the equity method and (ii) an endowment style fund, which invests in Fortress Funds, funds managed by external managers and direct investments.

4)
Logan Circle Partners, L.P. ("Logan Circle"), which represents Fortress's traditional asset management business providing institutional clients actively managed investment solutions across a broad spectrum of fixed income strategies. Logan Circle's core fixed income products cover the breadth of the maturity and risk spectrums, including short, intermediate and long duration, core/core plus, investment grade credit, high yield and emerging market debt.

For a reconciliation between the financial statements and the segment-based financial data that management uses for making operating decisions and assessing performance, see Note 10.

All significant intercompany accounts and transactions have been eliminated.

Certain prior period amounts have been reclassified to conform to the current period's presentation.

The accompanying condensed consolidated financial statements and related footnotes of Fortress have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under GAAP have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of Fortress's financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These financial statements should be read in conjunction with Fortress's consolidated financial statements for the year ended December 31, 2016 and footnotes thereto included in Fortress's Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2017. Capitalized terms used herein, and not otherwise defined, are defined in Fortress's consolidated financial statements for the year ended December 31, 2016.

Recent Accounting Pronouncements

Effective January 1, 2017, Fortress adopted Accounting Standards Update ("ASU") No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 permits

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FORTRESS INVESTMENT GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2017
(dollars in tables in thousands, except share and per share data)

a policy election to account for forfeitures as they occur or to continue to estimate the number of awards expected to be forfeited over the requisite service period. Upon adoption of ASU 2016-09, Fortress elected to change its accounting policy to account for forfeitures as they occur, rather than estimating expected forfeitures (see Note 7). The change was applied on a modified retrospective basis with a cumulative-effect adjustment as of January 1, 2017 to (i) decrease total equity by $1.1 million included as a cumulative-effect adjustment from adoption of ASU 2016-09 in Fortress's condensed consolidated statement of changes in equity and (ii) increase total equity by $1.1 million included as a capital increase related to equity-based compensation (net of tax) in Fortress's condensed consolidated statement of changes in equity, resulting in no net impact on total equity. No prior periods were adjusted.

Upon adoption of ASU 2016-09, Fortress adopted on a prospective basis, as required, that excess tax benefits (“windfalls”) and tax deficiencies (“shortfalls”) related to equity-based compensation be recognized as an income tax benefit or income tax expense, respectively, whereas these items previously were recognized in equity (see Note 5). The guidance also requires that excess tax benefits be reported as cash flows from operating activities, as opposed to financing activities, and Fortress has elected to apply this classification amendment prospectively. As such, no prior periods were adjusted. During the three months ended March 31, 2017, Fortress recorded $0.5 million of net tax shortfall from delivery of RSUs as income tax expense in Fortress's condensed consolidated statement of operations and as cash flows from operating activities in Fortress's condensed consolidated statement of cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02") which supersedes Topic 840, Leases. The new standard will require lessees to recognize operating leases on their balance sheet as a right-of-use asset with an offsetting lease liability based on the present value of future lease payments. Currently, only finance leases are recognized on the balance sheet. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit thresholds. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard under ASU 2014-09. ASU 2016-02 is effective for Fortress beginning January 1, 2019; however, early adoption is permitted. ASU 2016-02 requires a modified retrospective approach which includes a number of optional practical expedients an entity may elect to apply. Fortress is currently evaluating the potential impact of adoption of ASU 2016-02 for its operating leases and expects it will result in an increase in Fortress's total assets and total liabilities.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) ("ASU 2016-01"). ASU 2016-01 will require measuring equity investments (excluding those accounted for under the equity method, those that result in consolidation and certain other investments) at fair value and recognize the changes in fair value in net income. The new standard is effective for Fortress beginning January 1, 2018. Early adoption is permitted only for certain of the amendments. The standard requires a cumulative effect adjustment to the balance sheet as of the beginning of the period of adoption, with the exception of the amendments related to equity securities without readily determinable fair values (including disclosure requirements) which should be applied prospectively. The adoption of ASU 2016-01 is not expected to have a material impact on Fortress's consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09") which is a comprehensive new revenue recognition standard for contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The entity will recognize revenue to reflect the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. In July 2015, the FASB deferred the effective date of the new revenue recognition standard. The new standard is effective for Fortress beginning January 1, 2018. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. Fortress currently recognizes incentive income subject to contingent repayment once all contingencies have been resolved. Whereas ASU 2014-09 requires an entity to recognize such revenue when it concludes that it is probable that a significant reversal in the cumulative amount of revenue recognized will not occur when the uncertainty is resolved. As such, the adoption of ASU 2014-09 may require Fortress to recognize incentive income earlier than as prescribed under current guidance.

The FASB has recently issued or discussed a number of proposed standards. Some of the proposed changes are significant and could have a material impact on Fortress's financial reporting. Fortress has not yet fully evaluated the potential impact of these proposals, but will make such an evaluation as the standards are finalized.

10

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FORTRESS INVESTMENT GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2017
(dollars in tables in thousands, except share and per share data)

2. MANAGEMENT AGREEMENTS AND FORTRESS FUNDS

Fortress has two principal sources of fee income from its agreements with the Fortress Funds: contractual management fees, which are generally based on a percentage of fee paying assets under management ("AUM"), and related incentive income, which is generally based on a percentage of returns, or profits, subject to the achievement of performance criteria. Substantially all of Fortress's net assets, after deducting the portion attributable to non-controlling interests, are a result of Fortress's investments in, or receivables from, these funds. The terms of agreements between Fortress and the Fortress Funds are generally determined in connection with third party fund investors. In addition, Fortress receives certain expense reimbursements pursuant to its management agreements.

Management Fees and Incentive Income

Fortress recognized management fees and incentive income as follows:
 
Three Months Ended March 31,
 
2017
 
2016
Private Equity
 

 
 

Private Equity Funds
 

 
 

Management fees: affil.
$
20,168

 
$
25,758

 
 
 
 
Permanent Capital Vehicles
 
 
 
Management fees: affil.
30,180

 
27,180

Management fees, options: affil.
8,068

 

Management fees: non-affil.
270

 
372

Incentive income: affil.
11,711

 
1,119

 
 
 
 
Credit Funds
 

 
 

Credit Hedge Funds
 

 
 
Management fees: affil.
37,160

 
36,425

Management fees: non-affil.
2

 
8

Incentive income: affil.
3,836

 
924

Incentive income: non-affil.
57

 

 
 
 
 

Credit PE Funds
 

 
 

Management fees: affil.
29,795

 
30,817

Management fees: non-affil.

 
25

Incentive income: affil.
14,826

 
28,859

Incentive income: non-affil.
200

 
451

 
 
 
 
Liquid Hedge Funds
 
 
 

Management fees: affil.
153

 
6,636

Incentive income: affil.

 
876

 
 
 
 
Logan Circle
 
 
 

Management fees: affil.
645

 
574

Management fees: non-affil.
13,951

 
13,014

Incentive income: non-affil.
153

 

 
 
 
 
Total
 

 
 

Management fees: affil. (including options)
$
126,169

 
$
127,390

Management fees: non-affil.
$
14,223

 
$
13,419

Incentive income: affil. (A)
$
30,373

 
$
31,778

Incentive income: non-affil.
$
410

 
$
451


(A)
See "Deferred Incentive Income" below. The incentive income amounts presented in this table are based on the estimated results of investment vehicles for each period. These estimates are subject to change based on the final results of such vehicles.

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FORTRESS INVESTMENT GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2017
(dollars in tables in thousands, except share and per share data)

Deferred Incentive Income

Incentive income from certain Fortress Funds, primarily the private equity funds and credit PE funds, is received when such funds realize returns, or profits, based on the related agreements. However, this incentive income is subject to contingent repayment by Fortress to the funds until certain overall fund performance criteria are met. Accordingly, Fortress does not recognize this incentive income as revenue until the related contingencies are resolved. Until such time, this incentive income is recorded on the balance sheet as deferred incentive income and is included as "distributed-unrecognized" deferred incentive income in the table below. Incentive income from such funds, based on their net asset value, which has not yet been received is not recorded on the balance sheet and is included as "undistributed" deferred incentive income in the table below.

Incentive income from certain Fortress Funds is earned based on achieving annual performance criteria. Accordingly, this incentive income is recorded as revenue at year end (in the fourth quarter of each year), is generally received subsequent to year end, and has not been recognized for these funds during the three months ended March 31, 2017 and 2016. If the amount of incentive income contingent on achieving annual performance criteria was not contingent on the results of the subsequent quarters, $30.9 million and $7.9 million of additional incentive income would have been recognized during the three months ended March 31, 2017 and 2016, respectively. Incentive income based on achieving annual performance criteria that has not yet been recognized, if any, is not recorded on the balance sheet and is included as "undistributed" deferred incentive income in the table below.

During the three months ended March 31, 2017 and 2016, Fortress recognized $15.0 million and $29.3 million, respectively, of incentive income distributions from its credit PE funds which were non-clawbackable or represented "tax distributions." Tax distributions are not subject to clawback and reflect a cash amount approximately equal to the amount expected to be paid out by Fortress for taxes or tax-related distributions on the allocated income from such funds.

Distributed incentive income amounts in the table below do not include incentive income which is not subject to clawback when received from the Fortress Funds. This also does not include any amounts related to third party funds, receipts from which are reflected as Other Liabilities until all contingencies are resolved.

Deferred incentive income from the Fortress Funds was comprised of the following on an inception-to-date basis.

 
Distributed-Gross
 
Distributed-Recognized (A)
 
Distributed-Unrecognized (B)
 
Undistributed, net of intrinsic clawback (if any) (C) (D)
 
Deferred incentive income as of December 31, 2016
$
1,657,775

 
$
(1,327,421
)
 
$
330,354

 
$
1,207,881

 
Share of income (loss) of Fortress Funds
 N/A

 
 N/A

 
N/A

 
155,696

 
Distribution of private equity funds and credit PE funds incentive income
50,165

 
 N/A

 
50,165

 
(50,165
)
 
Recognition of previously deferred incentive income
 N/A

 
(15,026
)
 
(15,026
)
 
 N/A

 
Changes in foreign exchange rates
4,483

 

 
4,483

 
N/A

 
Deferred incentive income as of March 31, 2017
$
1,712,423

(E)
$
(1,342,447
)
 
$
369,976

 
$
1,313,412

 (E)
Deferred incentive income including Fortress Funds
which are not subject to clawback
$
1,860,592

 
$
(1,490,616
)
 
 
 
 
 

(A)
All related contingencies have been resolved.
(B)
Reflected on Fortress's condensed consolidated balance sheets as of March 31, 2017 and December 31, 2016.
(C)
At March 31, 2017, no intrinsic clawback exists for any of the Fortress Funds. The net undistributed incentive income represents the amount that would be received by Fortress from the related funds if such funds were liquidated on March 31, 2017 at their net asset values.
(D)
From inception to March 31, 2017, Fortress has paid $826.5 million of compensation expense under its employee profit sharing arrangements (Note 7) in connection with distributed incentive income. If the $1.3 billion of gross undistributed incentive income were realized, Fortress would recognize and pay an additional $541.6 million of compensation.
(E)
See detailed reconciliations of Distributed-Gross and Undistributed, net of intrinsic clawback below.

12

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FORTRESS INVESTMENT GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2017
(dollars in tables in thousands, except share and per share data)

The amounts set forth under Distributed-Gross can be reconciled to the incentive income threshold tables (on the following pages) as follows:

 
 
 
 
 
March 31, 2017
Distributed incentive income - Private Equity Funds
$
780,459

Distributed incentive income - Private Equity Funds in Investment Period or Commitment Period

Distributed incentive income - Credit PE Funds
1,253,585

Distributed incentive income - Credit PE Funds in Investment Period or Commitment Period
521

Distributed incentive income - Permanent Capital Vehicle (see footnote (P) of incentive
income threshold tables)
7,043

Less:
 
 
 
Fortress Funds which are not subject to a clawback provision:
 
 
 

 
NIH
(94,513
)
 
 

 
GAGACQ Fund
(51,476
)
 
 
Portion of Fund I distributed incentive income that Fortress is not entitled to (see footnote K of incentive income threshold tables)
(183,196
)
Distributed-Gross
$
1,712,423


The amounts set forth under Undistributed, net of intrinsic clawback can be reconciled to the incentive income threshold tables (on the following pages) as follows:

 
 
 
 
 
March 31, 2017
Undistributed incentive income - Private Equity Funds
$
18,221

Undistributed incentive income - Private Equity Funds in Investment Period or Commitment Period
216,757

Undistributed incentive income - Credit PE Funds
927,157

Undistributed incentive income - Credit PE Funds in Investment Period or Commitment
Period
53,433

Undistributed incentive income - Permanent Capital Vehicles
4,136

Undistributed incentive income - Hedge Funds (total)
93,507

Undistributed incentive income - Logan Circle
201

Less:
 
Gross intrinsic clawback per incentive income threshold tables

Undistributed, net of intrinsic clawback
$
1,313,412



13

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FORTRESS INVESTMENT GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2017
(dollars in tables in thousands, except share and per share data)

The following tables summarize information with respect to the Fortress Funds and their related incentive income thresholds as of March 31, 2017:

Fund (Vintage) (A)
 
 Maturity Date (B)
 
 Inception to Date
Capital
 Invested
 
 Inception to Date Distributions (C)
 
 Net Asset Value ("NAV")
 
 NAV Surplus (Deficit) (D)
 
 Current Preferred Return Threshold (E)
 
 Gain to Cross Incentive Income Threshold (F)
 
 Undistributed Incentive Income (G)
 
 Distributed Incentive Income (H)
 
 Distributed Incentive Income Subject to Clawback (I)
 
 Gross Intrinsic Clawback (J)
 
 Net Intrinsic Clawback (J)
Private Equity Funds
 
 
 
  

 
  

 
  

 
  

 
  

 
  

 
  

 
  

 
  

 
  

 
  

NIH (1998)
 
Closed Jun-15
 
$
415,574

 
$
(823,588
)
 
$

 
$ N/A
 
$ N/A

 
$ N/A

 
$

 
$
94,513

 
$

 
$

 
$

Fund I (1999) (K)
 
Closed May-13
 
1,015,943

 
(2,847,929
)
 

 
N/A

 
N/A

 
N/A

 

 
344,939

 

 

 

Fund II (2002)
 
Closed Dec-15
 
1,974,298

 
(3,446,405
)
 

 
N/A

 
N/A

 
N/A

 

 
289,531

 

 

 

Fund III (2004)
 
In Liquidation
 
2,762,992

 
(2,221,941
)
 
729,268

 
188,217

 
2,659,157

 
2,470,940

 

 

 

 

 

Fund III Coinvestment (2004)
 
In Liquidation
 
273,649

 
(243,771
)
 
42,955

 
13,077

 
306,386

 
293,309

 

 

 

 

 

Fund IV (2006)
 
(B)
 
3,639,561

 
(1,537,096
)
 
1,942,015

 
(160,450
)
 
3,663,861

 
3,824,311

 

 

 

 

 

Fund IV Coinvestment (2006)
 
(B)
 
762,696

 
(323,605
)
 
343,294

 
(95,797
)
 
782,161

 
877,958

 

 

 

 

 

Fund V (2007)
 
Feb-18
 
4,103,713

 
(1,920,394
)
 
3,676,323

 
1,493,004

 
3,402,679

 
1,909,675

 

 

 

 

 

Fund V Coinvestment (2007)
 
Feb-18
 
990,480

 
(283,314
)
 
322,669

 
(384,497
)
 
922,165

 
1,306,662

 

 

 

 

 

GAGACQ Fund (2004) (GAGFAH)
 
Closed Nov-09
 
545,663

 
(595,401
)
 

 
 N/A

 
N/A

 
 N/A

 

 
51,476

 

 

 

FRID (2005) (GAGFAH)
 
Closed Nov-14
 
1,220,229

 
(1,202,153
)
 

 
 N/A

 
N/A

 
N/A

 

 

 

 

 

FRIC (2006) (Brookdale)
 
Closed Dec-14
 
328,754

 
(291,330
)
 

 
 N/A

 
N/A

 
N/A

 

 

 

 

 

FICO (2006) (Intrawest)
 
(B)
 
724,525

 

 
(67,845
)
 
(792,370
)
 
880,373

 
1,672,743

 

 

 

 

 

FHIF (2006) (Holiday)
 
(B)
 
1,543,463

 
(954,223
)
 
832,625

 
243,385

 
1,521,643

 
1,278,258

 

 

 

 

 

FECI (2007) (Florida East Coast/Flagler)
 
Feb-18
 
982,779

 
(713
)
 
808,990

 
(173,076
)
 
1,079,233

 
1,252,309

 

 

 

 

 

MSR Opportunities Fund I A (2012)
 
Aug-22
 
341,135

 
(239,262
)
 
247,981

 
146,108

 

 
N/A

 
14,065

 

 

 

 

MSR Opportunities Fund I B (2012)
 
Aug-22
 
82,760

 
(57,769
)
 
60,109

 
35,118

 

 
N/A

 
3,510

 

 

 

 

MSR Opportunities Fund II A (2013)
 
Jul-23
 
160,653

 
(66,390
)
 
119,910

 
25,647

 
3,417

 
46

 
479

 

 

 

 

MSR Opportunities Fund II B (2013)
 
Jul-23
 
2,291

 
(923
)
 
1,707

 
339

 
354

 
18

 

 

 

 

 

MSR Opportunities MA I (2013)
 
Jul-23
 
36,868

 
(15,314
)
 
27,540

 
5,986

 

 
N/A

 
167

 

 

 

 

 
 
 
 
  

 
  

 
  

 
  

 
  

 
  

 
$
18,221

 
$
780,459

 
$

 
$

 
$

Private Equity Funds in Investment or Commitment Period
 
  

 
  

 
  

 
  

 
  

 
  

 
  

 
  

 
  

 
  

Italian NPL Opportunities Fund (2013)
 
Sep-24
 
309,595

 
(21,090
)
 
434,177

 
145,672

 

 
N/A

 
21,627

 

 

 

 

Fortress Equity Partners (2014)
 
Mar-24
 
186,068

 

 
1,161,983

 
975,915

 

 
N/A

 
195,130

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
216,757

 
$

 
$

 
$

 
$






Continued on next page.

14

Table of Contents
  
FORTRESS INVESTMENT GROUP LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2017
(dollars in tables in thousands, except share and per share data)

Fund (Vintage) (A)
 
 Maturity Date (B)
 
 Inception to Date
Capital
 Invested
 
 Inception to Date Distributions (C)
 
 Net Asset Value ("NAV")
 
 NAV Surplus (Deficit) (D)
 
 Current Preferred Return Threshold (E)
 
 Gain to Cross Incentive Income Threshold (F)
 
 Undistributed Incentive Income (G)
 
 Distributed Incentive Income (H)
 
 Distributed Incentive Income Subject to Clawback (I)
 
 Gross Intrinsic Clawback (J)
 
 Net Intrinsic Clawback (J)
Credit PE Funds
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long Dated Value Fund I (2005)
 
Apr-30
 
$
267,325

 
$
(283,291
)
 
$
167,055

 
$
183,021

 
$
53,003

 
$
4,066

 
$
3,013

 
$

 
$

 
$

 
$

Long Dated Value Fund II (2005)
 
Nov-30
 
274,280

 
(219,735
)
 
148,709

 
94,164

 
155,600

 
61,436

 

 
412

 

 

 

Long Dated Value Fund III (2007)
 
Feb-32
 
343,156

 
(317,056
)
 
148,405

 
122,305

 

 
N/A

 
7,167

 
7,904

 

 

 

LDVF Patent Fund (2007)
 
Nov-27
 
43,487

 
(33,393
)
 
16,043

 
5,949

 
14,083

 
8,134

 

 
1,471

 

 

 

Real Assets Fund (2007)
 
Jun-17
 
359,024

 
(442,082
)
 
7,285

 
90,343

 

 
N/A

 
1,181

 
12,745

 
5,327

 

 

Credit Opportunities Fund (2008)
 
Oct-20
 
5,693,422

 
(7,591,066
)
 
971,904

 
2,869,548

 

 
N/A

 
108,856

 
452,724

 
131,777

 

 

Credit Opportunities Fund II (2009)
 
Jul-22
 
2,382,826

 
(2,933,818
)
 
846,153

 
1,397,145

 

 
N/A

 
109,407

 
164,546

 
64,816

 

 

Credit Opportunities Fund III (2011)
 
Mar-24
 
3,459,527

 
(2,671,607
)
 
1,891,633

 
1,103,713

 

 
N/A

 
171,393

 
44,908

 

 

 

FCO Managed Accounts (2008 - 2012)
 
Apr-22 to Dec-24
 
5,173,626

 
(4,902,624
)
 
2,411,167

 
2,140,165

 

 
N/A

 
245,817

 
163,172

 
49,380

 

 

SIP Managed Account (2010)
 
Sep-20
 
11,000

 
(248,937
)
 
10,943

 
248,880

 

 
N/A

 
2,189

 
47,587

 

 

 

Japan Opportunity Fund (Yen only)(2009)
 
Jun-19
 
987,699

 
(1,975,130
)
 
374,540

 
1,361,971

 

 
N/A

 
83,156

 
202,574

 
72,643

 

 

Net Lease Fund I (2010)
 
Closed Dec-15
 
152,851

 
(227,108
)
 

 
N/A

 
N/A

 
N/A

 

 
9,743

 

 

 

Real Estate Opportunities Fund (2011)
 
Sep-24
 
558,541

 
(670,339
)
 
138,681

 
250,479

 

 
N/A

 
7,438

 
14,502

 
8,542

 

 

Global Opportunities Fund (2010)
 
Sep-20
 
359,016

 
(292,585
)
 
186,667

 
120,236

 

 
N/A

 
21,098

 
2,396

 
2,396

 

 

Japan Opportunity Fund II (Yen) (2011)
 
Dec-21
 
774,722

 
(857,732
)
 
721,673

 
804,683

 

 
N/A

 
87,291

 
70,194

 
23,368

 

 

Japan Opportunity Fund II (Dollar) (2011)
 
Dec-21
 
683,638

 
(724,415
)
 
635,706

 
676,483

 

 
N/A

 
77,099

 
53,640

 
8,793

 

 

Real Estate Opportunities REOC Fund (2011)
 
Oct-23
 
58,125

 
(73,665
)
 
20,233

 
35,773

 

 
N/A

 
2,052

 
5,067

 
2,669

 

 

CFT Co-invest Fund (CAD) (2015)
 
Oct-27
 
13,877

 

 
14,047

 
170

 
1,420

 
1,250

 

 

 

 

 

CFT Co-invest Fund (USD) (2015)
 
Oct-27
 
96,798

 

 
98,092

 
1,294

 
9,869

 
8,575

 

 

 

 

 

 
 
 
 
  

 
  

 
  

 
  

 
 
 
  

 
$
927,157

 
$
1,253,585

 
$
369,711

 
$

 
$

Credit PE Funds in Investment Period or Commitment Period
 
  

 
  

 
  

 
 
 
  

 
  

 
  

 
  

 
  

 
  

FCO Managed Accounts (2015)
 
Mar-25 to Feb-28
 
$
819,156

 
$
(61,700
)
 
$
818,360

 
$
60,904

 
$
65,004

 
$
31,515

 
$

 
$

 
$

 
$

 
$

Life Settlements Fund (2010)
 
Dec-22
 
425,910

 
(299,330
)
 
132,006

 
5,426

 
109,975

 
104,549

 

 

 

 

 

Life Settlements Fund MA (2010)
 
Dec-22
 
34,995

 
(24,482
)
 
10,622

 
109

 
9,016

 
8,907

 

 

 

 

 

Real Estate Opportunities Fund II (2014)
 
May-27
 
705,307

 
(155,176
)
 
718,963

 
168,832

 

 
N/A

 
32,860

 
265

 
265

 

 

Japan Opportunity Fund III (Yen) (2014)
 
Oct-24
 
352,740

 
(10,479
)
 
396,633

 
54,372

 

 
N/A

 
10,573

 
139

 

 

 

Japan Opportunity Fund III (Dollar) (2014)
 
Oct-24
 
275,615

 
(4,184
)
 
324,173

 
52,742

 

 
N/A

 
10,000

 
117

 

 

 

Credit Opportunities Fund IV (2015)
 
Feb-27
 
998,527

 
(60,831
)
 
1,011,947

 
74,251

 
90,781

 
16,530

 

 

 

 

 

Global Opportunities Fund II (2015)
 
Jul-26
 
41,683

 
(1,833
)
 
33,431

 
(6,419
)
 
2,114

 
8,533

 

 

 

 

 

Secured Lending Fund I (2016)
 
Mar-24
 
52,941

 

 
53,394

 
453

 
1,117

 
664

 

 

 

 

 

FJOF3 Residential Coinvestment Fund (Yen) (2017)
 
Mar-27
 
53,944

 

 
53,882

 
(62
)
 
185

 
247

 

 

 

 

 

FJOF3 Residential Coinvestment Fund (Dollar) (2017)
 
Mar-27
 
111,721

 

 
111,733

 
12

 
378

 
366